Australia's property market looks set to strengthen in the medium term after the government promised to further boost its financial assistance to struggling first homebuyers.

Treasurer Wayne Swan said in his Budget speech that the government will raise its contributions to the First Home Savers Account to 17% for every $5,000 saved by first homebuyers - up from 15% promised in February. This savings account will be taxed at a low 15%, and withdrawals will be tax-free if the funds are used to buy or build a first home. This totals to around $1.2bn over four years.

To improve housing supply and lower prices for homebuyers, the $500m Housing Affordability Fund, to be rolled out over five years, will reduce the cost of red tape in development approvals.

To help renters who have been hit by soaring rents, the National Rental Affordability Scheme will encourage the construction of up to 50,000 new affordable rental properties by 2011-12, at a cost of $632m over five years. Investors will also receive $6,000 a year from the federal government over 10 years for every home they rent out at 20% below market rent. State and territory government will pitch in an additional $2,000 a home.

"The $2.2bn housing affordability package to assist first homebuyers and renters will be welcomed by consumers and still leaves the door open for the government to consider more recent industry proposals to support liquidity and enhance competition in the housing mortgage sector generally," said Graham Mott, Deloitte Financial Services partner. "Through committing $1.2bn through Enhanced First Home Saver Accounts over four years, $623m over four years to the national Rental Affordability Scheme, as well as $500m over five years in the Housing Affordability Fund, housing supply will be boosted and costs to homebuyers reduced."

Housing Industry Association managing director Ron Silberberg added that the government's first Budget, which also showed a large surplus, will help mitigate interest rate pressures.

"Measures aimed at boosting the supply of new housing, along with desperately needed urban infrastructure, will assist in pegging the gap between underlying demand and current production," said Silberberg.