Home Builder: The Property Industry Weighs In

The federal government says the home builder scheme could drum up $15 billion in economic activity, but industry experts are doubtful about its impact on housing and construction activity over the short to medium-term.

The six-month building stimulus package has been met with some criticism, with many seeing it as a missed opportunity to deliver a substantial program of social housing as the nation slips into its first recession in three decades.

But the government says the funds, estimated to be spent on 20,000 new homes and 7,000 renovations, are necessary to offset an anticipated 50 per cent fall in home starts in the second half of 2020.

The handout, available within a tight window from 4 June until 31 December, stipulates that construction must start within three months of the contract date, which may offset any benefit for property developers who need a significant lead time to construction.

Prime minister Scott Morrison has called the home builder program a “tradie-led recovery”, but what do the experts think?
▲ Prime minister Scott Morrison has called the Home Builder program a “tradie-led recovery”, but what do the experts think?

Dr Michael Fotheringham

Michael Fotheringham
Executive Director

“This initiative is focused on a tightly-defined subset of the market and because of that I don’t believe it will have any bearing on house prices in the short to medium term.

“It will be really interesting to see which segments of the property industry this engages, as I wouldn’t expect this to have much bearing on volume builders.

“Instead, this initiative will support and activate the smaller operators as well as tradesmen and contractors.

“This is a useful piece in the puzzle but there are other parts of the housing system that also need attention, and this might be one step as part of a wider array of announcements, hopefully, from the federal government.”

Angie Zigomanis, Director, Charter Keck Cramer

Angie Zigomanis
Charter Keck Cramer

“The stimulatory effect on new home building by home builder is expected to be concentrated in the greenfield markets on the fringes of Australia’s capital cities and in the regional centres.

“However, the impact will be limited by the December cut-off date and the need to commence construction within three months of signing the construction contract.

“Rather than create significant new demand in the market it seems that the main result will be to reduce the potential depth of the downturn and provide support to the market.

“Speculative developers of product already under construction may also need to be more competitive in pricing to compete with the home builder grant that is only available for the contracting of construction for a new dwelling.”

Eliza Owen, Head of Research, Corelogic

Eliza Owen
Head of Research

“Because the scheme is targeted at new builds and renovation of existing homes, the short-term impact on prices should be minimal.

“The scheme may funnel more demand into new property. This could create upward pressure on prices in house and land packages worth up to $750,000, while demand is withdrawn from established stock.

“Because the scheme has a small window of opportunity, it is most likely to benefit those who were intending to build or renovate anyway.

“As a result, it may only provide a small uplift in construction activity.

“This is partly why consensus around government investment into housing construction is that it would be most efficient in social housing, because government money is spent directly on employing builders and tradies, rather than an optional scheme.

“However, combined with first home buyer grants and stamp duty concessions, this scheme would potentially increase the popularity of new house-and-land packages among first home buyers, bringing forward some construction activity.”

Mario Biasin, CEO, Metricon Homes

Mario Biasin
Metricon Homes

“The combination of the grant, record-low interest rates and affordable new housing options means that building a home has never been more within reach.

“Not only does [Home Builder] make it easier for Australians to build a home, it also helps stabilise the economy, keeping thousands of our direct and indirect workers in the residential construction sector employed.

“The grant for new homes will encourage the building of new dwellings across a range of income earners, allowing more into the market and boosting activity in the sector.

“It is an outstanding opportunity for individuals, who may not have thought home ownership to be within reach, to realise the dream of building a home.”

Shane Oliver AMP

Shane Oliver
Chief Economist

“In terms of getting an economic bang for the buck, this sort of stimulus helps achieve that because it gets geared up.

“As far as additional economic stimulus goes it’s trivial though, with a total costing of just $688 million or 0.03 per cent of GDP, and although it does have the ‘benefit’ of being geared up as homeowners borrow, it’s not big enough to change our economic forecasts.

“The history of such grants is that they boost construction as homeowners bring forward demand, with the government estimating it could lead to the construction of 27,000 dwellings or renovations.

“This is needed, as the slump in immigration over the year ahead at a time of higher unemployment will reduce underlying dwelling demand by around 80,000 dwellings per annum. So, it's good news for home builders.

“The downside is, it means more Australians taking on more household debt, which is already high.”

Michelle Ciesielski, Head of Residential Research, Knight Frank

Michelle Ciesielski
Head of Residential Research
Knight Frank

“The much-awaited home builder scheme was welcomed by the construction industry, although the grant may not be taken up as swiftly as first intended as it applies to only to a shallow pool of owner-occupiers and new home buyers.

“The grant will likely encourage more house-and-land package sales in growth corridors than what we’ve seen since Covid-19 reached Australia, but similar to the small group renovating their homes across the country, this is unlikely to directly impact house price movement over the short term.

“Although, to have a real impact, there will need to be a significant relative top-up from each state government, as recently announced for the Western Australian market.

“Given the longer lead required for new apartment construction, this scheme provides little support to address the lack of new supply likely to hit most major capital cities over the coming years, regardless of the projected curbing of migration with our closed borders in place.”

Brendan Coates, Program Director, Grattan Institute

Brendan Coates
Program Director
Grattan Institute

“The Home Builder scheme is classic retail politics but lousy economics.

“Grants for buying new homes are more likely to support construction jobs. They [encourage] buyers to bring forward purchases.

“It’s why in 2008, in response to the global financial crisis, the Rudd government tripled the first home buyer grant to $21,000 for new homes.

“It’d be better to fund the states to build new social housing or refurbish existing homes, as the Rudd government did during the global financial crisis.

“Many have forgotten about that scheme because it attracted so little controversy, unlike other Rudd stimulus programs.

“Public residential construction approvals spiked within months of the announcement, and more than half of the homes built went to tenants at risk or already homeless.”

David Milton, Managing Director of Residential Projects, CBRE

David Milton
Managing Director of Residential Projects

“While I don't think this scheme will cause a direct lift in sentiment or prices, it is a really good start.

“The 27,000 dwellings or renovations on offer isn’t a hugely significant number but the investment by home buyers and renovators that could now pour into this initiative could potentially run into the billions.

“What it will do is boost employment and activity across the property industry.

“I think major apartment developments will struggle to take advantage of this due to the limited timeframe, they will struggle to move quickly under those constraints.

“The government has been quick to react, and hopefully this will be one of many more incentives to come.”

Urbis paul riga

Paul Riga

“We saw evidence of a ramp-up in volumes of new home construction post-GFC on the back of a number of similar stimulus initiatives.

“However, the pandemic will have different impacts on demand drivers compared to the GFC—such as a variation on population levers.

“Having said that, new house construction volumes are likely to see an increase.

“Discussions with our key developer clients suggest that enquiries are still solid—albeit down from pre-Covid expectations—and that this announcement will certainly stimulate demand.

“Price impacts will not be widespread, instead specific to particular regions, and a factor of supply and demand.

“Areas that have strong underlying demand and an already active construction pipeline will be most impacted during the timeframe of the incentive.”

Peter Koulizos, Chairman, PIPA

Peter Koulizos

“The Home Builder scheme will be a welcome shot in the arm for the construction section over the next six months.

“The restricted timeframe of the scheme as well as the requirement for projects to begin within three months of the contract date will also help to prevent profiteering from unscrupulous operators.

“Like with any property investment decision, though, it is vital that homebuyers complete thorough research and seek expert individual advice before buying a new home because it is a significant financial decision that will last much longer than the $25,000 grant.”

George Bougias, National Head of Research, Oliver Hume

George Bougias
National Head of Research
Oliver Hume

“While the program will certainly drive demand for house and land packages in the short and medium-term, we don’t see an immediate breakout in pricing given the economic and labour market landscape.

“In the short term we consider that any potential upwards pressure on demand—which could translate into higher prices—from the home builder program would largely be balanced out by prevailing economic conditions.

“Over the medium to long term, the home builder program may have both a direct and indirect impact on prices as well as other key market parameters.

“It is by no means certain what this will be and we could see some powerful downward pressure on prices in some sub-markets not benefiting from the home builder program.

“On balance, however, we consider that the impact of the initiative is more likely to be on supply, rather than prices.”

Geoff Hamner, Adjunct Professor, University of Adelaide

Geoff Hamner
Adjunct Professor
University of Adelaide

“Home Builder is a good idea gone bad. It is possibly the most complex and least equitable program the government could have devised to deliver construction jobs.

“It gives $25,000 to people who already own a home or already have enough money to buy one while delivering a minimal stimulus to extra construction.

“It isn’t a program to create jobs, it is a way of making people who are reasonably well off richer.

“It does not address homelessness, precarious rental or any of the other pressing problems that are caused by our current housing mix.

“It might build more nice decks for sipping Chardonnay (most already planned), it might deliver ritzy new bathrooms with imported taps or even new kitchens with the latest European appliances, but it won’t help those suffering housing stress.”

Liz Ronson, Managing Director, Jingding Developments

Liz Ronson
Managing Director
Jingding Developments

“At the very least, this incentive should reduce discounting of titled stock.

“It is interesting to see that developers and builders are already providing alternative offers to match Home Builder on stock that does not benefit from Home Builder, I expect that this will reduce demand on Home Builder-qualifying stock.

“Overall, with the other economic factors at play, I expect this stimulus will marginally decrease the forecast Covid-19-related price reduction in the property market.

“With widespread economic impacts of Covid-19; reduced immigration of up to 50 to 85 per cent in the coming year and unemployment increases, this is a good short-term initiative to relieve some of the impact on the property industry and employment, but it would have to go a lot further before there are building supply constraints.”

Simon Basheer, National President, UDIA

Simon Basheer
National President

“States sit at the coalface of housing markets, and are the custodians of approval systems, state taxes and charges and local government processes.

“This is their once-in-a-generation opportunity to drive real reform right through the whole housing supply chain.

“We are also conscious the package will primarily have an effect in greenfield markets, and there is limited benefit to middle ring or apartment development, also crucial for creating needed supply and employment.”

Stuart Penklis, Head of Residential, Mirvac

Stuart Penklis
Head of Residential

“The stimulus provided by the home builder scheme will help boost economic activity and protect jobs.

“The scheme will be warmly welcomed by those who are eligible for the $25,000 grant while providing support for both the new home and renovation sectors of the building industry.

“Construction plays a critical role in the economy, providing over one million jobs or around 9 per cent of the workforce.

“The industry is well-placed to continue to play a leading role in the nation’s economic recovery and the grant will enable more Australians to purchase a new home.

“This in turn provides additional stimulus to other sectors such as retail, supporting even more jobs.”

Nick Brisbane Ethos Urban

Nick Brisbane
Director Economics
Ethos Urban

“I see its key benefit will be in supporting smaller, mid-sized construction businesses and trades workers.

“Unlike first home buyer grants released by various state governments over the years, Home Builder also supports those planning on undertaking major renovations.

“The economic multipliers associated with renovation projects are also significant.

“It is unlikely to have any significant impact on residential prices, upwards or downwards.

“The 6-month timeframe and limited scope of projects means its impacts will be short-lived.

“Time will tell whether the program has been effective in supporting construction activity and whether or not the program should be extended.”

Luke Kelly, Director, RPM Real Estate

Luke Kelly
RPM Real Estate

“The great thing about [Home Builder] is that it is directed to new builds which is different to the previous scheme in the aftermath of the GFC which also catered for existing dwellings and placed upward pressure on prices.

“The Home Builder Scheme might not attract as many upgraders and downsizers as first thought as they might not be willing to sell their existing dwelling in a soft market in order to upgrade to a new dwelling for the Home Builder bonus.

“If however there is an increase then there would be an increase level of availability of established houses on the market which may place a slight downward pressure on prices.

“Usually construction work can occur within three months of signing a standard HIA contract, so that means activity will ramp up quickly on the back of any new contracts signed following the government’s announcement.”

Joshua Rowe, Managing Partner, Centaur Property

Joshua Rowe
Managing Partner
Centaur Property

“We believe that the home builder initiative will potentially soften the current downward housing price pressures in the short term.

“Low immigration caused by Covid-19 border closures will persist for another 12 to 24 months, and when combined with negative sentiment and the broader economic impacts of Covid-19, we believe there is still likely to be downward pressure on house prices beyond the closure of the home builder initiative.

“There is the potential for tradesmen and builders to increase pricing as a result of the initiative, as increase in demand for construction services increases in a short window of time.

“However, we are seeing a significant drop-off in the commencement of new development projects and our view is the current construction market has the capacity to absorb the increase in demand caused by the home builder initiative.”

Dale Alcock, Managing Director, ABN Group

Dale Alcock
Managing Director
ABN Group

“Since the announcements, we’ve experienced a strong pick-up in enquiries and display home traffic, which is a strong indication of the increase in activity that we are likely to experience due to the Home Builder grant and the $20,000 WA state government home building boost.

“This will be a huge opportunity for us to grow our trade numbers, train more apprentices and offer more jobs in the sector for those negatively impacted by Covid-19.

“It will also provide the catalyst for a greater demand for skilled migration to WA.”

Grant Galvin, CEO, Master Builders

Grant Galvin
Master Builders

“This latest round of stimulus, which will commence immediately, is so important as it’s another piece of the stimulus puzzle and will support other measures announced recently.

“Enquiries and contracts were already starting to dry up, so we have no doubt this package will be the shot in the arm our industry needs and a real confidence-booster for anyone thinking of building or undertaking a major renovation.

“Programs like this have a clear community benefit, as well as ensuring the industry has a clear pipeline of work and certainty, and support smaller contractors, who won’t necessarily see the benefit of the new home stimulus or the renovation package on offer.

“We’re also asking the government to urgently bring forward and consider new opportunities for social housing—whether this be a new social housing construction program or maintenance of existing stock.”

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Article originally posted at: https://www.theurbandeveloper.com/articles/home-builder-residential-housing-stimulus-package