There’s no doubt Australia’s construction industry is facing tough times. COVID-19 has caused migration to slow to a trickle. Some 2.6 million Australians have either lost their jobs or had their hours cut in the past two months. Many economists expect property prices to fall.
It all adds up to fewer homes being built in the coming months. That means fewer jobs in the construction industry, which employs nearly one in 10 Australians. The sector has already lost nearly 7% of its workforce since March.
More home-buyer grants on the way
The federal government has signalled it will offer cash grants of at least A$20,000 to buyers of newly built homes. Unlike past schemes that have targeted first home buyers, it seems these new grants will be available to everyone including upsizers and investors. Grants may also be extended to renovations.
Large handouts would prompt some more residential construction by encouraging some people to bring forward their home purchases. It’s why in 2008 the Rudd government tripled the first home buyer grant to A$21,000 for new homes in response to the Global Financial Crisis.
But under such schemes, governments also end up giving grants to people who would have bought a home anyway. Even the more pessimistic industry forecasts expect 110,000 homes to be built in Australia next year. Giving A$20,000 to all of these home buyers would cost A$2.2 billion without adding a single construction job. Grants of A$40,000 would double the bill.
That’s a lot of spending for little economic gain.
Nor do grants to home buyers actually make housing more affordable. They are typically passed through into higher house prices, which benefits sellers more than buyers. In this case, that is likely to include developers eager to clear their existing stock of both newly and nearly built homes.
Cash grants for renovations would likely hit the economy quicker since they don’t necessarily require building approvals. But they bring their own problems. Grants will likely see in-demand tradies raise their prices, especially if the government is effectively paying for most of the work done. It will be also be harder for officials administering the scheme to determine if the work has been done before paying out the money.
Nor is it clear the renovation sector needs further stimulus: reports suggest COVID-19 is driving a renovation boom across many parts of Australia. Research by credit bureau Illion and economic consultancy AlphaBeta shows spending on home improvements is already 33% higher than pre-COVID levels.
There’s a better option
There’s a better way to support residential construction without providing such big windfalls to developers: fund the building of more social housing.
In particular, the Morrison government should repeat another GFC-era policy, the Social Housing Initiative, under which 19,500 social housing units were built and another 80,000 refurbished over two years, at a cost of A$5.2 billion.
- ^ lost their jobs (blog.grattan.edu.au)
- ^ expect (www.smh.com.au)
- ^ nearly 7% (www.abs.gov.au)
- ^ set to anounce (www.afr.com)
- ^ Why the focus of stimulus plans has to be construction that puts social housing first (theconversation.com)
- ^ past (www.smh.com.au)
- ^ extended (www.theaustralian.com.au)
- ^ tripled (www.smh.com.au)
- ^ expect (www.businessnewsaus.com.au)
- ^ into higher house prices (grattan.edu.au)
- ^ The brutal truth on housing. Someone has to lose in order for first homebuyers to win (theconversation.com)
- ^ renovation boom (www.smh.com.au)
- ^ already 33% higher (www.alphabeta.com)
- ^ typically capped (www.pc.gov.au)
- ^ Social Housing Initiative (www.nwhn.net.au)
- ^ contract (www.ahuri.edu.au)
- ^ spiked (blog.grattan.edu.au)
- ^ A$10 billion an A$15 billion (www.afr.com)
- ^ more than 116,000 people (blog.grattan.edu.au)
- ^ Coronavirus lays bare 5 big housing system flaws to be fixed (theconversation.com)
- ^ evidence (theconversation.com)
- ^ experience (insidestory.org.au)
Authors: Brendan Coates, Program Director, Household Finances, Grattan Institute