Daily Bulletin

  • Written by Brendan Coates, Program Director, Household Finances, Grattan Institute
Scott Morrison’s HomeBuilder scheme is classic retail politics but lousy economics

Scott Morrison’s new housing stimulus package is straight-out retail politics.

HomeBuilder offers homeowners (including first home buyers) a grant of A$25,000 to build a new home worth less than $750,000 or to spend between $150,000 and $750,000 renovating an existing home.

The scheme is limited to owner-occupiers with reported incomes below $125,000 for singles and $200,000 for couples.

Giveaways to home buyers are wildly popular. And who wouldn’t want their house renovated on the public dime? The trouble is it’s bad economics.

Take the new grants for home owners wanting to renovate.

To be eligible, they have to sign a contract with a builder by the end of the year.

But renovations costing $150,000 or more take time to plan.

Read more: Why the focus of stimulus plans has to be construction that puts social housing first

The plans need to be drawn up, finance approved, and any building and development approvals secured.

Which means that anyone who signs a contract with a builder today was already planning to renovate.

And chances are that many who sign contracts over the coming months have already planned to renovate.

The new grants will also encourage the in-demand tradies to raise their prices.

They’ll add up to a lot of spending for few jobs saved.

Not many more homes

The grants for buying new homes are more likely to support construction jobs. They will encouraging 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.

There’s no doubt the coronavirus crisis has hit construction hard: in the past three months almost 7% of the industry’s workforce have lost their jobs.

But most industry forecasters expect at least 110,000 homes to be built (and sold) in Australia anyway next fiscal year.

And most of those first home buyers will be eligible for the grants

About 83% who had recently bought their first home in 2018 paid less than $750,000 for it. Of those, about 90% would have satisfied the income tests for the new grants.

That’s a lot of homes that will have to be funded first before HomeBuilder funds the construction of any extra homes.

Read more: Government to give $25,000 grants to people building or renovating homes

And stiff competition among prospective buyers of homes selling below the $750,000 price cap will force up the prices of those homes.

That’s a big win for developers selling house-and-land packages on the urban fringe.

Perhaps the best that can be said for the scheme is that it probably won’t cost much.

The grants are uncapped, but the government expects it to cost about $688 million for roughly 27,000 grants. And since many of those homes would have been built anyway the scheme won’t support many construction jobs either.

What’d be better

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 of 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.

Building 30,000 new social housing units today would cost between $10 billion an $15 billion. it would support the building industry, and as important, would help many of the 116,000 Australians who are homeless on any given night.

It might not make for good retail politics, but it would help people who need it. And it would be good economics.

Authors: Brendan Coates, Program Director, Household Finances, Grattan Institute

Read more https://theconversation.com/scott-morrisons-homebuilder-scheme-is-classic-retail-politics-but-lousy-economics-140076


The Conversation

Business News

Hedge Fund Portfolio Manager Cade Bradford Knudson Speaks About Market Outlook

"Inflation may be abating, it's time to take a serious look at the market," says Cade Knudson, hedge fund portfolio manager. Knudson is a financial professional that has extensive experience managin...

NewsServices.com - avatar NewsServices.com

Mikhail Kokorich Shares 7 Business Tips for New Entrepreneurs

Mikhail Kokorich is a serial entrepreneur, investor, and CEO of Destinus, a company well-known for developing a high-speed aircraft that combines an airplane and a rocket. In this article, he sha...

Daily Bulletin - avatar Daily Bulletin

Everything You Need to Know About Outsourcing to Third-Party Vendors

You may have a growing business and not intend to slow down. However, your business’s needs must also be growing, and it will get increasingly challenging to stay on top of everything, especially ...

NewsServices.com - avatar NewsServices.com

WebBusters - Break into local search

WebBusters.com.au