Why Morrison’s stimulus won’t have a long-term effect

In an information package revealed overnight, the Treasury said HomeBuilder is a time-limited grant program designed to help Australia’s residential construction market bounce back from the coronavirus crisis.

HomeBuilder will provide eligible owner-occupiers, inclusive of first home buyers, a grant of $25,000 to build a new home or substantially renovate an existing home where the contract is signed between 4 June 2020 and 31 December 2020.

Construction works on the home must commence within three months of the contract being signed.

CoreLogic’s head of research, Eliza Owen, explained how previous government stimulus packages have impacted the construction industry.

“The phenomenon is prominent around the first home owner grant in 2000. This was a $7,000 grant, designed to soften the blow for first home buyers around an introduction of the GST,” she said.

Ms Owen explained that buyer participation fell away between 2002 and 2004. It was also evident around the first home owner grant boost during the GFC, where the numbers fell away after the program ended.

“The ‘boost’ to the first home owner grant, which was a temporary, additional [$7,000]-14,000 grant in the wake of the global financial crisis, showed a similar outcome,” Ms Owen said.

Similarly for home owners, and first home buyers in particular, those looking to commit to a property purchase within the next six months would already have been saving a deposit and are primed to buy.

However, where this policy may create additional construction lies in the fact that it is pivoting decision-making from established property to new housing, likely to be skewed towards house and land projects. This is opposed to the first home owner boost (FHOB) in 2008. 

“Even though the grant provided additional incentive for newly built property, 85 per cent of those temporary grants were awarded for established purchases,” Ms Owen said.

The researcher argues that instead of creating more demand for the housing sector, it will simply bring forward purchases already made.

“Similarly for home owners and first home buyers in particular, those looking to commit to a property purchase within the next six months would already have a saving deposit and primed to buy.”

“However, where this policy may create additional construction lies in the fact that it is pivoting decision-making from established properties to new properties, likely to be skewed towards house and land packages,” Ms Owen noted.

Despite this, the package has a significant drawback being that it relies on decisions to purchase and renovate properties from Australians who might be facing uncertain financial futures.

Ms Owen highlighted that this is why some critics of the policy suggest that other avenues should have been used as a government stimulus.

“This is one of the reasons consensus is mounting around social housing being a more efficient use of government expenditure on housing, because it guarantees the upgrade and building of homes through direct expenditure,” Ms Owen concluded.