Pros and cons of the grants for homebuilders

The new construction stimulus: a bang or a whimper?

 On June 4, the Federal Government officially pulled the covers off its construction stimulus package – a measure designed to create a pipeline of work for the building sector – ensuring jobs for trades to help stave off the impact of COVID-19.

After several days of speculation on what the package might include, the announcement confirmed it would take the shape of $25,000 homebuilder grants to eligible Australians, which could be used towards renovations on an existing property or construction of a new home.

Of course, there are conditions attached. In order to qualify for the grants, applicants need to meet key criteria, with the essentials being:

• Single applicants must earn $125,000 a year or less, and couples under $200,000
• Building contracts must be executed between 4 June and 31 December 2020
• New home builds must be a principle place of residence valued at up to $750,000, and renovations to existing properties valued at between $150,000 and $750,000
• Existing properties must be worth less than $1.5 million prior to renovating, and construction must be contracted to commence within three months of the contract date.

The grants can’t be used for investment properties, can’t be used for pools, tennis courts, spas and saunas, detached sheds or garages, and given they are designed to creates and support jobs for trades, they’re not available to owner-builders.

All up, the uncapped program is expected to cost taxpayers some $688 million. That’s well short of the $13.2 billion package proposed by Master Builders Australia, but has still been broadly welcomed by the building and broader property industry in the face of a predicted 50 per cent slump in new dwellings by the end of this year.

Just one day before the Government’s construction stimulus announcement, the March quarter national accounts showed dwelling investment in Australia fell 2.9 per cent in the first three months of 2020 and by more than 15 per cent over the past 12 months. That figure is expected to be worse in the June quarter.

The question the sector is asking is, “will this package have the desired effect?”.

While intentions are good, it is fair to say the approach has caused some confusion.

While means testing applicants would make sense if the aim was to support affordability and better access to housing, it is less clear why you would apply it to a stimulus designed to generate activity and employment.

The reality is that the portion of the population most likely to spend money on a renovation – particularly one with a minimum value of $150,000 – is higher income earners with more disposable income.

Renovations costing upwards of $150,000 aren’t small projects. They take time to plan, to get finance approved, and to get the required building and development approvals.

Smaller renovation jobs that could be taken up more quickly – say a laundry or bathroom – won’t meet the $150,000 floor required. Chances are this means a lot of smaller, family-owned trades or sole operators that would have picked up this sort of work and got stuck in straight away will miss out.

If we look at new home builds, we are likely to see more action. There’s a good chance the offer of a $25,000 contribution to building progress payments – particularly when combined with existing regional and first homebuyer offers on a State level – will encourage people considering taking the plunge on a new home to come off the bench and sign up.

There has been speculation the grants could drive up housing prices and construction costs; but given the tight timeframe to get moving, the pain already being felt in the industry and the temporary nature of these grants, it’s hard to see that happening.

For the broking industry, it’s clear where the focus needs to be. Renovators are likely to draw down against existing facilities rather than seek new financing arrangements, so the new builds are going to be where the action is – in particular, first homebuyers.

Tight timeframes mean apartment and townhouse developments are not likely to make the cut, which is disappointing, but it does make it clear where your business will be coming from.

Focus your marketing efforts on house and land packages, in particular greenfield land subdivisions in the outer metropolitan or regional areas in your state. It’s there we’re likely to see this package have the most impact and generate the most activity for the broking industry.