There is no doubt that Australia’s construction industry is facing difficult times. COVID-19 has caused slow migration. This will reduce the number of houses built in total. This means fewer jobs in the construction industry, which employs nearly one in ten Australians.
The Morrison government is announcing a stimulus package for the construction industry.
But what does it not include?
Increasing home buyer subsidies The federal government has stated that it will provide at least A$20,000 in cash subsidies to buyers of new houses. Unlike previous plans that targeted first-time home buyers, these new grants appear to be available to everyone, including promoted buyers and investors. The subsidy can also be extended to renovations. A large number of subsidies will promote more housing construction by encouraging some people to buy houses earlier.
This is why the Rudd government tripled the first home buyer’s grant to A$21,000 in 2008 in response to the global financial crisis. But according to such a plan, the government will eventually provide grants to those who should have bought a house. Even more pessimistic industry forecasts predict that 110,000 houses will be built in Australia next year. If there is no additional construction work, providing all these buyers with a cost of A$20,000 will cost A$2.2 billion. A $40,000 grant will double the cost. Grants to home buyers actually do not make housing prices cheaper. They are usually passed on to higher prices, thus benefiting the seller more than the buyer. In this case, this may include developers who are eager to clear new and upcoming houses from existing houses.
Cash grants for renovations may hit the economy faster because they do not necessarily require building approval.
But they brought their own problems.
Grants may see higher prices for traditional goods on demand, especially if the government effectively pays for most of the work done. It will also become more difficult for officials managing the program to determine whether the work has been completed before paying the money. It is unclear whether the renovation industry needs further stimulus measures: COVID-19 is reportedly driving the renovation boom in many parts of Australia. Research by the credit bureau Illion and economic consulting firm AlphaBeta shows that housing renovation spending has been 33% higher than the level before COVID.
Is there a better option?
There is a better way to support housing construction without giving developers such a big windfall: provide funding for the construction of more social housing. Social housing (rents usually do not exceed 30% of household income) provide a safety net for vulnerable Australians. In particular, the Morrison government should repeat another policy of the GFC era, the “Social Housing Initiative”, according to which 19,500 social housing units were built and 80,000 housing units were renovated in two years at a cost of AUD 5.2 billion. .
Under this initiative, the federal government subsidized states to directly build social housing units or contract with community housing providers to act as housing developers. In the months after the announcement, the number of approvals for public housing construction increased sharply. Today, the construction of 30,000 new social housing units will cost between 10 billion and 15 billion Australian dollars. Since state governments and community housing providers do not have to worry about finances, marketing and sales, they can start building houses faster than the private sector.
The economic boost will be fast Equally important, the construction of social housing will also help solve the scourge of homelessness. In the most recent census (2016), more than 116,000 people were homeless, up from 90,000 ten years ago. COVID-19 shows us that if people are allowed to live in unhealthy conditions, it can help spread diseases and affect everyone’s health. The drivers of homelessness are complex. Nevertheless, Australia’s best evidence and international experience show that social housing greatly reduces the risk of tenants becoming homeless. However, the stagnant stock of social housing in Australia means that there is almost no “mobile” social housing for people whose lives have deteriorated sharply. Raising funds for social housing will not increase housing prices or bring windfalls to developers. Not only will it allow construction workers to continue to work, but it can also help some of our most vulnerable Australians.
