HomeBuilder scheme “unlikely to save construction sector”

While industry bodies have hailed the Government’s HomeBuilder scheme a lifesaver for the construction industry, some experts have questioned just how much the package could help a sector in nosedive.

Senior industry analyst, James Caldwell, from leading market research company, IBISWorld, said the package is limited and not quite enough to stimulate much needed activity within the sector.

“Under the HomeBuilder scheme, eligible Australians will be able to access a $25,000 grant towards building or renovating their home,” he said.

“Unfortunately, this scheme has a limited capacity to support the Housing Construction industry. The scheme is expected to attract 27,000 applicants over its lifetime, representing a fraction of the 7.7 million dwellings in Australia.”

Caldwell also criticised the short three-month time frame between sign off and building commencement in order for Australians to claim the $25,000.

“This is a relatively short time frame for many house and land packages in Australia, as decisions regarding home layouts, colour choices and other specifics often delay projects,” he said.

Another issue Caldwell found with the program was the minimum threshold for house renovations which is set at a hefty $150,000.

“This is significantly higher than the average cost of common household renovations,’ said Caldwell.

According to the Housing Industry Association, the average cost of a bathroom renovation was $19,553 in 2018-19, while the average cost of a kitchen renovation was $26,280.

“Consequently, the scheme is likely to be unaffordable for the vast majority of Australians,” Caldwell said.

Caldwell said the current outlook for property prices is at an all-time low and he anticipates property prices to continue falling as global and domestic economic conditions worsen due to COVID-19.

Due to international travel restrictions in place, which are unlikely to be lifted before the end of 2020, a significant decline in net migration is expected, hence slowing growth in Australia’s overall population. Additionally, international student enrolments are expected to decline sharply, reducing demand for rental accommodation and rental yields.

With declining household income and increasing unemployment, a significant proportion of Australians will struggle to meet mortgage and rental payments, hence increasing property listings and causing rental yields to decline.

As a result, dwelling commencements are forecast to fall sharply in the current year, due to reduced mortgage affordability and declining demand from investors.

IBISWorld predicts the house construction industry to decline by 22.4 per cent in 2020-21, before returning to growth in 2022-23.

The company also expects the construction sector to grow at an annualised one per cent over the five years through 2024-25, to $434.7 billion, aided by federal and state governments stimulus measures to trigger activity in the construction sector.

“Investment in housing construction will likely be scaled back in response to economic uncertainty following the COVID-19 pandemic. The pace of economic growth is anticipated to deteriorate, diminishing local investors’ capacity to fund new building projects,” Caldwell said.

Greater global financial instability is projected to limit foreign investment in the local property market.