Social housing will provide bigger economic boost than new home buyer grants

Treasurer Josh Frydenberg will announce reforms to Australia's bankruptcy  laws.

Treasurer Josh Frydenberg will announce reforms to Australia's bankruptcy laws. Photo: TND

Treasury has said housing investment is crucial to our economic recovery – but the key to success is helping those most in need.

Amid reports Treasurer Josh Frydenberg is considering large grants for new home buyers, economists have told The New Daily that taxpayers would get better bang for their buck funding more social housing.

Grattan Institute’s head of household finances Brendan Coates said the Rudd government’s Social Housing Initiative showed investing in such schemes was a more effective way of stimulating the economy.

He said it provides a quicker and more sizeable boost to residential construction than cash grants – and creates more jobs as a result.

The most efficient way to support residential construction would be to build social housing,” Mr Coates said.

“Within 12 months of the Social Housing Initiative being announced, there was an enormous spike in public-sector dwelling approvals – so most of those homes were built very quickly, and they provided support for residential construction [when] it was quite weak.”

Mr Coates said social housing ticks “all the boxes” required of economic stimulus, while cash grants for new home buyers often only help vendors and developers.

Social housing generates an immediate economic boost while bridging a shortfall in affordable housing “that is contributing to growing rates of homelessness,” he said.

“And we know that public infrastructure spending has the highest fiscal multiplier (biggest impact on the economy) … because none of it can be saved.

By definition, the money is being spent by government, so you know it’s contributing directly to economic activity.”

Other economists have made similar points, while University of Sydney post-doctoral researcher Cameron Murray said on Twitter that letting prices fall would boost demand more effectively than cash grants.

Meanwhile, industry groups have also thrown their weight behind social housing as a form of economic stimulus – arguing the government will struggle to crowd out private-sector investment during a time of such economic uncertainty.

On the other hand, subsidies for home buyers typically only help vendors and developers, as home values rise when buyers have more money to bid up prices.

This is why property groups lobby politicians to introduce such measures, while governments typically prefer them to building more social housing, as the latter affects their budget bottom line.

Construction downturn  continues

The reports of larger grants for new home buyers come as the Australian Bureau of Statistics revealed on Wednesday that the value of residential construction work over the first three months of the year fell 1.6 per cent over the quarter and 12.5 per cent over the year.

The value of work done across all sectors of the industry, meanwhile, was down 1 per cent over the quarter and 8 per cent over the year – with falls in private sector construction partly offset by gains in public sector construction.

The quarterly falls are part of a prolonged downward spiral for the construction industry, which employs roughly 10 per cent of the workforce.

Indeed Asia-Pacific economist Callam Pickering said engineering construction had now fallen 46 per cent from its peak to its lowest level since June 2008, while residential construction had fallen 15.6 per cent from its 2018 peak to its lowest level since December 2014.

“And you’d expect that to be a continued trend going forward, given everything that’s happening with COVID-19,” Mr Pickering told The New Daily.

Asked whether the proposed cash incentives for new home buyers would help to stimulate the economy, Mr Pickering said the subsidies would encourage more buyers into the market, but could take up to two years to boost construction activity.

“And even then the overall impact would likely be quite minor,” Mr Pickering said.

“If you want to increase residential construction more directly, then investing in more social housing is a better idea – purely because when you do that, you’re actually guaranteeing that construction activity happens.”

The New Daily contacted Mr Frydenberg’s office for comment and was redirected to Assistant Treasurer Michael Sukkar’s office, which did not respond before deadline.

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