Michael Pascoe: Why HomeBuilder won’t prevent the construction dive

Scott Morrison's HomeBuilder scheme ticks a few political boxes, but it will do little for the economy.

Scott Morrison's HomeBuilder scheme ticks a few political boxes, but it will do little for the economy. Photo: Getty/TND

Scott Morrison’s JobMaker™ HomeBuilder™ Tradie-led Recovery™ scheme smells like something knocked up by the boys who brought you #sportsrorts in the Prime Minister’s office, with a bit of help from Master Builders Australia – certainly not the work of Treasury boffins trying to limit the depth and length of the ’Rona Recession.

Or at least I hope that is the case.

It would be too depressing to think this is the best Treasury can come up with as the nation heads towards the September financial cliff when most economic support is scheduled to be withdrawn.

The scheme ticks a number of political boxes for the Morrison government.

It won’t do much for the economy, or even the housing construction industry.

Oh, it will help a bit – and that’s a good thing for a government that is in denial about its job-creation responsibilities come September – but only a bit and nowhere near enough to prevent a major fall in the construction industry.

For an industry that was already contracting before the virus crisis hit (no, Josh, the economy really wasn’t strong), it is a poorly targeted pittance.

Despite HomeBuilder™, industry analysts Macromonitor believe construction work will drop by 12 per cent this year – $25 billion – thanks to COVID-19, with the housing sector to feel most of the pain.

“We expect the number of dwelling starts to drop to 115,000 in calendar 2020, down from 174,000 last year and 225,000 in 2018, which is almost a 50 per cent drop in two years,” says Macromonitor director Nigel Hatcher.

“This is due to the big drop in overseas migration inflows, reduced interstate movements, increased dwelling supply as holiday rental stock is switched to full-time rental, a big increase in unemployment, lower incomes and confidence.”

Mr Hatcher reckons the $25,000 federal grants for new homes and renovations will have “a small positive impact on dwelling starts, with a more significant positive impact on renovations”.

“The restrictions of the scheme, including the relatively modest amount, the tight time window of availability, the limits on project size and the incomes test, all mean the benefits will be limited,” he said.

A new Macromonitor report on the impact of COVID-19 on construction does find some brighter spots.

Activity in road and rail construction and health and education social building is tipped to be higher by the end of this year “due to governments fast-tracking approvals, bringing forward project schedules and engaging in stimulus spending”.

But that is small beer compared with the dive in housing, commercial and industrial and LNG projects.

“Commercial and industrial building starts will drop sharply, as a result of the reduced need for a range of building types, such as hotels, restaurants, office buildings, stadiums and other venues, while the sharp economic contraction expected in the June and September quarters will hit demand for other types of space, such as warehouses, retail and factories,” says Mr Hatcher.

The Macromonitor report sees the key impacts on construction coming from sharply lower immigration and generally reduced movement of people, rising unemployment, reduced household incomes and confidence, much-reduced utilisation of a range of building types, global downturns in the gas and other resources sectors, and a sharp contraction in the broader economy.

Like a broad variety of economists, lobbyists, commentators and the federal opposition, Mr Hatcher fingers the missing ingredient for construction stimulus: “Another potential area of large-scale investment that we have been expecting, but which has thus far not materialised, is a big program of social and affordable housing construction. This could offer a large stimulus quite quickly, spread across geographic regions,” he says.

Instead, we have Mr Morrison’s HomeBuilder™.

While it has been spun as costing perhaps $688 million, the government really has no idea about the level of take-up.

More importantly, the government isn’t even trying to guess how much extra building activity, how many extra jobs, will come from the scheme. It wouldn’t be game to.

As it stands, it is highly likely most of the money will go to people who were going to build anyway.

For such people, an extra $25,000 from the government won’t do any harm. They might spend a little more on their projects, but as everyone who has ever built a house or done a major reno knows, they all end up costing more anyway.

The scheme will help promote building in two specific scenarios.

Firstly, there will be some people who were looking at building or renovating but might have been scared to proceed because of the recession.

The limited-time-offer of a tax-free $25K might convince them to go ahead after all.

Secondly, the scheme is open to people buying units off the plan.

Combine the $25K from Uncle Scotty with first-home owner grants ranging from $10K to $20K from the various Uncle and Aunty Premiers, plus stamp duty holidays, and you’re starting to look at a substantial marketing tool.

A first-home buyer in regional Victoria considering a $500,000 property is about to be hit with about $50,000 in government incentives.

Or more correctly, a developer wanting to sell a property knows the potential buyer has windfall cash available and is under time pressure to make a purchase.

Behavioural economics teaches that people don’t treat “windfall” money with the same respect as the usual hard-earned stuff.

From a macroeconomic point of view, the scheme is flawed in that it promotes greater private debt at a time when private debt is already uncomfortably high and when public debt is not.

The amount of stimulus bang for the federal buck – the number of extra projects – is unknown.

Any government estimate would be about as reliable as its JobKeeper™ guess work, or anything anywhere at any time connected with Stuart Robert.

By comparison, every extra dollar going into a reasonably well-designed scheme building extra social housing would be stimulus and provide lasting social value for the investment.

The unit overhang in the market could have been taken out very quickly through government purchases for social and affordable housing.

When the real housing crisis in Australia is people who will never be able to own their home and governments running down their percentage of social housing for many years, the Morrison government has chosen to throw extra money at those who are already relatively privileged.

More of a go for those who have had a successful go, less of that “unfunded empathy”.

get off the grass scott morrison

HomeBuilder smells like something cooked up by the Prime Minister’s office, not Treasury. Photo: AAP

Lobby groups, anyone?

Nonetheless, the Master Builders’ Association thinks the JobMaker™ HomeBuilder™ Tradie-led Recovery™ is the bee’s knees.

According to an MBA media release, the scheme is a massive relief to thousands of home builders and tradies:

“HomeBuilder will be a lifeline for an industry facing a valley of death in the coming months. It will mean more new homes, more small businesses and jobs are protected and provide a stronger bridge to economic recovery for our country,” Denita Wawn, CEO of Master Builders Australia said.

“Based on the government’s estimated 27,000 grants, we think the scheme will be used for $10 billion in building activity, supporting the viability of 368,000 small builders and tradies – the businesses which employ 800,000 people in communities around Australia.

“Supporting the home building industry is essential to strengthening the economy and helping Australia recover from the impacts of the pandemic. Residential building activity gives back more than double to the communities that sustain it with every $1 invested in home-building activity providing $3 to the wider economy.

“The scheme is well targeted and should maximise the number of builders, tradies, workers, apprentices and households that will benefit.

“The government has listened to Master Builders’ call for HomeBuilder to include grants for both new-home builds and renovations. EY modelling commissioned by Master Builders shows that this stimulus mix will deliver the best return on investment for taxpayers.

“The eligibility criteria mean that the vast majority of Australians will be able to access the scheme. More than 80 per cent of households have income of $200,000 or less.”

There you go then. MBA hired a consultancy to provide the best answer for MBA – good consultants will do that for you – and that’s what the government has delivered.

The ‘tradies champion’

Well, HomeBuilder™ delivering “the best return on investment for taxpayers” is a fatuous statement at best.

And the claim that “the vast majority of Australians will be able to access the scheme” because 80 per cent of households have income of less than $200,000 is beyond silly, particularly when even the government guesses only 27,000 will take it up.

(The bottom quartile or so of Australians had negligible savings or borrowing capacity before COVID, then there are the many hundreds of thousands who have lost jobs and many more who have had reduced income and those who have had to seek mortgage moratoriums – you wouldn’t have read this far if it needed to be explained.)

More importantly for the government, the rhetoric reinforces the Morrison message of being the tradies’ champion, right up there with the election effort of saving utes from green fanatics.

Never mind that it’s too little and too narrow to have much impact, to save many jobs.

Like the first Morrison/Frydenberg attempt at a stimulus package in March, we’ll have to hope somebody in government quickly realises much more is required.

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