HomeBuilder: Retirees and shovel-ready projects to reap benefits of cash splash

The federal government’s home renovation and new build package to help boost the ailing residential construction sector is too small to make a difference to the recovery, but could put upward pressure on prices, experts say.

And while some existing state grants require recipients to live in their home for a certain period to avoid cash flowing to investors, the HomeBuilder scheme comes with no such strings, with enforcement and compliance to be delegated to state and territory revenue office guidelines.

The HomeBuilder package, announced on Thursday, will offer $25,000 grants to Australians who wish to build a new house up to $750,000 or undertake a major renovation that costs a minimum of $150,000.

The $680 million scheme has a series of other conditions; the property must be valued at less than $1.5 million, single applicants must not earn more than $125,000 and couples must not earn more than $200,000.

The temporary scheme will last until the end of the year with the aim of building 30,000 homes by Christmas in a bid to prevent a rise in house prices.

BIS Oxford Economics executive chairman Robert Mellor said the package would not see a surge in renovation work as the sector had been in decline for decades due to a rise in apartment construction, bigger houses being built and a growing rental market.

“People do not spend on house additions like they used to,” Mr Mellor said. “The money spent on major house additions has really gone backwards. It’s not a growing segment.”

Even so, he said some people who were already shovel-ready and accessed the grants could inflate their renovation costs as a result.

“People do that. That’s the reality … if you’re sitting at $140,000 [renovation job] and the government’s offering $25,000, you’re $15,000 ahead if you got to $150,000. It’s human behaviour. That’s the risk.”

Mr Mellor said he would have advised the government against the package altogether, or at least waited a few months to make any announcement as building approvals fell short of worst-case scenario predictions so far, down 1.8 per cent over the month to April. 

“I don’t think it was necessary,” he said. “You’re giving away money that would flow into higher prices.”

He said the program had such a short timeframe that it would not result in a meaningful boom of renovations or new builds.

“A boom to me is not something that happens in three or six months. It happens in 12 or 18 months,” he said. “People will get in there and take advantage of the $25,000 grant and go back to whatever normal is.”

ServiceSeeking chief executive Jeremy Levitt said trades and services jobs were already tracking much better than expected.

“April was a disaster, the jobs just plummeted,” Mr Levitt said. “Then in May we were up 27.5 per cent and back to pre-coronavirus levels before all this stimulus came in.”

A kitchen or bathroom should cost around $20,000 to $40,000, according to Mr Levitt, with a $150,000 renovation budget enough to add an entire storey onto an existing residential building.

But he said that the scheme was so specific and at an unnecessary time that it was immaterial.

“It’s not going to make much of a difference, although the very notion of there being stimulus in this area might be enough to stimulate confidence in the market for home owners to prevent a dramatic decrease in property prices,” he said. 

“Tradies are so busy that they can’t even take on more work.”

Domain economist Trent Wiltshire also said the package was too small and too short to help begin a substantial construction recovery.

“The package looks too small to really do that much. It’s a small timeframe for people to decide to buy a new home or do a major renovation,” Mr Wiltshire said. “These grants will go to people who would have built or renovated anyway.”

Mr Wiltshire said the scheme could end up costing the government more money as it would be taken up by retirees in order to reduce their superannuation.

“Potentially the people who will use this the most are retirees … they can spend their super renovating the home, and as the home isn’t included in the age pension asset test they might be eligible for bigger pensions or part-pensions.”

Home extension business owner Gerry Hoggard welcomed the scheme after seeing clients cancel and a halving of inquiry levels.

“I’ve had around about 20 inquiries this morning,” said Mr Hoggard, managing director and owner of Sperway Homes, Sydney Extensions & Designs, and The Extension Factory. “People are responding, that’s for sure.

“I’m actually hoping some of the people who put things on hold also would say this is a good time now to get on with it, with interest rates being the way they are at the moment.”

He has 80 staff but said once the wage subsidy program JobKeeper finished, he would have been expecting a 25 per cent reduction in staff numbers.

Housing Industry Association economist Tim Reardon said it would help bring forward some major renovations projects, especially given people’s desire to set up working from home spaces since the coronavirus-induced shutdown.

“We’re still not going to see renovation activity get back to where it was in February this [but] it will be a significant boost,” he said.

“The renovation market is almost half the demand for the skilled trades in the residential building industry. It’s an important component.”

With Vince Rugari