Economic Stimulus or Protective Measures?

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A $13.2 billion building and construction stimulus package to stimulate over $30 billion in new economic activity and the creation of more than 100,000 new jobs is currently under review with the Federal Government.

As COVID-19 restrictions start to further unwind from midday Monday (1 June 2020), long before an exit strategy had been devised the Real Estate Institute of Queensland (REIQ) was already lobbying the State Government with urgent calls for Queensland property protections. Now it’s the turn of the Property Council of Australia, Housing Industry Association, Urban Development Institute of Australia and the Master Builders Association to join the cause. Together they are calling on the Federal Government to provide an urgent stimulus package in the form of $50,000 new home building grants with various volumes per quarter through to 2021.

Denita Wawn, CEO of Master Builders says, “We are seeking stimulus, not subsidies, from the Federal Government. We want National Cabinet to urgently implement our independently modelled stimulus package and establish a special task force to fast track commencement of construction activity. We know from previous downturns that it takes four times longer for our industry to recover than the rest of the economy.”

The stimulus package, based on EY modelling, comprised of the following programs:

  • A $40,000 uncapped new home building grant ($17 billion in additional economic activity resulting from $5.2 billion investment by the Federal Government. The creation of 58,311 jobs across the economy almost replenishing the 77,580 jobs lost in construction since the start of the Covid-19. Delivering 14,000 extra new homes);
  • Resilience renovation program – funding for renovations to make homes resilient to natural disasters or to make homes more accessible ($7 billion in economic activity for $4 billion investment by government. Creating 24,036 jobs); and,
  • Commercial programs – including funding for cladding/asbestos rectification, a10% drop in developer charges, 5% increase in government spending in health, defence and education ($6.8 billion in economic activity for $4 billion investment by government. This excludes wider economic benefits in relation to health, safety and building quality. Creating 23,118 jobs.)

That said, the Property Council of Australia is proposing a $50,000 New Home Boost grant to purchasers of newly-built homes across the country, with the grant limited to the first 50,000 buyers. The grant would not have a property price cap and would be available to all types of buyers, not just first home buyers.

Without an economic stimulus of any kind, the next financial year paints a fairly grim picture with new housing in Queensland taking a 19.8% hit this financial year and set to decline by a further 22.1% in 2020/21. “If this transpires, the commencement of new homes in Queensland will have fallen by 40% from last year, to next,” Housing Industry Association’s Qld Executive Director Mike Roberts. “Of immediate concern is the predicted significant drop in activity expected for the last quarter of this year. The combination of a 20% drop in new homes sales over March and April with a 30% cancellation rate of existing contracts adds up to a halving of expected activity later this year.

The REIQ agrees that the ramifications from today’s current pandemic for the Queensland economy will be wide spread if action isn’t taken sooner rather than later. Governments at all levels derive significant revenue from the Queensland property market. Not just the new housing sector; the existing housing market is equally as valuable. The REIQ welcomes a more measured approached to ensure both new builds and existing housing are carefully considered together in order to support the property market as we traverse the tail-end of the COVID-19 pandemic.

When you consider both State and international borders largely remain closed (and will likely remain so until September 2020 and beyond at the time of writing), it means there’s neither interstate or international migration currently taking place. How much does this amount to in Queensland? Based on the latest figures published in March 2019 from the Australian Bureau of Statistics, that’s a natural increase of 30,220 within Queensland along with 28,670 net overseas migration and 24,700 in interstate migration (Population growth highlights and trends, Queensland, 2019 Sources: ABS 3101.0 (released 21 March 2019); ABS 3218.0 (released 27 March 2019). What’s essential is that any building and construction stimulus into new homes is measured against the needs of supporting existing homes. An oversupply of new housing could potentially result in added market pressure on values as existing levels of stock are not absorbed.

As part of the REIQ’s protection measures to help safeguard the property market and boost transactions are three fundamental recommendations which include:

a. Extend the First Home Buyers Grant to established housing:Expanding the First Home Buyers Grant beyond new construction will stimulate economic activity through the introduction of increased numbers of first home buyers to the broader property market.
b. Implement a 50% reduction in development application costs across all Local Governments and introduce streamlined application processes:Removing barriers to development and reducing costs will assist to boost construction levels, increase competition and importantly, reduce cost for the end purchaser.
c. Deliver a 75% reduction in stamp duty for the period of the COVID-19 pandemic: A significant reduction in stamp duty payable on property transactions will have a positive effect on confidence within the property market. This, in turn, will stimulate real estate transactions expected during the immediate crisis period.

The Federal Government will reportedly unveil a fourth round of economic stimulus later this week with Treasurer Josh Frydenberg set to announce a new homebuyers scheme that will be available for everyone – not just first home buyers – to avoid a 50% drop in residential construction due to the COVID-19 pandemic.

Opposition treasury spokesman Jim Chalmers cautiously welcomes the news. “Already, before the crisis, construction was relatively weak and homeownership was at 60-year lows, so we had a challenge there. That challenge has been exacerbated by this coronavirus crisis. In two or three months, we are very worried that construction will fall off a cliff and that’s why we have been making very constructive suggestions about what the government might do. We want to make sure that their plan is comprehensive, and we hope that they pick up and run with some of the ideas that (Labor has) put on the table.”

Treasurer Josh Frydenberg is expected to confirm the details of the scheme after it’s considered by the cabinet expenditure review committee meeting this week. Stay tuned for an update.