Revival of Housing Market: HIA Suggests New Home Buyer Incentive

Summary

• HIA had projected the commencement of new homes in the ACT to fall by half.
• The decline in the foreign students and migration has led to a provisional inconsistency in demand for rental accommodation.
• HIA has proposed a New Home Buyer incentive plan of up to $50,000 and several other measures to cushion the impact on the overall sector.
• COVID-19 has led to worsening of home building indicators during April and May and is anticipated to push it down further.

The scenario of weakening new home sales, the need to retain customers who had commenced working with a home builder before 1 March 2020, and to encourage new customers to enter the market has compelled the Housing Industry Association (HIA) to offer a suite of measures to various levels of governments in Australia.

Within a few days of projecting a decline in new home building for next year by 50%, putting half a million jobs at risk, the HIA presented its Home Building Recovery Plan which centred around a targeted new home buyer incentive of up to $50,000. Further, this is estimated to provide an additional 20,000 building commencements.

The Home Building Recovery Plan announced by the (HIA) has received support from the Australian Forest Products Association, where CEO Ross Hampton said:

There is a dire need for substantial investment and stimulus measures like New Home Buyer incentive of up to $50,000 aimed at new home building only, to kick-start renewed confidence and demand in the sector.

What else is included in the Plan?

The proposed New Home Buyer incentive plan by HIA is anticipated to:

• Deliver a start to an additional 20,000 home building projects in the second half of the year, further generating necessary jobs to keep the workforce engaged through to 2021.
• Bring out the demand for new homes and renovation work.
• Be eligible for the rebate that is needed to ensure commencement of the construction project by 31 December 2020 for offering activity adequately into 2021, with significant employment multiplier benefits in manufacturing, retail, and professional services.
• Announce a further 10,000 allocations as part of the First Home Loan Deposit Scheme aimed at only new home buildings.
• Introduce a HomeKeeper insurance scheme, to underwrite the interest-only loan payments for homebuyers to support any buyer that loses their job from 1 March 2020 due to COVID-19.
• Introduce a HomeKeeper incentive for home buyers that have entered a new home building contract after 1 January and up to 1 July 2020 where work is yet to commence.
• Make Sure residential building businesses have access to JobKeeper using an industry-specific projection methodology for the basic turnover test.

The HomeKeeper incentive shall be paid in two stages, first upon signing of the contract, and second, when the slab is poured on-site before 31 December 2020. Moreover, the HomeKeeper insurance scheme is intended to be introduced through the National Housing and Finance Investment Corporation for the home buyers that had entered a new home building contract starting from 1 January 2020 to 31 December 2020.

The HIA proposes that the incentive plan shall only be applicable to new home building projects and renovation projects that have not commenced construction, encompassing new contracts to build a home on the land of the owner, to the renovation of established homes where a building approval is required, and off-the-plan sales of house and land packages.

The additional vital proposals in the incentive plan, like the introduction of new HomeKeeper incentive schemes and insurance, and offering concessions in the stamp duty for new home build by the State and Territory governments, are anticipated to provide new social and affordable homes as well as facilitate in executing one-step approval processes.

Weakening New Home Building in ACT

On 21 May 2020, the HIA projected housing starts in the ACT to fall by 28.4% in the current financial year. The industry body expects the starts to decline further by 29.4% in 2020/21 considering the COVID-19 pandemic. Moreover, the HIA mentioned that the commencement of new homes in the Australian Capital Territory (ACT) should have plummeted by 50% from last year to next year.

The impact in the new home building and renovations activity in Australia is reflected on the overall shock to the economy. It has emerged due to the lack of student arrivals, discontinuation in overseas migration, and ambiguity over the local economy. These are further likely to put the Australian market at a point lower than the one during 1990’s recession.

HIA’s Regional Director, Greg Weller, commented:

Sixth Consecutive Quarterly Contraction in Volume of Building Work

The HIA further mentioned that the residential building activity had reached a sixth consecutive quarterly contraction in the volume of building work done during the quarter that was pre-dominated by the impact from COVID-19. The home building activity had fallen back to levels last seen in 2014 due to the continuous squeeze in credit across 2019.

Moreover, it was stated that a decline of 10 per cent had been recorded in the value of work done on new houses during March 2020 as compared to the level a year ago and a decline of 20 per cent was seen in the value of work done on multi-unit dwellings over the year.

The residential building industry was already undergoing turbulent times before the outbreak of COVID-19, which has dramatically depleted the leading indicators of the home building during April and May. Further, this is likely to push the activity downwards as we progress in the year.

It is a matter of great concern as there are millions of jobs at stake and the overall impact this is going to have on the economy.

Bottomline

The commendable step put forward by the HIA is expected to assist the Australians in recovering from the losses incurred due to the impact of COVID-19. The housing construction sector plays a pivotal role in providing growth as well as employment to the Australian economy while assisting the related industries like timber industry. It is high time that there are measures undertaken to help the sector to maintain its contribution to the Australian economy.

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NOTE: $ denotes Australian Dollar, unless stated otherwise.