Economic stimulus packages for housing...why?

As the restrictions start to unwind, thoughts are now turning to how the economy could be kickstarted. The PCA, HIA, UDIA and Master Builders Association have all called for amounts of between $40,000 and $50,000 to be used as grants for new home builds with various volumes per quarter up to 2021.

There are numerous issues with these well intentioned suggestions that may in fact not be what is needed; so let’s unpack some of them.

Currently the borders are closed to international and interstate migration. International migration in 2019 accounted for over 230,000 people. Natural growth almost got to 140,000. Who are we building homes for? Almost every capital city has a reasonable supply of existing housing and most regional centres are also well supplied. By encouraging more building, the result is likely to place additional pressure on values as existing levels of stock are not absorbed.

Interstate migration for the time being has also slowed to a standstill due to the closed borders. Queensland as a major beneficiary of this trend is in a position where one of its key drivers is temporarily removed from the demand side of consumption.

As mentioned in previous articles, we must remember that this is not a typical economic downturn. The whole economy is not impacted as a normal recession would generally influence every sector. Yet parts of the business world are doing very well; essentials, medical, logistics, home appliances etc. Access to capital will be one of the big issues, and financial institutions have often discounted grants from their debt servicing calculations. With unemployment alleged to increase; the reality is that a financial stimulus is probably not going to get the traction that is needed. Other economic fundamentals need to be in place first before demand is expected to increase.

If housing demand is the big concern, logically migration is the answer. As yet the nation doesn’t have an answer for this, so let’s take it off the table. If unemployment is high and housing is required, it is more likely to be at the bottom of the market. Rental stress could be an issue, though by all accounts, rents are softening in many markets. Again this is a supply issue that leads the author to believe that there is no shortage of residential property just yet.

A common complaint is that there are never enough trades to go around. Building costs are high because many trades struggle to keep up with the demand forcing a bidding war on labour costs. A $50,000 stimulus pays for a lot of apprentice training and helps prepare the industry for the turnaround that will most definitely emerge and assist the broader building industry. With lower demand, perhaps the cost of construction will moderate to some extent, of course acknowledging that the low Australian Dollar has made importing some building materials more expensive.

If it is correct that the social side of housing will be in the greatest demand; and the housing industry needs stimulating, perhaps the right thing to do by the tax payers is for the Government to buy the houses rather than provide a $50,000 handout with little return for its investment. By actually owning the asset, at some point in the future, presumably when house prices have increased in value and this economic turmoil has passed, the government may actually make a profit on its investment thereby helping to reduce State debt. This housing could be considered as a temporary investment on their ledger as well as still providing jobs to the housing industry.

There are many social equity issues that arise out of the proposed housing stimulus package. Why is one individual entitled to $50,000 of stimulus to buy a house which will invariably make that person wealthier down the track? Does this not further the divide between the haves and have nots? In terms of employment, if someone wants to renovate their house, should they not be entitled to the $50,000 as well? Many renovations would exceed the costs of a basic house, so is it not fair to apply the same stimulus? What if an individual makes a conscious choice not to own property, but instead has a great idea to start a business and create employment opportunities that way? Is their use of the $50,000 more or less valid if applying the concept of job creation? Some may state their claim to the stimulus is more justifiable?

As planners look at what the future may hold in terms of city design, urban centres and how people engage with their employers and environment, perhaps it is time to consider what alternatives exist to simply pouring money into a problem, rather than fixing the problem at the source.

Why do we need to stimulate the housing sector? Because the economy was stopped in its tracks due to a pandemic. As a nation, we need to create jobs that generate long term sustainable outcomes for the economy. Taxpayers arguably should not be funding individuals into housing for no benefit to the State apart from creating short term employment…which can be done alternatively through government ownership and retaining the asset to be sold at a later date. Investing in productivity gains, manufacturing, technology and alternative energy sources are critical to Australia staking a place in the future that makes the nation less reliant on other countries. Whilst the author holds the residential sector close to his heart, the nation and industry bodies have to stop looking at housing construction as the engine room of the economy. This is arguably short sighted and highly reliant on population growth. Housing should be the beneficiary of a strong economy, not the driver of the economy.