What does HomeBuilder say about supply and demand?

The $688 million HomeBuilder initiative offers a glimpse into the state of housing construction in Australia. According to the Australian Bureau of Statistics, the value of work done in residential construction had been steadily declining since 2017. This period also happened to coincide with the peak of Sydney’s recent price and buying activity boom, as well as APRA’s subsequent lending constraints. Housing construction and associated services represent a significant component of both our employment profile and the national economy.

Between 2017 and now, urban and suburban property markets across the country have recorded declines in rental vacancy rates despite varying on other metrics. This suggests that the balance between supply and demand of rental housing has generally tightened across the board. We have discussed this phenomenon in recent research blogs, as well as our 2020 State of Play. Coronavirus has changed our lives in many ways since this commentary was published. As you may imagine, however, it did not speed up construction activity.

Such proactive and specific stimulus measures are indicative of the Morrison Government’s concerns that construction activity figures have plummeted further – something the ABS can confirm in mid-July when new data is released. There has been bipartisan criticism of the HomeBuilder initiative, forging an unlikely bond between conservative think-tank, IPA, and left-leaning media platforms such as The Guardian.

Although a decline in residential construction activity is a bad thing for jobs, it is a positive for property investors and homeowners. Constrained supply of new housing means more competition for fewer homes once coronavirus is behind us. Combined with record-low interest rates and easier access to finance, Australian housing could see a stronger upswing than was expected prior to the crisis.

In the meantime, those who seek to make use of this stimulus should do so cautiously. As we have learned from previous federal government initiatives, bold and ambitious announcements are typically accompanied by the emergence of a parallel marketplace whereby bad actors seek to exploit unassuming customers by inflating prices and taking shortcuts to get to the next overpaying job.

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