“People were scared”.
That is how Michael Sukkar described attitudes around March and April last year.
Speaking at the UDIA National Sumit, Sukkar – who is the Commonwealth Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing said the onset of the pandemic had driven uncertainty and concern about people’s health and livelihoods.
Within construction, he was inundated with calls from industry associations warning that 500,000 jobs could be gone by September as dwelling commencement numbers plummeted from more than 170,000 in calendar 2019 to what some were saying may be around 110,000 in 2020. The effect would reverberate throughout the supply chain. In the timber industry, Australian Forest and Wood Products Association warned that sawn timber milling volumes could fall by 50 percent and 45,000 jobs could go.
Fast action was needed.
As was the case with most industries, JobKeeper’s effect on construction cannot be underestimated. Throughout the June quarter of 2020, construction workers received almost $3.5 billion in JobKeeper payments. This accounted for 18.6 percent of the value of compensation paid to the sector’s workforce. By the September quarter, that figure had peaked at almost $4.7 billion or one quarter of the overall compensation bill. (In the December quarter, this dropped back to $1.6 billion or 9 percent of total compensation.)
Nevertheless, the program that kept people in work was the HomeBuilder scheme which enabled property owners to access grants to help fund new dwelling construction and substantial home renovation.
At the time of the program’s announcement in June, there was scepticism about whether it would really persuade Australians to make large investments during a pandemic.
Nonetheless, the program has exceeded expectations. All up, Treasury data as of April 9 indicates that 121,363 applications for the grant have been received. Of these, 99,253 applications relate to new home construction whilst 22,110 relate to existing home renovations.
As a result, detached home building approvals have run at record levels for several months. Far from collapsing, the overall number of dwellings which were approved for construction edged up in 2020 to come in at more than 177,000. Throughout 2020/21 and 2021/22, BIS Oxford Economics expects dwelling commencements of 190,000 and 177,000 – comfortably above the 160,000 level which historically represents a respectable level of starts.
During the aforementioned presentation, Sukkar outlined the Commonwealth Government’s priorities in respect of housing.
First, there has been the need to stimulate demand.
Here, Sukkar points to several attributes of HomeBuilder which have helped to underpin its success.
Making the program available to all who constructed a new home (subject to thresholds) delivered the maximum impact in terms of stimulating new housing demand.
This stands in contrast to many previous programs which have been restricted to first-home buyers.
Tight program timeframes, meanwhile, have kept ‘tension in the cord’ and helped to prompt fast decision making and generate new work and activity quickly.
Finally, flexibility in the program’s design has enabled it to be adapted as necessary.
The three-month extension of the deadline by which contracts needed to be singed to meet eligibility criteria (from December 31 last year until March 31) was a response to feedback in November that builders were closing their books.
Meanwhile, the twelve-month extension in timeframes during which construction needed to start following contract signing (from six months to eighteen months) responded to demand exceeding expectations. This helped to ease pressure on builders as they commenced a massive number of projects over a short time, ensure that buyers who entered contracts in good faith did not miss out should their builder be delayed and extended the duration of stimulus which the program would deliver.
All this, Sukkar said, is testament to the way industry and government worked together on the program’s design.
Beyond HomeBuilder, two other pre-COVID programs helped to both stimulate construction activity and enable first-home buyers to achieve home ownership
First, the First Home Loan Deposit Scheme has enabled first-home buyers who have a deposit of as little as five percent to access mortgages without needing to pay the lenders’ mortgage insurance which is typically applied to deposits of less than twenty percent. This happens as the Commonwealth acts as guarantor for up to 15 percent of the loan.
Thus far, Sukkar says this has helped 26,000 Australian households to get into their own home. Of these, the first 20,000 places had been granted prior to last October’s budget. A further 10,000 places were released in that budget of which 6,200 had been taken up as of the end of March. With remaining places being available until June 30, Sukkar encourages developers to have sales teams promote this.
Next, the First Home Super Saver Scheme enables households to save for their first home through their super fund. Under this scheme, participants can make voluntary contributions into their super and subsequently withdraw these along with any associated earnings when buying their first home (restrictions apply).
Thus far, Sukkar says the Australian Tax Office has approved the release of up to $280 million to more than 20,000 people as part of this scheme.
Beyond home-owner grants and stimulus, Sukkar says it is critical to unlock new housing supply.
Whilst much of what needs to be done rests with states, he says the Commonwealth is doing what it can.
First, he points to the release of Commonwealth land for new housing. Last year, the government sold off 20 hectares as part of the Bulimba Barracks site in Brisbane which had been identified as being no longer needed for defence requirements. Further divestments are planned in Melbourne, Sydney, Perth and Adelaide.
Next, there is the $1 billion National Housing Infrastructure Facility, which is run through the National Housing Finance and Investment Corporation (NHFIC). This facility provides finance for eligible infrastructure projects which will help to free up new housing supply. Funding is available for projects relating to transport, gas/electricity, telecommunications and water and sewerage. Money can also be used for site remediation and onsite and linking infrastructure. This is available primarily for projects which would otherwise be unlikely to proceed were it not for the provision of the financing.
This facility is available for all housing and is not restricted to social housing. To access this, developers need to partner with local governments, utilities or community housing providers.
Finally, Sukkar says the Commonwealth is doing what it can to encourage states to reduce planning and other regulatory impediments such as the high rate of taxation which is applied to new housing.
Whilst decisions regarding these areas are largely made at the state level, Sukkar says the Commonwealth will work with states to encourage and incentivise reform where possible.
In 2019, for example, the Commonwealth waived a $157.6 million public housing debt owed by Tasmania in exchange for the state agreeing to consider zoning and planning reforms to free up new housing supply.
Moreover, Sukkar adds that the Coalition will not add new taxes onto the sector.
Here, he draws a comparison between the Coalition and Labor. In both the 2016 and 2019 Federal Elections, Labor adopted policies which would have seen negative gearing and the capital gains tax discount abolished under the 2016 platform and severely restricted under the 2019 policy platform.
This, Sukkar said, was unwise. Drawing on a UDIA commissioned analysis of Labor’s 2019 policy, it found that this would have seen 42,000 fewer dwellings built per annum and cost 32,000 full-time jobs.
Asked about what further role NHFIC might play going forward, Sukkar said the corporation was a Coalition creation of which the government was proud.
Upon its creation, it was envisaged that the Corporation’s role would expand as it developed and matured and that ‘we would find more work for it to do’.
Upon its commencement in June 2018, NHFIC’s functions involved channelling low cost, long-term loans to community housing providers (CHPs) through an Affordable Housing Bond Aggregator facility, maintaining the aforementioned National Housing Infrastructure Facility and maintaining a portal for housing related research.
Sinc then, its role has expanded to incorporate the first home loans scheme referred to above.
Going forward, Sukkar sees the organisation’s role expanding in two ways.
First, it will develop further capability to partner with industry and other bodies in innovative ways to help deliver projects such as difficult infill opportunities which may not otherwise be possible or viable. This will represent more of a natural organisational evolution as opposed to a government mandate.
Second, the government is exploring ways to broaden the range of participants who can work with NHFIC – most likely in a capacity which involves partnerships with councils, utilities or CHPs.
Sukkar cautions, however, that there remains a need to avoid any scenario in which NHFIC crowds out private activity or acts as a substitute for work which would otherwise be done by the private sector.
Sukkar also acknowledges challenges in multi-unit construction.
Indeed, he cautions that the full impact of COVID on this market may be yet to be felt. Courtesy of new arrivals typically taking eighteen to twenty-four months to settle down after arriving in Australia, he says apartment sales are holding up relatively well thanks to demand from those who arrived before COVID. Once activity from these people subsidies, sales could slump further.
Sukkar also acknowledges that HomeBuilder was aimed at the detached house market – something which was intentional in order to get shovels in the ground quickly.
As for specific interventions in this market, Sukkar says he cannot say more other than that the government is aware of the challenges and is examining possible responses.