Grattan: Social housing stimulus better than home owner grants

The construction sector employs more than one in every 10 Australians, but it has lost almost 7% of its workforce since March because of the impact of COVID-19.

With the Morrison Government expected to this week announce a stimulus package for the sector, centred around grants to those who buy newly built homes and renovations, the Grattan Institute’s Brendan Coates argues that stimulus should instead be used to fund the construction of more social housing, which would help to tackle the growing homelessness problem:

Large handouts would prompt some more residential construction by encouraging some people to bring forward their home purchases. It’s why in 2008 the Rudd government tripled the first home buyer grant to A$21,000 for new homes in response to the Global Financial Crisis.

But under such schemes, governments also end up giving grants to people who would have bought a home anyway. Even the more pessimistic industry forecasts expect 110,000 homes to be built in Australia next year. Giving A$20,000 to all of these home buyers would cost A$2.2 billion without adding a single construction job. Grants of A$40,000 would double the bill.

That’s a lot of spending for little economic gain.

Nor do grants to home buyers actually make housing more affordable. They are typically passed through into higher house prices, which benefits sellers more than buyers. In this case, that is likely to include developers eager to clear their existing stock of both newly and nearly built homes.

Cash grants for renovations would likely hit the economy quicker since they don’t necessarily require building approvals. But they bring their own problems. Grants will likely see in-demand tradies raise their prices, especially if the government is effectively paying for most of the work done…

Nor is it clear the renovation sector needs further stimulus: reports suggest COVID-19 is driving a renovation boom across many parts of Australia. Research by credit bureau Illion and economic consultancy AlphaBeta shows spending on home improvements is already 33% higher than pre-COVID levels.

There’s a better option

There’s a better way to support residential construction without providing such big windfalls to developers: fund the building of more social housing.

Social housing – where rents are typically capped at no more than 30% of household income – provides a safety net to vulnerable Australians.

In particular, the Morrison government should repeat another GFC-era policy, the Social Housing Initiative, under which 19,500 social housing units were built and another 80,000 refurbished over two years, at a cost of A$5.2 billion.

Under the initiative the federal government funded the states to build social housing units directly or contract community housing providers to act as housing developers

Public residential construction approvals spiked within months of the announcement.

Building 30,000 new social housing units today would cost between A$10 billion an A$15 billion. Because state governments and community housing providers won’t have to worry about finance, marketing and sales, they’ll be able to get to work building homes much quicker than the private sector.

The boost to the economy would be pretty immediate.

Just as important, building social housing would also help tackle the growing scourge of homelessness. At the most recent Census (2016), more than 116,000 people were homeless, up from 90,000 a decade earlier. COVID-19 has shown us that if we let people live in unhealthy conditions it can help spread disease – affecting everybody’s health…

Funding social housing won’t boost house prices or provide windfalls for developers. It will do more to keep construction workers on the job, while also helping some of our most vulnerable Australians.

Brendan Coates’ arguments are impeccable. However, the federal government would never implement such a common sense policy for the obvious reason that it would not buy as many votes and would not be as popular among developers.

Leith van Onselen

Comments

  1. Display NameMEMBER

    Its ponzinomics till the whole thing blows up..

    Then it will be “who could have known….”

    • Reus's largeMEMBER

      Who could have known and hands out for a bailout, privatise the profits and socialise the costs!

      • DominicMEMBER

        I really need to earn more money so that I can pay more tax, to fund this boondoggle. Perhaps I need a second job — any other ideas?

      • Even better, give handouts to well paid, well housed LNP voters who can already pay cash for that trendy Californian bungalow renovation. Money that then flows to that LNP voting tradie. Housing the poor or lowering house prices dont buy LNP votes.

    • +1 The Ponzinomics will also ensure no greening of Strayan jobs or U-turn on GW and the environment. It’ll be BAU for the rorters and scammers and profits to infinity til the crash that brings it all down. Tragic.

  2. Quickest way to stimulate would be to pay of half of everyones credit card debt…you watch them go and spend in restaurants bars retail etc again…massive sugar hit, and bypasses one certain area’s focus…..yeah it has its disadvantages but over all bypasses banks deciding on who gets it and opens up people to spend instantly again…also unlike giving cash direct, it wont go straight into pokies or cash gambling etc..

    • And for those of us with $0.00 credit card balances? What do we get for being prudent?
      No, I don’t like your idea unless applied as a debt jubilee across the board, for everyone, universally.
      But while we are on the topic of credit cards perhaps a better policy might be to regulate the interest rates which are nothing but usury.

      • DominicMEMBER

        A debt jubilee yields the same problem — if you don’t have any debt you don’t benefit. The best you can do is send everyone the same size cheque and they either spend or pay down debt. It won’t do anything in the long run, of course, as it’s just a sugar hit, but for the sake of fairness ..

        (The above is hypothetical, of course, as a debt jubilee is basically impossible).

        • GeordieMEMBER

          This is where Steve Keen nailed it. You basically have a debt jubilee where people are given cash to pay off debt from CC, then personal loans, mortgages etc. and so on down the line. If you have no debt, you allocation goes toward paying off corporate debt through an equity scheme, so you acquire equity in Australian companies. This way you can drip feed money into the economy, reduce debt, but leave nobody out.

          Quite clever, but only worth doing if you’ve already fixed the economic distortions that have created such gross capital allocation to start with.

      • And for those of us with $0.00 credit card balances? What do we get for being prudent?

        Exactly. WTAF.

        Free childcare would be much better.

      • drsmithyMEMBER

        And for those of us with $0.00 credit card balances? What do we get for being prudent?

        You get a credit of half your credit card limit (following the logic above).

        Better question is what do you get if you don’t have any credit cards ?

        This is why if you’re going to go down the “debt jubilee” path, you need to do it as “cash”, with the condition that it goes to paying off debt first (so practically speaking, allocate everyone $X, then pay out any debts totally $Y, and then they get $X-$Y as cash (if there’s any left).

        • Blottridesagain

          Clear their personal debt – doesn’t pay off any foreign debt. Then when you clear their debt they are ready to buy a whole lot more imported stuff. Keen lost the plot somewhere around 2006. I don’t know what happened but something changed. Debt jubilee is BS

  3. Lord Winchester EntwhistleMEMBER

    Instead of this confected moral outrage at these well-designed stimulatory investments, may I direct your attention to what truly should be a focus for some hand wringing: Mont Marte’s outrageous and salacious skin tone pencil!

    https://imgur.com/NVXUutH

  4. GeordieMEMBER

    Just think how much more developers will be able to gouge on land prices now that they’ve got their cheap shithouse dwellings subsidised! Woohoo!!! Landbankers rejoice!!!!

  5. Dave666MEMBER

    No Chance.
    Its like public hospitals – the Government wants to discourage people from using them (6 hour wait time).
    At best you might get some Pork Barrelling if a specific electorate needs to be held, but outside of that…..errr No.

  6. BTW Brendan Coates is spot on about the110,000 houses that would have been built anyway and that will now likely cost taxpayers an extra $4.4 billion. My kids have just had their plans approved to build one of those 110,000 houses and are delighted at the possible windfall (not that they haven’t worked hard and its been tough with a young baby), but as they’re both employed they hardly qualify for handouts. Social housing clearly the way to go, fiscally, ethically and for the benefit of society.

    The US is showing us where we may be before too long if the virus and BAU hand outs to the rich continue, but our brain dead reps and their mates, all richly housed in their ivory towers (non-inflammably-built, of course), plow on… Nothing to see here.

    The US is showing us where we may be before too long if the virus and rorts continue. The ninety year historical cycle about to repeat – the fourth turning cometh…….

  7. PaperRooDogMEMBER

    $2.2B, $4.4B or however many billions ScoMo & LNP waste is because they are the best economic managers!