By now we all know about the federal government’s HomeBuilder scheme.
Announced as one of the key pillars of the government’s COVID-19 economic recovery plan, the new HomeBuilder scheme will give owner-occupiers a cash grant of $25,000 towards a substantial renovation for their principal place of residence, or towards a new-build property.
The question on everyone’s minds is: will the plan deliver?
Will we see an upswing in construction activity, or will the whole ideal fall flat?
Who is eligible for the HomeBuilder grant?
It seems like a generous offer: certainly in anybody’s language, $25,000 to upgrade your kitchen or build your dream home is a significant boost to the budget.
However, the program is limited by some fairly strict criteria.
For new home builds, the total value of the house and land cannot exceed $750,000.
For renovation projects, recipients must spend between $150,000 and $750,000 improving their home, which cannot be worth more than $1.5 million.
Applies for contracts entered into between June 4th and December 31st, 2020.
Applicants must earn less than $125,000 for singles or $200,000 for couples to be eligible.
The HomeBuilder grant cannot be used for additions such as swimming pools, tennis courts or sheds – it’s only to be used for renovations or extensions to the property itself.
Federal Treasurer Josh Frydenberg says that HomeBuilder will assist the residential construction industries by encouraging more new home builds and renovations that people might have otherwise put off, due to the uncertain economic climate.
This stance is backed up by construction lobby groups, who have predicted that new dwelling commencements will decline by 50% by the end of 2020, while the government believes there is going to be a shortfall of 30,000 new dwelling commencements in the second half of this year.
How many homes will this impact?
The government has forecast that around 27,500 projects will benefit from the HomeBuilder grant, but the way I see it, it may not have the huge impact they’re hoping for.
For a start, it’s available for owner-occupiers only as investors are ineligible.
If you’ve been eagerly awaiting this announcement because you were hoping to build a new investment property or renovate your existing one, you’re out of luck.
The short timeframe is another flaw in the program.
While I appreciate what the government is trying to do in kick-starting the construction industry to help the economy bounce back, the reality of building and renovating is that it’s never a quick or easy process.
Homeowners need to secure their finance, arrange quotes, have plans drawn up and wait for council permits to be issued, which any experienced builder or renovator will tell you always takes far longer than expected.
To achieve all of this within less than six months seems extremely ambitious.
Still: is it worthwhile upgrading your “renovator’s delight”?
At first glance, the scheme could be helpful for those who want to buy a “renovator’s delight”.
The time limits imposed will mean that everything needs to fall into place perfectly in terms of finding a property, organising finance and waiting out the settlement period, so that work can begin in time.
Meanwhile, it also misses the mark for those planning a knock-down, re-build in the inner suburbs, where the value of properties tends to soar well past the $750,000 limit.
The amount homeowners need to spend on their renovation is, in my opinion, too high for this scheme to have any meaningful value for everyday Australians who weren’t already planning a significant renovation.
A $150,000 outlay is not just the budget for an updated kitchen and bathroom: it’s a large-scale renovation or, more likely, a dramatic extension.
I have a feeling that these projects will be in the minority, and new builds will make up most of the HomeBuilder recipients, which would be much better for the economy and the housing crisis.
This begs the question…
Why wasn’t it set up this way? Why make renovations eligible at all?
It has been considered by some as inequitable scheme, giving those who already own a home (or are in a position to buy right now) a boost, without offering any assistance to those on lower incomes or first homebuyers.
Or, for that matter, for landlords who provide such a huge chunk of Australia’s affordable housing.
Can it be used with other grants and subsidies?
If you’re hunting for your first home and are ready to buy in the near future, you’ll be happy to know that HomeBuilder can be used in conjunction with other State and Commonwealth schemes.
This means that between the new HomeBuilder program, first homeowner grants available in your state, the First Home Super Saver scheme and any stamp duty concessions you may be eligible for, as a first-time buyer you could be tens of thousands of dollars better off.
In fact, you may even save close to $100,000, once all of the grants and savings are tallied up.
However, given homeowners only have until the end of the year to qualify for the scheme, it’s unlikely to offer much of a boost to those who aren’t already in a good position to buy or renovate.
For those looking to purchase house and land in regional Australia, it could be a big win, as the value of their package is more likely to fall under the $750,000 cap than those building in the major cities.
And while there is the $125,000/$200,000 income limits to consider, a person or couple earning these amounts falls into the top income bracket, making them better off than 90% of Australians.
This means there won’t be many people who are excluded from the scheme due to income alone.
Is HomeBuilder going to stimulate the construction industry?
In my opinion, the jury is still out.
The rules are complicated and nobody really seems to understand how to navigate them.
For example, who has the job of assessing the value of an existing house and determining that its value is less than $1.5 million, therefore eligible for the program?
What happens if the market shifts and the property goes up or down in value in the meantime?
What is the renovation propels the property’s value above $1.5 million?
The rules around this are not clear at all.
It could also lead to all kinds of unintended consequences.
Unscrupulous people who don’t really need a leg-up could find ways to rort the system to their advantage, while those who could really benefit from it the most are likely to find it’s out of their reach.
I understand the intentions behind this program, and I appreciate that our government is flying blind yet doing their best to navigate this once-in-a-century health and economic crisis we find ourselves in.
But I can’t help but ponder if these hundreds of millions of dollars could have been better spent elsewhere.
For example, a grant to help the elderly or disabled make much-needed modifications or repairs to their homes could offer a similar boost to the construction sector.
Alternatively, some kind of incentive for investors to build new affordable housing, along the lines of the National Rental Affordability Scheme, would keep investors in the market and ensure there are more options available for cash-strapped renters, while also stimulating construction – a win-win-win.
In any case, it’s an ever-evolving situation with this pandemic and it’s associated social and economic impacts, and the reality is we’re not likely to grasp the full extent of it all until well into next year.
In the meantime, if you’re lucky enough to be eligible to participate in HomeBuilder, my advice is to be smart about it.
If you’re renovating, use it to add real value to your property or improve your lifestyle, and be careful not to overcapitalise.
If you’re building, check that the grant hasn’t been absorbed into a new, inflated price from your developer or builder.
And, as always, seek independent, trusted advice to help you make the right decision for your unique situation.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia's leading experts in wealth creation through property and writes the Property Update blog and hosts the popular Michael Yardney Podcast.
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