HomeBuilder grants fuel surge in housing loans

The take-up of $1bn worth of HomeBuilder grants surges well ahead of initial forecasts and new home loan approvals hit record ­levels.

A revival of the great Australian dream is underway, as take-up of $1bn worth of COVID-19 HomeBuilder grants surges well ahead of initial forecasts and new home loan approvals hit record ­levels.

Figures obtained by The Australian show uptake of the government subsidy has already exceeded the initial Treasury estimate of 27,000 by December 31, and is expected to hit 40,000 — 50 per cent higher than forecast — by the end of the year.

The unexpected demand for the grants — designed to prevent a collapse in the housing market during the pandemic — emerged as official data revealed the highest level of first homebuyer loan commitments since 2009, at the height of the global financial crisis.

The surprise news for a key sector of the economy and underlying driver of consumer confidence follows Australia’s rebound this week from the COVID-19 recession, with the strongest quarter of growth in 45 years.

Treasury officials did not anticipate the number of first and new home buyers that applied for the first round of $25,000 grants to underwrite the construction of new homes or major renovations.

According to the Treasury data, the number of grants being approved has risen from less than 20 a week in the first month to almost 500 a week in November.

Australian Bureau of Statistics data released on Thursday showed a 65 per cent increase in the value of new home loan construction commitments between July and October compared with the same quarter last year.

The ABS noted the spike coincided with the introduction of the HomeBuilder scheme in July and had set a record for first homebuyer loan commitments.

The increase in demand will add to the already $20bn in investment the scheme is expected to drive as low interest rates fuel a recovery in the housing sector.

 

The record demand is also ­likely to deliver the Morrison government a political dividend as it seeks to reposition the Coalition for the next election under a Menzies-era platform as the party for home ownership and first home buyers.

According to a recent study of Census data, home ownership is forecast to drop significantly by 2040 for those aged between 25 and 55 to below 50 per cent.

Overall, home ownership had already begun to decline in the past 20 years, peaking in the late 60s and early 70s at 70 per cent.

Housing Minister Michael Sukkar said the Liberals and Nationals were “the parties of home ownership”. “We’ve certainly reclaimed the mantle as the parties of first home buyers,” he said. “We understand that every new house built means jobs for tradies.

“HomeBuilder is achieving exactly what we wanted it to do,” he said. “It is igniting the construction industry and has helped to protect the jobs of one million Australians right across the sector during the COVID-19 pandemic.”

The ABS said first homebuyer loan commitments for October were the highest since 2009, when first homebuyer grants were tripled under the former Labor government as part of the economic stimulus response to the GFC.

“The total value of new loan commitments for housing and the value of owner occupier home loan commitments each reached record highs in October 2020.

The value of construction loan commitments has risen by 65.6 per cent since July, which coincides with the June 2020 implementation of the government’s HomeBuilder grant in response to COVID-19.

“Feedback from lenders was that there has been a large increase in first home buyers applying for these construction loans over the last few months.”

The $25,000 HomeBuilder grants were due to expire on December 31. The government announced at the weekend the program would be extended at a lower rate of $15,000 from January 1 until March 31, 2021.

 

The new Treasury and ABS data come a day after strong economic growth figures showed Australia had bounced out of its first recession in three decades after recording the strongest quarter of economic growth in 45 years.

Despite this, Reserve Bank governor Philip Lowe has warned strong economic growth “cannot hide the reality that the recovery will be uneven and bumpy and that it will be drawn out”.

“Some parts of the economy are doing quite well, but others are in considerable difficulty,” Dr Lowe said on Wednesday.

The RBA forecasts real GDP growth of 4 per cent next year and 5 per cent in 2022.

But Housing Industry Association economist Angela Lillicrap said that the HomeBuilder program had become “the catalyst for improving consumer confidence in the housing market”.

“The strength of housing finance data is also due to several factors including low interest rates,” Ms Lillicrap said

A report by the Australian Housing and Urban Research Institute in May warned there was “little chance” of sustaining the high levels of home ownership that Australia had enjoyed over the past four decades.

“Despite the challenges of Australia’s changed institutional environment since the late 1970s the overall home ownership rate has held up well; it was at 67 per cent in 2016, only marginally less than the 68 per cent of 1976. The steady ownership rate over this period is largely attributable to Australia’s ageing population,” it said. “However, there appears little chance of Australia sustaining home ownership at current levels. The rate is projected to decline by 2040 to around 63 per cent for all households, and to not much more than 50 per cent — down from 60 per cent in 1981 — for households in the 25–55 age bracket.”

The Master Builders Association said the ABS numbers showed a “remarkable” rebound. The organisation’s chief executive, Denita Wawn, said: “The number of loans to owner occupiers soared by 11.5 per cent during the month of October, smashing the record set just one month earlier in September. The remarkable result … is the latest evidence that the success of HomeBuilder is having a positive impact on the housing sector and the economy,” she said.

ADDITIONAL REPORTING: PATRICK COMMINS