I’ve been buoyed by the political bipartisanship that’s, so far, seen us deal successfully with the health risks and financial pitfalls from the coronavirus crisis. Up until recently, there’s been a joint effort from both sides of the fence to find workable solutions.
I say ‘up until recently’ because one policy just put a handbrake on all this brotherly love.
The Homebuilder schemes.
This one piece of policy has begun pulling at the seams of unity.
And while there’s been plenty said in criticism of the plan among commentators, I’ve yet to hear from an industry professional willing to put forward their ideas for improvement.
Sounds like a cue for me to enter the fray with my two-cents worth.
I think while Homebuilder has its flaws, it’s also entirely saveable, and here’s how I’d do it.
In summary, Homebuilder allows for a grant of $25,000.
It applies when a new home is built and the property value does not exceed $750,000, or an existing home valued at less than $1.5 million is renovated and the cost of works is between $150,000 and $750,000.
The scheme only applies to a principal place of residence, NOT an investment property.
It’s means tested as well. Grant applicants must be a ‘natural person’ (i.e. not a company or trust) with an annual gross income under $125,000 for individuals, or $200,000 for couples.
It’s time sensitive too, so the construction contract must be signed between 4 June 2020 and 31 December 2020, and the work must commence within three months of the contract date.
The faults in our Homebuilder
Now, in principle, the concept behind Homebuilder is sound.
Not only does Mr and Mrs Public get a new home or a nice little upgrade to their existing property, but we boost employment and commerce in one of Australia’s largest industries creating flow-on improvements to the economy overall.
But look a little closer at the policy, and cracks begin to appear.
I think in a rush to create Homebuilder, our Federal Government failed to consult widely enough with industry experts before launching the plan. As a result, it’s unlikely to do what was hoped.
In short, it’s well intentioned, but poorly executed.
For starters, if you can find a home that can be built in Australia’s biggest real estate market – Sydney – for under $750,000, then a big congratulations. Every major builder I spoke to say this unicorn does not exist.
In addition, MCG’s 1000 Assets study revealed the national average renovation spend is around $30,500 – well short of the $150,000 minimum. Plus, any professional renovator will tell you it’s madness to have a renovation budget greater than 10 per cent of your property’s post-renovation value. So, by the scheme’s logic, you’re spending a $150,000 to raise a property to $1.5 million, which simply doesn’t stack up.
Also, under the criteria, most people who qualify for Home Builder under the means test will not have the financial wherewithal to complete builds. If they do have that sort of dough on hand, they’re probably outside the income threshold and won’t qualify.
Think about it. If you went to a financial planner and said, “I’m going to spend $150,000 on a renovation but my wife and I only gross $200,000 a year. Do you think that would be a good idea during this recession?” they’d be justified in laughing in your face.
If the ATO want to get the inside running on who to audit next year, I’d say they should be looking at anyone who qualifies for this grant, because they obviously have an additional income stream they’re not declaring.
Also, applying for a construction loan is a tough ask at present, and it takes a long time to get approved (or rejected). Add to that the process of design, planning approvals, contractor sourcing and commissioning a builder, and suddenly that six-month window for the scheme is pretty well closed.
How to fix Homebuilder
Firstly – separate it into Homebuilder and Home Renovation. They are different client and builder types and involve different processes and challenges. The current plan also locks out specialist contractors like bathroom subbies because Home Builder requires a registered builder to manage the whole process.
Secondly, open up the criteria. Who cares if those on higher incomes get access to the grant? The idea is to boost spending in construction, not sweat about whether financially secure folk qualify.
Thirdly apply a sliding scale or percentage of the build cost to the grant and cap the maximum pay-out at $25,000. That way smaller renovations will qualify for smaller amounts, but no one will receive more than the maximum figure.
Next, limit the total pool of money on offer and release it on a ‘first come, first served’ basis. The government could, say, allow $600 million for the program initially and then turn off the tap when that’s exhausted. If successful, the second tranche of funds could be made available at a later date.
Finally, open-end the date of the offering until the funding pool runs out. This allows plenty of time for appropriate planning, design, finance approval and builder selection by clients.
By making a few simple tweaks, Homebuilder could be a brilliant plan to help boost the construction industry, but its current form just doesn’t cut the mustard.
For any politicians out there looking for some professional guidance, give me a call.
Written by Marty Sadlier
Founding Director and Owner at MCG Quantity Surveyors