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HomeBuilder fuelled inflation and the housing shortage

The $2.6 billion HomeBuilder stimulus during the pandemic helped fuel inflation and has contributed to a housing shortage according to the COVID-19 inquiry.

The inquiry found that most of the $2.6 billion of funding was spent on renovations, not building new homes adding to ongoing supply pressures.

The Government has been widely criticised for its COVID response, with the inquiry finding that its draconian measures caused the public to lose trust and overheat the economy.

โ€œThe Morrison governmentโ€™s $25,000 HomeBuilder grants for new homes and renovations created excess demand in a housing industry facing supply constraints, such as shortages of materials and labour,โ€ the inquiry said.

โ€œWith the benefit of hindsight, there was excessive fiscal and monetary policy stimulus provided throughout 2021 and 2022, especially in the construction sector.โ€

Initially offering grants of up to $25,000, the program aimed to keep the economy moving and safeguard construction jobs. 

The program ultimately ended up costing around $2.6 billion, with over 137,000 grants approved. 

Master Builders Australia CEO Denita Wawn said HomeBuilder was the right policy for the time and should not become the scapegoat for systemic housing challenges.

“The Federal Government had a difficult job of keeping the economy afloat with targeted stimulus measures while keeping people safe during a period of uncertainty,” Ms Wawn said.

“As the report rightly points out, there are strong links between the strength of the building and construction industry and the broader economy.

โ€œAt the time, the economy was facing a full-scale shutdown and a collapse in demand with a real threat of a recession.โ€

She said HomeBuilder effectively saved businesses and jobs during the height of the pandemic and was an appropriate support measure for the time.

“While HomeBuilder may have temporarily exacerbated labour and material shortages in the building and construction industry it is not the root cause,โ€ she said.

“The inflationary challenges we are seeing play out in the building and construction industry today are predominantly the result of a decades in the making labour and housing supply shortage.

“Rental inflation remains one of the biggest inflation drivers today which is not attributable to HomeBuilder is the result of a chronic undersupply of rental housing.โ€

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.