The HomeBuilder Grant extension highlights a delicate government balancing act

Not unexpectedly, the Federal Government has announced a three-month extension to the HomeBuilder grant. Initially slated to end on December 31, the scheme has now been extended to the end of March 2021, but at a lower rate of $15,000. The existing grant, providing $25,000 for eligible owner-occupier new builds or substantial renovations, remains in place until the end of 2020.

There have also been adjustments to the construction commencement timeframe from three to six months (to help alleviate bottlenecks, but this may also help some high density developments meet the deadlines) and an increase in the property price cap for new builds in New South Wales and Victoria to $950,000 and $850,000 respectively (from January 1). The $750,000 price cap remains in all other jurisdictions.

The government reports that, to November 20, almost 24,000 applications have been received including just over 19,000 for new builds. A surge of applications in the lead up the end of the year can be expected. Placing these numbers in context, total dwelling commencements in Australia in FY20 sat at 171,000, including 102,000 houses. These were the lowest commencement levels since 2013.

The grant extension highlights the balancing act governments are playing in providing a range stimulus measures across the economy as recovery from COVID-19 progresses, but at the same time needing to gradually wean the economy off these measures as more normal conditions return.

This is particularly evident in the residential sector, where Federal Government stimulus has been supplemented by a raft of state government measures, including, for example:

• New South Wales - stamp duty relief, with no stamp duty on newly-built homes up to $800,000 (previously $650,000) and concessions up to $1 million. The higher thresholds will remain in place until August 1, 2021. In addition, the recent state budget has started a consultation process to consider options for replacing stamp duty and land tax with an annual property levy.
• Victoria - stamp duty discounts for sales up to $1 million with new builds to receive a 50% discount and a 25% discount for existing homes. These discounts will remain in place until the end of June 2021. The higher $20,000 first homeowners grant for regional Victoria has also been extended.
• Western Australia - the $20,000 Building Bonus grant for new builds. The grant is available until the end of 2020, but the construction commencement deadline has been extended by six months until the end of 2021.

The Queensland State Budget, to be brought down this Tuesday, may also provide additional state assistance.

Most of these measures have targeted the owner occupier and first home buyer markets, with a bias towards detached dwellings and, by default, the house/land market. That is not to say, however, that owner occupier medium/high density development hasn't also benefitted. It has, particularly for higher quality downsizer product.

The missing element at this stage remains the investor market, which still needs a range of factors, many external such as migration and education, to come back into line before greater levels of higher density development can resume.

Nonetheless, Australia's residential markets have shown remarkable resilience over the course of 2020. At the height of the pandemic lockdowns, consensus forecasts were suggesting a 10% fall in national dwelling values was likely, with significant downside risk.

While some sectors and sub-markets have been under pressure, broad indicators heading into 2021 are actually showing dwelling values in most capitals either ahead of where they were in March 2020, or in markets where they were lagging, quickly recovering. And in an indication of some of the changing dynamics at play, regional markets have generally outperformed their capital city counterparts.

These trends have been driven by the combination of the support and stimulus provided, along with record low interest rates and the proposed relaxation of lending practices.

A note of caution heading into 2021 is still relevant, however, covering two broad aspects. The first of these will be how markets adjust as the various stimulus packages and support, both direct and indirect, gradually switch off. Some levelling off in activity and growth should be expected post March.

At the same time, should growth conditions persist or even strengthen, it would not be unreasonable to expect that regulators may look to subtly reintroduce some measures to at least tap the brakes a little to keep the balance.

It is worth noting recent reports from New Zealand, where the market correction in 2020 has similarly been much more modest than forecast and strong growth is anticipated in 2021, that the government has asked the central bank to include stabilising house prices as a factor when formulating monetary policy.