A COVID-19 inquiry report has slammed Australia’s HomeBuilder scheme, which it says sparked the nation’s inflation and ongoing housing crisis.
The $2.6 billion HomeBuilder scheme was introduced as a lifeline during the pandemic in a bid to stop the home-building industry going bust due to economic pressures.
But, the results of this week’s COVID-19 inquiry says that while HomeBuilder provided critical support during uncertain times, it also fuelled demand for construction materials and labour, contributed to inflation and added strain to an already stretched industry.
Launched in June 2020, the program offered $25,000 grants for eligible Australians building new homes or undertaking renovations.
The scheme became an overnight success, with take-up rates far surpassing the government’s initial forecast of 27,000 households, reaching over 113,000.
Initially praised for its timely economic impact, most grant recipients used the cash for home renovations rather than new builds, which the inquiry says further fueled the existing housing shortages.
The report states much of the government’s $300 billion stimulus, including HomeBuilder, was “largely not appropriate” in a pandemic scenario where industries faced supply constraints — likely adding two percentage points to the nation’s inflation rate by December 2022.
“With the benefit of hindsight, there was excessive fiscal and monetary policy stimulus provided throughout 2021 and 2022, especially in the construction sector,” the inquiry states.
“Combined with supply-side disruptions, this contributed to inflationary pressures coming out of the pandemic.”
Combined with global supply chain issues, pandemic spending pushed demand in the housing and renovation sectors. Contributing to the inflationary pressures now affecting housing costs nationwide.
The inquiry concluded that “excessive fiscal and monetary policy stimulus” from the government and the Reserve Bank of Australia, particularly during 2021 and 2022, played a role in escalating inflation.
Inquiry advocates for policy renovation
The inquiry, authored by economist Angela Jackson, public sector expert Robyn Kruk, and epidemiologist Catherine Bennett, argues that more nuanced policies are needed in future crises to avoid straining key industries.
They say HomeBuilder, alongside other government pandemic spending, has since created challenges around the government’s ability to address the housing crisis.
The report recommends a broader review of pandemic-era economic measures, including the HomeBuilder scheme, to prepare for potential future crises with a refined “economic toolkit.”
This toolkit, which the inquiry suggests Treasury, the RBA, and states work on developing, would help ensure a more balanced approach to demand-driven stimulus measures in times of supply shortages.
Industry supports HomeBuilder policy
However, the inquiry has also faced some backlash, with Australia’s peak body representing the building and construction industry coming out to defend the under-fire policy, calling it an essential measure.
Responding to the inquiry’s findings, Denita Wawn, CEO of Master Builders Australia, argued that HomeBuilder was an essential measure during the pandemic and shouldn’t be blamed for systemic issues in the housing market.
“HomeBuilder effectively saved businesses and jobs during the height of the pandemic and was an appropriate support measure for the time, exceeding expectations,” Ms Wawn argued.
“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 acknowledged that HomeBuilder may have contributed to labour and material shortages but stressed that the current inflationary pressures were due to long-standing issues rather than the program itself.
“While HomeBuilder may have temporarily exacerbated labour and material shortages in the building and construction industry it is not the root cause.” 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.”
She says the report was ignoring other key contributing factors towards inflation to use bygone policies as a scapegoat for the nation’s home-building crisis.
“Rental inflation remains one of the biggest inflation drivers today, which is not attributable to HomeBuilder but is the result of a chronic undersupply of rental housing,” she explained.
