Concerns rise as HomeBuilder success sees housing prices soar in Tasmania

CONSTRUCTION: Data from the Real Estate Institute of Tasmania, federal treasury department, NAB property insights and the Australian Bureau of Statistics.
CONSTRUCTION: Data from the Real Estate Institute of Tasmania, federal treasury department, NAB property insights and the Australian Bureau of Statistics.

A federal and state government grant aimed at firing up a supposed COVID-19 stagnated construction industry has pushed the housing market to the brink.

After being introduced in June 2020 - with building applications and approvals, and construction industry employment opportunities falling across the country - the grants offered payments of up to $45,000 for applicants to buy or renovate their home.

Two grants were made available: one state funded and worth $20,000; the other federally funded and worth between $15,000 and $25,000, depending when applications were lodged. The grant was rolled out across the country, but not all states were equal.

In Tasmania, Western Australia and the Northern Territory both grants were open to not just first home buyers, but anyone earning less than $125,000 or a couple earning less than $200,000.

Almost immediately the grant program was deemed a raging success by both the government, construction industry stakeholders and those who were given as much as $45,000 to build their home.

The only catch was a deadline for contracts to be signed, construction to commence and for applications to have been lodged - though this contract deadline was changed in December as demand smashed initial expectations.

One year later and over 3000 applications for the federal grant in Tasmania alone, material shortages across the building industry and struggles to meet demand have seen fractures begin to emerge.

The home buyer

Reports across the country, and in Tasmania, indicated a processing delay was leading to building contracts having to be renegotiated and prices being bumped up as material prices rose.

While that issue had remained ever-present, a correlation had emerged between house prices climbing and the introduction and subsequent demand for the HomeBuilder grants.

In March 2020, the month before the grants were released, the National Australia Bank's property insights showed median house prices in Launceston sat at $471,000.

By September 2020 that price had boomed to $505,000.

In the space of a year, by March 2021, the mean property price in Launceston had climbed $99,000 to sit at an almost inconceivable record of $571,000.

Despite it not being their first home, or even the first home they had built, Sarah Johnson* and her partner were approved for $45,000 worth of incentives to build a home in Launceston.

Ms Johnson preferred not to be named through worry about how her story could impact her building and grants process.

She said the build was expected to take around nine months, which was five months longer than initially expected. "We've built before, but it's never been like this," she said.

The Johnsons sold their previous house within a week in a firecracker market expecting the Launceston home to be built in about four months. Now the delay has meant they would have rented for around five months longer than expected. She said taking advantage of the incentives had come at a cost. "It probably hasn't been worth it, when you add it all up. I probably wouldn't do it again," she said.

Ms Johnson said accounting for material price increases and the extra money outlaid on rent, the $45,000 difference had amounted to nothing. While Ms Johnson remained confident she would receive the house she had signed a building contract for, she remained perplexed about how delayed and difficult the administrative process had been.

With her house in its final stages of construction, the Tasmanian state revenue office - the department tasked with analysing and approving both the federal and state HomeBuilder Grants - had told her she needed to provide further documentation from her bank to secure the loan.

"The rules kept changing along the way," she said. Ms Johnson said the documentation needing to be provided from the bank did not actually exist.

"I had to beg on my hands and knees [for it to be resolved]," she said.

While Ms Johnson is hoping her story will end positively, ongoing ramifications of the grant on consumers are beginning to be felt.

Ombudsman Tasmania confirmed four complaints were received regarding the federal/state HomeBuilder grant process during the last financial year.

A 1300-strong online group, which petitioned for the application process to be altered in other states, gave weight to these complaints.

While other states were able to register for the grants in an online portal and effectively secure their spot in the line as they finalised their applications, the portal was not available to Tasmanian applicants who instead had to lodge a physical form.

As part of the portal, applicants interstate were also updated on deadlines and the application process which was not available in Tasmania. When asked whether the issue had become more acute in the state, federal Assistant Treasurer Michael Sukkar said he continued to monitor the situation in Tasmania and various shortages across affected sectors.

The industry

Undoubtedly, the grants did what the federal government expected them to do and the construction industry rebounded.

In the 2020-21 financial year, Launceston council approved a record 771 building applications across the municipality totalling $383,657,211. Of the 771 applications approved last year, 549 were residential and worth a total of $167,133,796.

The previous year in Launceston had already seen a record amount of development with 673 applications approved.

The unprecedented amount of applications was felt by a construction industry that had been growing in terms of production almost year on year since a lean period in 2013. Between then and June 2018 the total value of production in Tasmania, according to the Australian Bureau of Statistics, had grown from $248 million to exceed $420 million. When the HomeBuilder grant was introduced in June last year the total value of construction done in the previous quarter was $452 million. By December, with the grants having been in place for just over half a year, that value had grown to an all time record of $479 million.

In May last year, Master Builders Tasmania executive director Matthew Pollock said the construction industry was sitting on a precipice brought about by the pandemic.

A MBT survey of members from that month illustrated work was drying up as new orders deteriorated and threatened to come to a standstill. It showed a contraction in work on the books from between six and 12 months, to as low as two months' worth of work.

At the time Mr Pollock said that would equate to "hundreds of postponed new home builds and means the true impacts of this crisis are expected to be felt in six to 12 weeks' time, if nothing changes".

With the HomeBuilder grants still in the works, Mr Pollock said in May last year he hoped any government incentive would be staggered over the long-term to avoid causing competition.

Now, Mr Pollock maintained the grants had been overwhelmingly positive for the industry and prospective home buyers.

"It was an extremely positive result and it was encouraging to see the enthusiasm," he said. "Where the industry was in early days of COVID, particularly with uncertainty, we saw there were a significant number of projects falling over due to a crisis of confidence.

"But we commend the government in the sense they kept the process open to anybody who wanted to access it. The lasting legacy of HomeBuilder is we'll see more people owning their homes and benefit from socio and economic effects - and that's good."

Mr Pollock said while the grants had injected new confidence into the industry already, 2021 was shaping up to be the strongest year for new housing on record.

"In a good year we build a little over 3000 homes in Tasmania. No doubt we will exceed that number by an order of magnitude," he said.

While Mr Pollock heralded how HomeBuilder had reshaped what he said was an industry "on the edge of the cliff", he said there was another side to the coin resulting from a confluence of factors. He said the housing boom had naturally seen a demand spike, and that spike had led to disruptions in the supply chain - some anticipated and some not.

Mr Pollock said while Australia had been relatively self-sufficient in terms of most construction materials in the past, a pinch was beginning to be felt.

"Supply chains have been disrupted both internationally and domestically from lockdowns," he said. "In the past suppliers were relying on inventories ... that period is now past us and we are operating on a first in, first out basis - that's a challenge. There is risk at the moment. Builders need to be careful because the environment around material is uncertain."

A Master Builders survey from March 2021 said the lead time on several key building materials was blowing out to unmanageable levels with the biggest impact on timber, wood and roofing materials.

Respondents to the survey said they had seen material prices increase from six to over 25 per cent as a result.

The survey showed future building contracts were likely to be at a higher price and for a longer period of time with most expected to take at least a month longer and cost up to 10 per cent more.

Mr Pollock said he was aware of examples of non-fixed building contracts leading to surges in contract prices, but said contracts between developers and buyers were in place to protect both parties.

The financiers

Well-known Launceston finance broker Lance Cure said the ramifications of the HomeBuilder grant had extended to brokers.

He said part of the problem arose from the difficulties faced by the state revenue office in evaluating applications in a timely manner as well as from the incongruences of the application process.

"[It became] confusing because sometimes clients had half the money and lenders were telling borrowers they wanted their money paid in first," he said.

Mr Cure said differences between financiers and lenders had amplified confusion while timeframes for HomeBuilder grants to be released meant transferral of money became a headache for involved parties.

Mr Cure said the confusion was set to reach fever pitch as July came to an end and transitioned into a new financial year when land tax was due. The secretariat for the state revenue office confirmed 98 per cent of applications for both the federal and state HomeBuilder grants had been processed with around 80 remaining. They said of the 80 applications remaining most were awaiting further information from the applicant. The application deadline was April 14.

Within the banking sector, sources confirmed alarm bells were ringing as processing delays mounted and the construction industry became burdened with timeframes imposed on them by the stipulations of the HomeBuilder grant. They said banks were aware of the pressures and had tinkered with evaluation processes as concerns were aired about build quality, the ramifications of pushing to meet deadlines and the potential some builders may be unable to complete builds.

In Tasmania the building industry watchdog is a branch of the state treasury government department called Consumer, Building and Occupational Services.

A spokesperson for the department said in the 2020-21 financial year CBOS received 296 enquiries or complaints from consumers in relation to building work in Tasmania in the 2020-21 financial year. The figure was only eight up on the previous year.

When asked what CBOS was doing to respond to an increase in construction industry demand, the spokesperson said CBOS had appropriate systems in place to manage its enquiries effectively, but was currently recruiting an additional three full-time equivalent compliance officers to bolster capacity.

The minister responsible

When federal Assistant Treasurer and Housing Minister Michael Sukkar came to Northern Tasmania in March this year to spruke the success of HomeBuilder, he was asked about how the construction industry was placed to respond to the overwhelming demand.

"When we put together HomeBuilder, we were hoping to keep the industry afloat ... I suppose never in our dreams did we think it would be this big and this busy," he said.

"I think that the industry is coping really well to date and we'll just keep an eye on it."

As the grant roll-out ticked into a new financial year, and with concerns continuing to grow about the response from the industry, The Examiner asked whether Mr Sukkar believed the industry in Tasmania was still "coping really well".

"The latest statistics for Tasmania show that over 3000 HomeBuilder applications have been received, which has provided a great boost to the Tasmanian residential construction sector," he said. "HomeBuilder has elevated construction activity around the country.

"Globally, there are supply chain issues in most manufacturing industries at the moment, including the timber industry. That is why the government extended the commencement time for HomeBuilder from six to 18 months. The government continues to closely monitor material shortages in sectors such as the timber industry."

*Name changed for privacy reasons.

This story Could a popular grant be responsible for a huge collapse? first appeared on The Examiner.