HomeBuilder and other government subsidies have fuelled demand for homes and helped push up house prices, according to Luci Ellis, Reserve Bank assistant governor. Ellis also said the subsidies have “pervasive” impacts on housing outcomes for some Australians.
Speaking at the UDIA National Congress Sydney, Ellis said that “policy matters, especially in the short term” and “whether it’s time-limited subsidies bunching demand and boosting prices, or the interplay between low yields globally and rental yields locally, policy can have pervasive effects on housing outcomes.”
Ellis said HomeBuilder and other subsidies increased the number of first-home buyers for a period during the COVID-19 pandemic, according to ABC.
“At the margin, this reduced the number of people wanting to rent,” Ellis said. “At least some of the people who moved out of share houses to live with their partner would have done so in a newly purchased home.”
Ellis said very low interest rates as well as government grants, such as the “raft of subsidies and other incentives for home construction, as well as support for first home buyers during the pandemic,” led to solid rates of homebuilding during the past couple of years.
“In combination, these subsidies have been quite sizeable in some cases,” she said.
While it was tough to disentangle how much of the rise in housing demand was due to temporary subsidies and the current low level of mortgage rates or to the shift in preferences for people to live in their own homes, Ellis said government subsidies had sparked a big surge, ABC reported.
“It is clear that the time-limited nature of HomeBuilder and some other subsidies induced a temporary surge in building approvals for detached homes and renovations,” Ellis said. “We estimate that about one-quarter of building approvals during this period were supported by HomeBuilder, though many of these would have happened anyway.”
Even now, after eligibility for the subsidies has closed, there were still more of these categories of building approvals than immediately prior to the pandemic, Ellis said.
Over time, though, that additional surge in building approvals from government subsidies will have been worked through and will no longer support the level of dwelling construction.
“As interest rates increase, the boost to demand from the current low interest rates will also wane,” Ellis said, noting “it is likely that buyer interest in new homes will ease as well.”
