Monday, October 15, 2012

Incentives matter, so NSW is set for a home building boom

New rules from October 1...

No grants for most first home owners, $15,000 grant for those buying new homes

...might mean

A jump in the proportion of first home owners buying new homes from 17% to 39%


Up to 8000 more new homes

BIS Shrapnel

The NSW home building industry is set to roar back to life with as many as 8000 more homes built per year as a result of this month’s changes to first home owner rules, new forecasts say.

BIS Shrapnel is lifting its forecast of NSW home building from the present dismally low 25,000 per year to nearer 40,000 by the middle of the decade. It says as many of 8000 extra houses per year will be built as a result of changes to the First Home Owner Grant announced in the second O'Farrell budget.

The $7000 grant previously available to all first home owners was axed on October 1. In its place is a $15,000 grant only available to first owners who buy newly-built homes worth up to $650,000.

“We can see what’s likely to happen by looking at what happened last time buyers of new homes were given special treatment,” BIS Shrapnel associate director Kim Hawtrey told the Herald.

In 2008 during the financial crisis the Commonwealth government boosted the grant for first owners who bought new homes to $21,000. Just over a year later it fell back to $7000.

“Before the boost around 10 to 15 per cent of Australia’s first home owners bought new homes or units,” Dr Hawtrey said.

“First home buyers usually prefer to buy existing houses and units because there are more affordable and there are more of them. It takes something special to push the proportion buying newly-built homes above 17 per cent.”

“But following the 2008 Commonwealth boost the proportion shot up to a remarkable 39 per cent"...

“The Commonwealth has shown NSW the way. If this happens in NSW we will see a surge in new home buying and a resurgence of an industry which has been in recession since 2004.”

The Office of State Revenue says 37,500 NSW residents took out first home owner grants in 2011-12. If the proportion buying new homes jumps from 17 to 39 per cent an extra 8200 will buy new homes.

“It is likely we will see the same effect here,” Dr Hawtrey said. “The state government is loosening planning restrictions and also granting bigger stamp duty concessions. And lower interest rates will soon make housing more affordable.”

“The NSW building industry is in recession. To keep pace with population growth we should be building 40,000 to 45,000 new homes per year. We have fallen to a dismal 25,000. We are building fewer homes per year than Victoria although we are bigger than Victoria. Even Queensland is about to overtake us.”

"Stimulating the supply of homes is more important now than ever. The industry needs help and Sydney remains the least affordable capital city in Australia. On balance we think that the state package will help spur home building back towards where it should be. We have factored it into our forecasts,” Dr Hawtrey said.

In today's Sydney Morning Herald

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