The worst fears for the construction industry won’t come to pass. In fact, all their Christmases have come at once.
One of the interesting things about the way that this year has panned out, is that much of it was not as expected.
That’s not surprising. It’s been a pretty crazy year. But it tells you just how hard it is to forecast forward with all that much accuracy in times like these.
I’m particularly thinking here about the outlook for construction.
When Covid first broke it looked like it was going to be a bit brutal for the construction industry. There was a demand-side hit as credit froze and people bunkered. There was also a supply-side hit as there were major disruptions to the construction supply chain.
Putting those together, people were expecting construction to fall to some of the lowest levels in history. This chart here shows the Housing Industry Association’s (HIAs) forecast, which had commencements falling 58% from their 2018 peak.
But all of this was before the HomeBuilder incentives.
And those incentives seem to have done their job.
Data from the Australian Treasury shows that nearly 500 applications for the federal government’s HomeBuilder grant were approved each week in November!
It’s a huge ramp up. It was less than 20 per week in July.
The Treasury now expects 40,000 applications for the grant to be submitted by the end of December, well above the initial forecast of just 27,000.
From The Australian:
Figures obtained by The Australian show uptake of the government subsidy has already exceeded the initial Treasury estimate of 27,000 by December 31, and is expected to hit 40,000 — 50 per cent higher than forecast — by the end of the year…
Treasury officials did not anticipate the number of first and new home buyers that applied for the first round of $25,000 grants to underwrite the construction of new homes or major renovations.
According to the Treasury data, the number of grants being approved has risen from less than 20 a week in the first month to almost 500 a week in November…
Australian Bureau of Statistics data released on Thursday showed a 65 per cent increase in the value of new home loan construction commitments between July and October compared with the same quarter last year.
The rise in construction finance commitments is unprecedented. Take a look at the boing-boing in this chart here:
As detached house dwelling approvals launched to a 20-year high in October:
There’s a question here about to what extent the grants are just incentivising and ‘pulling forward’ construction that was going to happen anyway.
We’ll know in March – when the scheme is slated to end (although we’ve heard that before).
It is possible that there’ll be a gap in demand once the scheme ends.
But that doesn’t mean it wasn’t a good thing. This was exactly the idea. A temporary measure to get us over a temporary lull in demand.
And it seems to have done a stellar job of that indeed.
How good is this government?