Normally an opponent of grants to home buyers, independent economist Saul Eslake says in the coronavirus crisis the payments are justified.
The government is considering cash grants of up to $20,000 for everyone buying a new home, and means-tested grants for people doing home renovations, to forestall an expected major hit to the industry.
Mr Eslake said he generally opposed home grants because in normal market conditions they ended up in the pockets of people selling homes or builders and did more to push up prices than to increase home ownership rates.
But in this case, significantly higher unemployment and dramatically lower immigration - which had been one of the main drivers for housing demand over two decades - meant house prices were likely to fall, he said.
That made it far less likely that the grants would end up in the pockets of sellers or builders and more likely that the industry would feel a significant downturn without government stimulus.
Builders had been hanging on as a result of the pipeline of work left over from the previous boom, and had already been hit by the fall in foreign investment.
Mr Eslake said stimulus in the construction industry had the upside that the sector was a big employer, the supply chain was local and the money could be spread widely across the country, unlike infrastructure which tended to be local. On the downside, 88 per cent of the jobs were held by men and women had worn a bigger share of coronavirus job losses.
But he said grants should only go to people buying new homes, not existing homes, to ensure they supported employment and suppliers. Likewise, grants for renovations could also support jobs.
And they should be offered only for a limited time, such as til September 2021, and be income tested.
But household finances director with the Grattan Institute Brendan Coates said grants to residential construction would end up providing windfalls to developers, and the money to be spent on building social housing instead.
The more pessimistic forecasts expected 110,000 homes to be built next year even in the downturn. If each project was giving a $20,000 government boost, the stimulus would cost $2.2 billion without adding a single construction job, he said, writing in The Conversation.
Home-buyer grants did not make houses more affordable but typically meant higher house prices, which benefited sellers rather than buyers, and if the grants went beyond first home buyers, developers would use them to clear stock.
Mr Coates said grants for renovations would hit the economy more quickly but would probably result in tradies lifting their prices, and would be more difficult to police to check the work had been done.
Our COVID-19 news articles relating to public health and safety are free for anyone to access. However, we depend on subscription revenue to support our journalism. If you are able, please subscribe here. If you are already a subscriber, thank you for your support. If you're looking to stay up to