The new $688 million grant to stimulate the construction sector is a fillip to a handful of ASX stocks and will add to the euphoria on the market.
The S&P/ASX 200 Index (Index:^AXJO) is set to break above 6,000 points this morning thanks to a strong lead from Wall Street and the federal government's housing boost that was unveiled last night.
But how much of a boost the new grant can provide remains to be seen as there are a number of disappointing features in the new scheme.
Low end of scale
For one, the $25,000 cash handout is at the low end of estimates. There was speculation that the grant would range between $20,000 and $40,000, with some commentators even tipping it could go higher.
The not as bad as expected GDP figure for the March quarter and early signs of an economic recovery from the COVID-19 shutdown may have persuaded the Morrison government from being so generous.
There are also questions about whether the policy is well targeted or will make as much of a difference to the economy as it could.
Who qualifies for the housing grants?
The grant, which is aimed at protecting construction jobs, can be used by eligible households to renovate or build new homes.
To qualify, singles cannot earn more than $125,000 and couples not more than $200,000 in FY19, according to The Guardian.
The new home that is being built must be used as the principal place of residence and the property value (including land) cannot exceed $750,000.
For renovations, the project must be between $150,000 and $750,000 with the existing property worth not more than $1.5 million.
ASX stocks in the spotlight
Before the details were released, I thought the grant would provide a big support to sagging house prices. Now I am not so sure even though new home developers like Stockland Corporation Ltd (ASX: SGP) and Mirvac Group (ASX: MGR) are likely to benefit.
Hardware retailers like those owned by Wesfarmers Ltd (ASX: WES) and Metcash Limited (ASX: MTS) will also see a sales boost as these are where tradies go to get supplies.
By extension, home fitting suppliers are another group that will benefit from the new stimulus. These include GWA Group Ltd (ASX: GWA) and Reece Ltd (ASX: REH).
Further, construction materials companies like CSR Limited (ASX: CSR) and James Hardie Industries plc (ASX: JHX) should also be excited if the stimulus leads to the construction of 30,000 new homes by Christmas, as intended.
It's a wasted opportunity that the scheme didn't target social housing. I think that is a better way to support the construction industry and wider community without distorting the housing market.
