A Home Renovation Tax Credit similar to that introduced by the Canadian government in January this year, could be just the type of measure called for by IMF Chief Economist Olivier Blanchard and should be part of the Rudd’s May Budget stimulus package.
Under the measure, anyone who spends money on eligible home renovation items would be able to claim a temporary 15% income tax credit. By spending a minimum of $1,000 up to a ceiling of $10,000, Australian renovators could receive up to $1,350 in tax relief, just like their Canadian counterparts.
I believe this is just the type of stimulus measure called for by IMF Chief Economist Olivier Blanchard. Mr Blanchard told The 7.30 Report’s Kerry O’Brien on Thursday night that temporary tax cuts that brought forward the timing of demand were better than randomly distributed funds that consumers tended to save rather than spend.
He cited the temporary subsidies to French and German consumers who turn in a clunker and buy a new car as an example. A Home Renovation Tax Credit would do just as well.
In a guest article for The Economist earlier this year, Blanchard also suggested governments focus on measures that “undo the effects of the wait-and-see attitudes of consumers and firms on the demand side. Get them to spend more, and have the state do some of the spending itself. Offer incentives to buy now rather than later.”
What should be eligible?
The eligible items should include alterations to a home or its yard that are enduring in nature, not ordinary maintenance items. Examples might be renovating a kitchen or bathroom, installing new carpet or timber floors, building an addition, deck, fence or retaining wall for example.
Such an initiative would have a significant effect on the economy. Part of the reason is because the Australian renovation market is larger both in value and the number of individual building jobs than the new home building market.
Why it will have an impact
According to industry forecasters BIS Shrapnel, the yearly value of the new home industry is about $ 24 billion and involves the construction of about 100,000 detached homes. In contrast the yearly value of the renovation market is about $26 billion and involves about 160,000 ground and upper floor additions and over 1.2 million kitchen and bathroom renovations.
The First Home Buyer Grant is used to help fund the construction of a new home versus the purchase of an existing home, on only about 20 % of the occasions - which does stimulate construction jobs growth. However in contrast, all of the Home Renovation Tax Credit would stimulate jobs growth.
As the Canadian Prime Minister said when he launched their initiative as part of his government’s Economic Action Plan: “Every time Canadians invest in home renovations, they are helping to create construction and building-supplies jobs in their own communities. By providing an incentive for Canadians to invest in their homes, we are also encouraging them to invest in local jobs.”
How it could also help reduce emissions
In addition to stimulating jobs, an Australian Home Renovation Tax could also help drive a reduction in emissions from building. Authors Geoffrey London and Simon Anderson write in the introduction to their recent book Take7 that “the legacy of our built environment is crucial to the future, as 80% of the buildings existing in 2050 exist now.”
They reveal a project designed by architects Roderick Simpson and Christopher Kelly. They argue that while renovation costs more money than demolishing and building from scratch, it only creates a third of the greenhouse gases.
I believe that because of these factors, more effort should be directed at driving renovation growth. It will give Australians a bigger bang for their collective bucks - as well as their own bucks back in their pocket.
What adds value?
If the tax credit becomes a reality I recommend that renovators consider what alterations will add most value. Re-doing kitchens and bathrooms are popular but need to be done cannily to break even in the short term. And with the average cost of a new kitchen ranging up to about $30,000, according to research done by building advisory body Archicentre, a new ensuite might be more sensible. You should be able to do a good renovation of an ensuite for about $9,000 or $10,000.
On the other hand, while a completely new kitchen might blow the budget, re-furbishing one with new bench-tops may be affordable. This is a great, cost-effective way to breath life into a tired kitchen.
I know of a couple who recently updated their 15-year old kitchen by covering their five metres of bench-space with an engineered granite that fuses transparent tempered glass and semi-precious man-made stone fragments. They spent about $3,500 on the bench-tops and another $700 having the same material installed on the kickboards, at a total cost of $4,200. The effect on the open-plan living and dining areas that adjoin the kitchen was astounding.
You should really explore other value-adding alterations that may maximise the $10,000 ceiling as well as energy efficiency. New energy efficient windows might be a good choice because they’ll help lower energy bills today as well as increasing the selling price of your home tomorrow.
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This morning I went looking for copies of the umpteen articles I’ve read about apartment design trends - the ones that talk about the growing trend in built-in storage and having everything concealed - even kitchens. Of course I can’t find them once I want them!! However, my guess is that what will add more value for your apartment will be the joinery - as long as it’s done in neutral colours.