Home buyers will receive a large cash incentive to purchase new builds under a government scheme expected to be announced this week.

After industry groups warned new-home building could fall 50 per cent over the next year, Sky News reported on Sunday that the federal government will announce a new grant for anyone who wants to buy a new home “as early as this week”.

Treasurer Josh Frydenberg and Assistant Treasurer Michael Sukkar hope the grant will turbocharge the economic recovery by propping up an industry that employs roughly 10 per cent of the workforce.

But Grattan Institute household finances director Brendan Coates said grants that boost the purchasing power of prospective buyers will lead to higher house prices.

He said the proposed scheme would also suffer from a lot of “leakage”, with governments wasting “a lot of money on grants to those who would have bought a new home anyway”.

“And many homes [that will be] purchased through the scheme are probably already under construction, or have already been built and are just waiting for a buyer,” Mr Coates said.

In fact, some of the big winners from this will probably be investors who are going to purchase a new home … and also a lot of developers that already have homes that they’re trying to sell.”

Mr Coates said building more social housing would be a more efficient way of stimulating the residential construction industry – and by extension supporting the economic recovery – as this would ensure new homes are built and stimulus is pumped into the economy.

Housing Industry Association chief economist Tim Reardon agreed now was a good time for government to build more social housing, as there’s little risk of crowding out private-sector investment during such a weak economic period, and an abundant supply of skilled tradespeople means government is “more likely to get a better price”.

Treasurer Josh Frydenberg is expected to announce more grants for home buyers this week.

However, Mr Reardon pushed back against suggestions that grants for new-home buyers will drive up house prices.

“The reason we saw rapid house price increases during the past decade was because we didn’t build enough homes in the preceding decade,” he told The New Daily.

“The first thing we need to do to address the affordability challenge is to increase the supply of new homes.”

Mr Reardon added that current forecasts suggest builders will start running out of work in July.

Meanwhile, University of New South Wales economics professor Richard Holden told The New Daily that grants for new-home buyers “made reasonable sense”, as they should encourage more construction.

Limiting the grants to new builds will reduce the chance of house price inflation, he added, as it will increase supply at the same time as increasing demand.

• Read more: Construction activity hits all-time low

Tweet from @JasonClareMP

Sky’s report comes after Labor housing spokesman Jason Clare on Saturday called on the government to announce a housing stimulus plan to prevent another wave of job losses – weeks before, he urged super funds to work with government to build more social housing.

Mr Clare said the government should expand the First Home Loan Deposit Scheme (which helps eligible first-home buyers purchase a home with deposits as low as 5 per cent of the purchase price) to all people wanting to build a new home.

Meanwhile, Shadow Treasurer Jim Chalmers suggested during an interview with Sky News on Sunday that Labor would support more grants for new-home buyers – subject to the final details of the scheme.

Asked whether grants would be enough to help the sector, Dr Chalmers said: “We’ve said social housing should play a part, repair and maintenance has a role to play, [and we need] a program to try and house our essential workers closer to where they work”.

“We’ve said we’ve got an open mind on grants,” Dr Chalmers added.

“And as recently as yesterday we put an idea on the table to lift the cap on the [first home] loan deposit scheme to try and incentivise new builds as well – because what we really care about is jobs for tradies.”