Industry groups have welcomed the federal government’s announcement it will extend the HomeBuilder program for another three months and raise price caps for homes in Victoria and New South Wales to reflect higher property values in those states.

Treasurer Josh Frydenberg and Housing Minister Michael Sukkar on Sunday announced the policy would be extended to the end of March, and support the construction or rebuilding of 15,000 more homes, bringing the total to 42,000 homes across Australia.

The government will raise the property price cap for eligible builds from $750,000 to $850,000 in Victoria and $950,000 in NSW, but decrease the value of grants to $15,000.

More than 6800 Victorians have applied for HomeBuilder grants with more than 5560 intending to use the money to build new homes.

Mr Sukkar said the scheme had stimulated the economy during the pandemic, and kept tradies in work.

"There is no better proof of HomeBuilder’s success than the latest Housing Industry Association’s new home sales data, which shows sales are 31.6 per cent higher in the three months to October 2020 when compared with the same time last year," Mr Sukkar said.

Builders had been inundated by demand, he said.

Labor's housing spokesman Jason Clare said the federal opposition had been calling for the scheme to be extended for months.

"These changes will help, but they are still not enough to stop the housing construction industry shrinking," he said.

"The Morrison spin machine says they are extending the HomeBuilder scheme because it has been so successful. The fact is they have to extend it because the original scheme was too small and was badly designed.