Here’s 5 ways to help first home buyers into the market

We keep hearing that first home buyers are finding it hard to get a foot on the property ladder.

But is this true?

There is no doubt that first home buyers have always been a vital cog in the health of any property market, however, claims they are currently struggling to get on the ladder are not supported by official statistics, according to the Property Investment Professionals of Australia (PIPA).

Australian Bureau of Statistics (ABS) data shows the percentage of first home owners in the market is higher than the historical average. 

According to the latest data from the ABS, the percentage of properties financed to first home owners was 17.9 per cent in January this year.

Over 2018, the average percentage of properties financed to first home owners was also 17.9 per cent, which was slightly higher than the 10-year average of 17.6 per cent.

PIPA Chairman Peter Koulizos said property tax changes proposed by the Federal Opposition were seemingly developed to help first home buyers into the market, however, these figures show they are already active.

“The proposed changes may have the desired effect in improving housing affordability – but at what cost?” Mr Koulizos said.

Housing will become more affordable because house prices will drop.

Why does the ALP want to make housing more affordable for potential first home buyers by causing residential property prices to fall all over the country?

Why do they want to negatively affect 100 per cent of the property market?”

There are other ways to assist first home buyers

While first home buyer activity was certainly within a heathy range, Mr Koulizos said there were other ways to assist first-timers in the capital city markets in particular.

“I truly believe that first home buyers must get assistance to get into the property market because it is good for them, good for the property market, good for the economy and good for the whole community,” he said.

However, there are better ways to assist first-timers than causing everyone’s property price to drop to seemingly make it cheaper and easier for them to get into the market.”

Extend the FHOG 

The First Home Owner Grant (FHOG) has been limited to new properties for a number of years now, however, PIPA research shows that 80 per cent of first-timers buy established dwellings.

Likewise, only a small percentage of all properties are new.

“While restricting the grant to new properties was no doubt a strategy to assist the construction sector, it is very difficult to make housing more affordable for all when you are only focusing on just two per cent of all properties,” Mr Koulizos said.

State governments should extend the FHOG to include established properties, so we are not forcing first home buyers to buy new dwellings, which are generally found on the urban fringes or new units, which tend to be tiny apartments.

It’s unfair that first home buyers are almost being forced to buy a new property, which history shows us also won’t grow as much in value as an existing one.”

Limit the FHOG

To make it fair, the FHOG should be limited and it should be limited in two ways, according to PIPA.

Firstly, the grant should always only be available to those who wish to buy a reasonably priced property, which is already in place in most States and Territories.

Mr Koulizos said the FHOG should also be means tested.

“In other words, it should only be available to those on a reasonable income,” he said.

Households who are on an annual income of $250,000 per year don’t need as much assistance as those who are on $70,000.”

Increase the FHOG

The FHOG has not increased at the same rate as house prices – notwithstanding temporary boosts such as during the GFC or to stimulate the building sector. 

In 2000, John Howard introduced the $7,000 grant, however, fast track 19 years, and property prices have increased by a much greater rate than the grant.

For example, the original $7,000 grant was about 2.4 per cent of the Sydney median house price of $287,000 in 2000.

By 2019, the $10,000 New South Wales grant, which was restricted to new property only, was only about 1.19 per cent of the median house price of $840,000.

“It’s clear that the grant needs to be increased to reflect today’s property prices not what they cost nearly two decades ago,” Mr Koulizos said.

Also, a Productivity Commission report found long ago that grants do not increase property prices by the same amount.

The FHOG’s function has always been to help first-time buyers save a deposit.”

Interest free loans

If the government feels that they can’t afford to increase the FHOG, they could instead provide an interest free loan, according to PIPA.

A FHOIFL or First Home Owner Interest Free Loan could be more easily funded than a grant.

Mr Koulizos said the fund could assist first-time buyers to produce a 20 per cent deposit so they don’t have to pay Lenders Mortgage Insurance.

“When the first home owner sells their property, they need to pay back the amount they borrowed,” Mr Koulizos said.

If they sell their property in 30 years, the amount they pay back will seem insignificant but for those who sell within, say, 10 years, the payback is still a reasonable amount.

This money can then go back into a pool of government funds that is used specifically for interest free loans for other first home buyers.”

Shared equity schemes

The fifth way to help first home buyers into the market is shared equity schemes, which some state governments already have in place. 

Commonly, the state government would “sell” a property it owns, but in a shared equity scheme, it retains a share of it.

“Instead of selling on the open market, they make their homes available to purchase to a certain section of the market, who need to meet income and asset criteria, for, say, $400,000 and the state government retains $100,000 equity,” Mr Koulizos said.

In this example, the government has a 20 per cent share of the property.

The purchaser of the property can either buy out the state government’s share at some stage or, alternatively, they need to give them 20 per cent of the proceeds when the property is sold.”

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.