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Should the First Home Owner Grants be scrapped?

As state governments fork over billions of dollars to first home buyers to aide in the transition of young people from the rental market to the housing market, some experts are calling for the scheme to be axed, insisting that it’s adding to the ongoing housing affordability crisis in Australia.

According to a report in WA Today, the Western Australian government has contributed over $1.6 billion to the first home owner’s grant during the past 11 years and is now reviewing findings from a government analysis of the scheme.  

Although State Treasurer Christian Porter would not comment on the contents of the review due to its status as “COAG in confidence”, it’s expected to highlight the fact that the grant has significantly contributed to rising house prices, particularly at the bottom end of the market.

Data from the Australian Bureau of Statistics reveals that in the ten years since the grant’s introduction in July 2000, the average house price in WA has increased from $125,000 to $425,000.

Further, some are questioning the efficiency of first home buyer concessions associated with the grant given that home ownership has continued to fluctuate between 68-72 per cent since 1964 in spite of the initiative, according to economist Saul Eslake.

A vocal opponent of the grant, Eslake says there’s been a marked decline in home ownership rates in every age group below 50 over the past twenty years.

“[First-home owner grants] are a complete waste of money,” he says.

“All they do is increase the price of housing by that amount. There’s almost 50 years of evidence to show that when you give cash to would-be home buyers … the price of the housing they buy goes up by at least that amount.”

Others agree that the grant is handed out in a “free for all” fashion. Senior economist with Australian Property Monitors www.apm.com.au Andrew Wilson, says it should only be used as a spending stimulus in times of significant economic downturn rather than the permanent policy that exists today.

“It has a role to play, because of Australia’s embedded culture of home ownership, in stimulating the economy when we’re confronted with significant economic downturn or economic shock. It’s one of the aces you play that can give some stability to the marketplace,” he says.

“But whether the benefits for first home buyers doesn’t really just end up in higher prices over the longer-term is another question.”

WA Greens are asking for the scheme to be phased out in two stages, firstly by introducing a means test and then using the funding to buy social housing instead. WA Greens Senator Scott Ludlam points out that the $1.6 billion spent in WA on the FHOG makes the $500 million allocated to social housing up to 2020 seem comparatively insignificant. He says that money could have paid for nearly 5500 public houses.

“We’re just shovelling money into people’s pockets where it goes straight into land values,” he says.

“If it was making housing more affordable or led to a sustained supply of housing there would be an argument for it, but it’s not.”

Property Council of WA executive director Joe Lenzo says increasing the supply of homes rather than providing a grant to all first home buyers would be a far better way to address the continuing affordability issue.

“First-home buyer grants do assist in getting people into that first step in the property market, however, the general feel is that they’re inflationary and actually push up the price of the property,” he says.

An alternative suggested by the Council is stamp duty relief for all buyers purchasing off-the-plan apartments and houses from the government, which could cost about $15,000-20,000 per property. He says this would provide the required level of stimulus to encourage new home construction by being offered to all buyers rather than simply those wanting to get a foot on the property ladder.

“We believe that’s a better method than first-home owner grants because it’s not a handout by the government but it’s an acknowledgment … that affordability is an issue in WA,” says Lenzo.

“The WA residential market is in crisis, it really needs some form of stimulus and this is stimulus the government can give without handing out cash.”

Most experts in the WA property industry agree that the government’s focus should be on increasing housing supply rather than throwing money at first home buyers, with a looming critical accommodation shortage on the horizon as the state’s population continues to grow.

“The issue we have in WA is that developers are not building and realising enough land and homes and we’re going to get in the situation – when demand comes back – where prices will start to skyrocket, as they did three years ago,” warns Lenzo.

Eslake says removing the FHOG would help to improve housing affordability for first-home buyers because prices would inevitably fall, but governments are reluctant because the vast majority of Australian voters already own property and they would be the ones to lose out if prices were to drop.

“That’s why they should be called existing home owners’ grants,” he says.

“If you give money to people that boosts demand without doing anything to boost supply what do you think will happen to prices? They’ll go up, and that’s exactly what happened.”

Source: WA Today



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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 his opinions are regularly featured in the media. Visit Metropole.com.au


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