The First Home Owner’s Grant (FHOG) first introduced by the Howard government upon the commencement of the Goods and Services Tax in July 2000 has played an important part in underpinning the lower end of the property market. With the onset of the Global Financial Crisis, the Rudd government doubled the $7000 grant for established housing and to cushion the GFC blow to the building industry, first time buyers purchasing land and building got a not insignificant $21,000.

The state government then added to the assistance package by removing the duty payable upon buying properties under $500,000, a saving of $19,665. Concessions for duty payable continue until you pay more than $600,000 for your first home whereupon the duty concessions necessarily cease. These thresholds were changed last State budget to $430,000 & $530,000.

A first home buyer is currently gifted $29,190 by the tax payer if buying land and building at $430,000 and $22,190 if buying established housing. Is this money well spent?

Certainly, it has helped prop up faltering property markets in dark economic times but it has also helped to artificially inflate property values particularly evident during the Rudd government’s GFC splurges. When these $14,000 & $21,000 hand-outs ended in December 2009, market values stalled and sales volumes fell. More recent changes grant $10,000 to first time buyers that build new homes and $3,000 is gifted to those buying established homes.  It is fair to question the prudence of a fiscal policy that artificially stimulates any market sector as once a hand-out is in place, it is very difficult to not adversely affect a market upon their removal let alone the political bravery requisite in doing so.

However, these grants and concessions have afforded young folk the same dreams and ambitions older Australians have enjoyed when housing affordability was not considered a problematic social issue. In 1995 I bought my first house for $92,000 with a yearly salary of $26,000. Stamp Duty was paid and there were no grants to be had. That humble house is now worth about $460,000 and the equivalent job pays about $70,000. The house price has more than quadrupled yet the wage has a smidge more than doubled with the ratio of value to earnings moving from 3.5:1 to 6:1 in this example.

As sales volumes continue to trend downwards, governments can no longer afford to rely so heavily on duties as such a significant source of revenue nor can they chase up the market with higher and higher first home buyer concessions.

It is a complex matter and it is probably prudent to provide assistance to first time buyers but I am not entirely convinced that concessions and grants provide a long term fix.

These comments are the writer’s own and do not necessarily reflect the current opinions and policies of the Real Estate Institute of Western Australia.