TIME TO FIX THE FHOG

Disclaimer: 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.

When the GFC hit, the then Rudd government raised the First Home Owner’s Grant (FHOG) to $14,000 for established homes and a whopping $21,000 for new builds. In Tasmania and Northern Territory, the grant for both established and new builds remains at $20,000.

This stimulus helped lift WA’s property transactions to 71,000. Today, it’s less than half that at just over 30,000. The FHOG has undergone many iterations since its introduction and now sits at $10,000 for those first-time buyers keen on buying a new, never lived in dwelling or buying land and building. Those buying an established home get nothing other than a transfer duty exemption for properties purchased at a value under $430,000.

The current system is flawed for a number of reasons. Firstly, it devalues established homes in areas where first-home buyers are most active. Consider two properties side-by-side. One is a vacant lot worth $300,000 whereby a first home buyer can build a $230,000 home on, get $10,000 and pay no stamp duty. The other is an established home worth the same $530,000. A first-home buyer acquiring this home pays $19,190 in stamp duty and doesn’t get the grant; that’s a $29,190 difference, softening demand for established homes in these emerging suburbs.

Secondly, first-time buyers choosing a newly built apartment only get zero transfer duty relief up to a buy price of $430,000 whereas those that buy land and build from scratch don’t pay duty until the land value exceeds $300,000. This encourages first home buyers to buy cheaper land on the city outskirts, contributing to urban sprawl, contrary to the government’s desire to improve infill opportunities across Perth.

Thirdly, land developers will often incentivise building company representatives with commission payments for them to push home builders into buying land in certain locations. These commissions are clawed back by increasing the build cost already inflated by the availability of the FHOG.

Whilst there’s a need to support the building industry and those that work in it by incentivising first home buyers, splitting the FHOG to $7000 for new and $3000 for established would help recalibrate buyer behaviours and encourage growth in the established market.

Overall, the FHOG has been around for too long and ultimately should be removed. Transfer duty and other such taxes that act as barriers to economic growth (payroll tax the classic example) should also go, replaced with a broader based land tax regime that loosens the shackles on the property market, encourages trade-up activity and releases more affordable established entry-level housing.
by Hayden Groves
dG Principal