Time to Fix the First Home Owners Grant

by Hayden Groves

In times of crisis, governments often throw money at the problem in order to maintain economic momentum. When the global financial crisis hit in 2009, 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 some regional towns back then, you could effectively get a free house.

COVID-19 brought with it a raft of stimuli including $20,000 from the McGowan government, $25,000 from the Feds and stamp duty rebates on top of existing assistance for first-time buyers.

When property prices and rents rise, affordability of housing for first home buyers becomes an area of policy focus.

The WA government’s 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 can devalue 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 (it would be a very small house nowadays) get $10,000 and pay no stamp duty. The other is an established home worth the same combined value of $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 the scourge of urban sprawl.

Thirdly, with drastic trade shortages thanks to the COVID-19 stimulus came higher build prices, reportedly up 23 percent in twelve months. The $10,000 grant is no match for such increases adding $76,000 to the cost of the average suburban home.

Overall, I think 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.