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. Whilst unsustainable long-term, the resulting economic stimulus to the building and construction sector helped carry the nation through the GFC better than any other developed economy.
This stimulus helped lift WA’s property transactions to 71,000 in a year. Nowadays, it’s less than half that at just over 30,000. The FHOG has undergone many iterations since its introduction by the Howard government 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 keen on 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, the $10,000 grant is sometimes absorbed by builders who raise the cost of their entry level houses by the precise amount of the FHOG. 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 contribute 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. Finally, the FOHG undermines the values of established properties in emerging areas by effectively removing the demand base for homes throughout the more affordable city fringe suburbs. The effective maximum difference to a first home buyer purchasing land at say $300,000 and building a $230,000 home versus buying an established residence for $530,000 is a significant $29,190.
REIWA has suggested to the McGowan government that whilst we understand the 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 distorts the market, contributes to urban sprawl and puts the established housing market at greater risk of negative equity.
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