Fix the FHOG

In times of crisis, governments often throw money at a 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 of new homes.

When property prices and rents rise, like they have been sharpish locally, affordability of housing for first home buyers should be 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. Values are capped at $750,000 for metropolitan buyers. Those buying an established home get nothing other than a transfer duty exemption for properties purchased at a value under $450,000 – way too low.

The current system is flawed

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 $250,000 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 $600,000. A first-home buyer acquiring this home pays $22,515 in stamp duty and doesn’t get the grant; that’s a $32,515 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 $450,000 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 the COVID-19 stimulus come higher build prices that continue to rise in WA. The $10,000 grant is no match for such increases. 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.