The Queensland government’s decision to double the first home owner grant is just the latest in 20 years of governments stoking demand for housing that makes affordability worse.
The Queensland Government recently doubled the First Home Owners Grant (FHOG) to $30,000 for new builds valued under $750,000. The measure, described by Premier Annastacia Palaszczuk as a “small step to help people get into the market”, comes at a time when property prices in Queensland are at a historical high. Nationally, house prices across Australia have skyrocketed relative to income, and it’s now tougher than ever to pay off a mortgage. As a result, homeownership has dropped five percentage points over the last decade alone. Most young people now believe their only entry into the housing market will be through inherited wealth.
Cash grants to first homebuyers were first introduced in 1964 by the Menzies Government as the ‘Home Savings Grant’. The scheme offered $500 to married or engaged couples under the age of 36 to buy a home. Several iterations of the scheme followed: the ‘Home Deposit Assistance Grant’ under the Fraser government, the ‘First Home Owners Assistance Scheme’ under Hawke (who later abolished the scheme), and then finally as the ‘First Home Owners Grant’ by the Howard Government. State and territory governments, for their part, have often provided top-ups to the scheme – similar to the recent Queensland government measure.
The basic premise of the FHOG is that it lowers the deposit barrier, or cost of entry, into the housing market. Governments commonly claim that the scheme therefore broadens the pool of Australians able to buy a home to those would otherwise be unable to access homeownership.
However, the efficacy of the FHOG in practice is widely disputed – and with over $20 billion going to FHB assistance over the past decade alone, it is critical that such schemes actually deliver what governments say it will, rather than simply giving the appearance of action on Australia’s much-maligned housing crisis.
For one, the FHBG does not appear to significantly increase housing accessibility for new entrants into the market. Instead, research has found that the scheme more commonly tends to accelerate the purchase of a home for those already planning to do so. So, rather than broadening access, the scheme simply tends to hasten purchase for those already about to buy a home.
Second, the FHBG tends to increase the purchasing power of first homebuyers, but in doing so it tends to further inflate house prices. This is because demand-side policies that give people more money to spend on housing tend to just end up increasing prices more. This suggests that the scheme may actually reduce housing accessibility in the long term – the very problem that such measures are designed to address. In turn, it suggests that the FHBG tends to benefit existing homeowners who will profit from their property prices increasing – and disadvantage future first home buyers, who will be forced to pay more for a home.
Instead of narrowly focusing on cash grants to first homebuyers, governments need to address the structural reasons why the Australian housing market is so unaffordable. We need to reinvest in our dwindling stock of public housing and stop helping investors with massive tax concessions to outbid first home buyers.
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