CHANGES TO THE FIRST HOME OWNER GRANT (FHOG) HAVE MADE NEWS THIS WEEK AND THERE WILL BE PLENTY OF INFORMATION ABOUT WHO IT AFFECTS AND WHAT IT MEANS FOR YOU. BUT WHAT DOES IT MEAN FOR THE MARKET AND THE STATE?
The fact that we are under building is not questioned. The National Housing Supply Council estimates that WA has a shortfall of about 32,000 homes. Last year the WA population grew by 83,000 people who statistically would require around 32,000 dwellings but only 24,350 dwellings were approved for construction last year, 22,987 to be built by the private sector. The shortfall is growing.
In the short term the extra $3,000 will not encourage new buyers into the market as they still have to save at least $22,000 for the deposit based on a $320,000 home. What it may do is delay some buyers looking at existing homes as they could be short $4,000 for their deposit.
In the longer term the additional funding may push some buyers towards new dwellings but even Treasury is not expecting a stampede with their figures indicating just 5.6 percent of first homebuyers shifting from established to new properties.
The change, however, makes a significant difference to the State’s bottom line. In 2011-12 the State Government paid $105.7m in FHOG which rose to $133.8m last year, $22m over budget. This year’s budget shows that figure being clawed back to $108.8m.
Whilst stimulating construction is important, the role of the first home buyer more nuanced; first home buyers can help to balance out the product mix in Perth which skewed towards large housing when policy settings worked against the construction of smaller unit development and the booming economy meant that a four bedroom home became the norm. Policy changes and market drivers are slowly addressing the imbalance.
The other very important thing that first home buyers do is to “soak up” existing stock in the market and can be a catalyst for market recovery. The concept is simple; people usually can’t trade up unless they have somebody to buy their existing dwelling. Without first home buyers purchasing existing property the market can get sluggish.
UDIA believes that we need to have a review of market levers such as the FHOG and taxes such as Stamp Duty to fully understand how they influence the market and have long term structural reform to achieve the outcomes required by our growing state.