The History of the First Home Owner’s Grant

Legislation can have a sizeable impact on property demand and prices. Tax credits, deductions and subsidies are some of the ways the government can temporarily boost demand for real estate for as long as they are in place.

In Australia, the first home owner’s grant is considered one of the biggest failures of government policy in the past 50 years, as many feel that the extra cash simply encouraged owners to bump up the selling price, making it harder for the young and those on lower incomes to get a foot in the housing market. Evidence of this is the fact that the highest level of Australian home ownership was in the 1961 census, three years before the government first initiated the first home owner’s grant.

It started in 1964 with a grant of $500 (equivalent to approximately $6,000 in today’s terms). To offset the effect of GST on home ownership, the grant was increased to $7,000 by the Howard government in 2000. A year later, Howard attempted to incentivise construction by doubling the value to $14,000. In the midst of the GFC, the Rudd government added a boost to the grant, attempting to stimulate further development with buyers of existing homes receiving $14,000 and new homes $21,000. After the impositions of these policies, national property prices reached unprecedented highs in 2010 that are only now being exceeded.

Despite the obvious cash benefits, leading economist Saul Eslake has attacked the policy of providing grants for first home buyers, saying they have cost taxpayers more than $22.5 billion since 1964 and fuelled the fall in first home owner levels to record lows of 12.3 per cent in November of last year.

We are seeing first home buyer demand clashing with constrained housing supply, resulting in price increases that are effectively reducing the benefit of the first home owner’s grant. It seems changes to the current grant will not modify this affordability issue as the recent price growth is primarily investor driven, leading many policy makers on a quest for a new solution to affordable housing for future first home owners. What this will look like in the future remains to be seen, but visionary decision making is required.


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