First Time Buyer Incentives Are Bad News

In the DFA Property Imperative Report we highlighted the fact that First Time Buyers (FTB) are having difficulty buying in some markets, especially NSW and VIC. In Tasmania, where FTB are still active, the Government there recently lifted the FTB grant to $30,000 (close to 10% of the average first home in TAS). We have looked at what happened when Labor lifted the grant as part of the post GFC stimulus, and the results are clear. There was a spike in new FTB sales, (close to 30% of all new loans at its peak) as buyers accelerated their plans to buy and take advantage of the deal. But prices lifted by the amount of the grant, or more, and there was no adjustment back after. First Time Buyer transactions had a small trickle down effect on households looking to trade-up, and this flowed into price increases up the market. The increase in transactions flowed stamp duty revenue to State Governments. We also know that about 30% of those FTB who entered leveraging the incentive scheme are still in financial difficulty, thanks to rising power, water and rates, and this despite a current record low RBA bank rate.

Our net conclusion is that a broad based FTB incentive scheme is bad for the market and for households. Those targeting only new builds are better, but new builds only make up a small proportion of the total, and these properties are often on the outskirts of Cities without good transport links to work places. The better option would be to take away barriers which exist on the supply side of property, especially on brown field sites. We need another 250-300,000 residential units nationally to meet current demand. Supply side strategies could lower prices in the process. However, as the most significant barriers relate to State Government charges for new development, there would be resistance to turning off this revenue supply anytime soon. I fear more Governments will look to expand FTB incentives on existing property and take the cash generated from stamp duty and development charges, rather than adopt a more strategic approach. This will lift property prices even higher.


Author: Martin North

Martin North is the Principal of Digital Finance Analytics

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