WA buyer’s grant ‘flawed’
When the global financial crisis hit in 2007, the then Rudd Government raised the First Home Owner Grant to $14,000 for established homes and a whopping $21,000 for new builds.
This stimulus helped lift WA’s property transactions to near 70,000 by 2009.
Today, transactional activity is less than half that, with just over 30,000 total transactions recorded for the year so far.
The FHOG has undergone many iterations since its introduction and now sits at $10,000 for first-time buyers keen on buying a new dwelling that has never been lived in or who want to buy land to build on. Those who purchase an established home get nothing other than a transfer duty exemption for properties purchased at a value under $430,000. In Tasmania and the Northern Territory, the FHOG for both established and new builds remains at $20,000.
WA’s current system is flawed for a number of reasons.
Firstly, the $10,000 grant is often simply passed onto builders, who I’ve seen raise the cost of their entry level houses by the precise amount of the FHOG whenever it is raised.
Secondly, first-homebuyers choosing a newly built apartment only get zero transfer duty relief up to a purchase price of $430,000, whereas those that buy land and build from scratch don’t pay duty until the land value exceeds $300,000.
WA’s FHOG policy encourages first-homebuyers to buy cheaper land on the city outskirts, contributing to urban sprawl.
This is contrary to the State Government’s desire to improve infill opportunities across Perth.
Thirdly, land developers will often incentivise building company representatives with commission payments for them to push home builders into buying land in certain locations. These commissions are clawed back by increasing the construction cost, which is already inflated by the availability of the FHOG.
Finally, the FHOG undermines the values of established properties in emerging areas by removing demand for homes in affordable areas such as Baldivis, Alkimos and Armadale.
While there’s a need to support the building industry and those who work in it by incentivising first-homebuyers, splitting the FHOG to $7000 for new and $3000 for established would help recalibrate buyer behaviours and encourage growth in the established market.
Overall, the FHOG has been around for too long and should be removed. Transfer duty and other taxes that act as barriers to economic growth (payroll tax the classic example) should also go.
It is one of REIWA’s key policy positions that these barriers be replaced with a broad-based land tax regime that loosens the shackles on the property market, encourages trade-up activity and releases more affordable entry level established housing.