Time to read : 3 Minutes
Government Planning To Axe The First Homeowner Grant
The Victorian State Government may cut the First-Home Owner grant, in a potential overhaul in residential planning and housing affordability policies.
Under the scheme, first home buyers of newly built homes that are worth up to $750,000 can receive up to $10,000 to put towards the purchase. Scrapping the scheme could save the state around $157 million a year.
Key points (TL;DR):
The Victorian Government is reviewing the long-standing First-Home Owner Grant amid concerns of excessive development and rising property prices in city precincts.
The move could save an average of $157 million annually.
The grant may be scrapped in favour of enhancements to existing ownership assistance schemes.
Critics say the grant inflates property prices and indirectly benefits property developers more than homeowners.
With property prices increasing and housing construction lagging, homeownership rates have dropped, and rental rates have increased since the early 1990s.
Most first home buyers are using the grant towards 3–4-bedroom homes in growth suburbs, where houses can be built or bought for under the $750k threshold.
In the 2022-23 financial year, the most significant number of grant applications was recorded in Melbourne and Geelong’s growth sectors.
The government wants to promote homeownership in established suburbs. It could do this by cutting the grant and upgrading shared equity programs and stamp duty exemptions.
Hang on! What's this First-Home Owner Grant again?
Anyone buying or building a new home valued up to $750k, may be eligible for a First Home Owner Grant (FHOG) of $10,000. BUT the home must not have been previously sold or occupied and it must be the first home you have bought. This also includes your spouse, if you have one.
How does shared equity work?
First-home buyers need a 5% deposit and, under the shared equity scheme, the Victorian Government will contribute up to 25% towards the property price "in exchange for a proportional interest (share) in your property", according to the State Revenue Office.
And what about stamp duty exemptions?
If you buy a property valued at $600k or less, you qualify for first home buyer stamp duty exemption. This means you pay zero stamp duty. If your property costs between $600k–$750k, you'll qualify for a stamp duty concession.
Here's how it works.
Dutiable value | Normal duty | Discounted Duty |
|---|---|---|
Less than $600,000 | $31,070 | Zero (exempt) |
$605,000 | $31,370 | $1045 |
$625,000 | $32,570 | $5428 |
$650,000 | $34,070 | $11,356 |
$675,000 | $35,570 | $17,785 |
$700,000 | $37,070 | $24,713 |
$725,000 | $38,570 | $32,141 |
$745,000 | $39,770 | $38,444 |
$750,000 | $40,070 | No discount |
How is the grant affecting property prices?
The government issued 11,381 grants in the financial year ending June 30 at a cost of $123.6 million, a decrease of 42% from the preceding year’s expenditure of $213.2 million.
Infrastructure Victoria and other bodies claim the taxpayer-funded scheme indirectly benefits property developers through inflated prices rather than first homeowners.
Increasing property prices exclude younger people from the market, so they're left to compete for scarce, expensive rental properties.
And the increasing cost of building and interest rates just makes things worse for younger generations.
Homeownership proportions have dwindled from over 40% to slightly under 30% since the early 1990s. Rental properties have risen marginally, from approximately 27% to 30%.
What's the answer?
The Federal Productivity Commission suggests getting rid of first homeowner grants, so resources could be more targeted at "specific cohorts experiencing persistent marginalisation in the housing market".
The commission warned in an August 2022 report of a potential 'assistance spiral', where government assistance might fuel increasing property prices by raising demand, leading to more extensive support, further amplifying prices.
The Bottom Line
According to The Age the fate of the first-home owner grant will be announced in September, with the idea of its abolition "strongly in the mix".
Until then, first-home buyers will need to weigh the benefits of rolling the dice on buying a property now using the grant, or to gamble on better incentives down the track.
Go deeper: What can you do to avoid falling off an 'unprecedented' mortgage cliff?
Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
