In this article, CoreLogic Director of Research Tim Lawless provides an analysis of the pros and cons regarding the Queensland government's plan to increase the first home buyers grant.
The Queensland government announced it will double the first home buyers grant, from $15,000 to $30,000. The increase took effect as of Monday, 20th November, and will last until mid-2025. The grant is available for those buying or building a new home (including granny flats and relocated homes) valued at less than $750,000.
Before we jump into the pros and cons of this ‘boost’, it’s worthwhile providing a quick refresher on Queensland’s housing trends and some of the challenges confronting both first home buyers and the construction sector.
- The median price of a new house in Brisbane (based on sales over the 12 months to August) was $717,000 and the median price of a new unit was $590,000.
- Across regional Queensland, the median price on a new house was $570,000 (ranging from $909,000 on the Sunshine Coast to $288,000 at Mount Isa) and the median new unit price was $495,000 (ranging from $686,000 on the Gold Coast/Tweed Heads to $277,000 at Yeppoon).
- Housing values have increased at a much faster rate than incomes, raising the barriers to home ownership. Queensland household incomes are up by approximately 21.4% over the 5 years to September 2023 while housing values across the state have increased by more than double the rate, up 50.1% over the same period.
- From a supply perspective, dwelling commencements across Queensland are trending lower, tracking 16.5% below the ten year average and the pipeline of approved supply is tracking about 18% below the decade average.
- First home buyers account for 26.3% of owner occupier mortgage demand across Queensland, which is slightly above the decade average of 25.0% but among the states, this is the second lowest proportion of first home buyer participation (after NSW at 25.0%).
There are some merits to a stimulus focused on supporting home ownership for first home buyers that channels demand into new, rather than established housing supply. First home buyer participation across Queensland is low relative to other states; arguably an incentive like this will have the dual benefit of raising first home buyer activity and facilitating a lift in housing supply.
As we have seen in the past, first home buyer incentives that help prospective buyers over the barriers to home ownership are typically very popular. The largest barriers to entering the housing market tend to be saving for a deposit and funding transactional costs including stamp duty.
The last time a temporary boost was made available for the first home owners grant was during the Global Financial Crisis, in October 2008, when a first home buyer purchasing or building a new home could receive an extra $14,000 (later reduced to an extra $7,000 on 1 Oct, 2009) on top of the $7,000 first home owner grant. The number of first home buyers across Queensland rocketed higher on the announcement of the boost, jumping 36% between October and November 2009 before reaching a historic high in April 2009 (Queensland first home buyer activity almost equalled the 2009 high during the temporary provision of the HomeBuilder grant, which, alongside emergency low interest rates, was also popular with first home buyers). When the boost for new homes was halved, from $14,000 to $7,000 at the end of September 2009, first home buyer activity fell, before dropping to well below average levels once the boost expired in December 2010.
Number of first home buyer mortgage commitments, Queensland
Importantly, following the expiry of the First Home Owners Grant Boost in 2010, first home buyer activity slumped, demonstrating a downside symptom of demand-side stimulus measures: the incentive brings demand forward for first home buyers who may have ended up purchasing property anyway. Once the incentive expires, demand drops sharply to be lower than it was pre-incentive. These measures don’t do much for ownership long term, and may actually do little to add to home ownership.
There are other downside outcomes to demand-side stimulus measures like this. The first home buyer boost comes at a time where the residential construction sector is facing margin pressures due to the surge in construction costs between late 2020 and mid-2023. Although material costs are no longer rising rapidly, they remain elevated and trades remain in short supply. Additional demand flowing into the residential construction sector could reignite cost pressures. Arguably, the HomeBuilder grant had a similar effect, creating an unusually strong surge in demand, which has only added to pressures in the construction sector. Considering the cost of new dwelling purchases by owner-occupiers holds the highest weighting in the CPI ‘basket’, any renewed upward pressure on construction costs would be bad news for inflation.
There is also an argument that stimulating first home buyer demand with financial incentives could simply inflate housing prices up to the limit of the grant, adding to affordability pressures down the track. Arguably, a better long term outcome would be derived from focusing on supply-side policy aimed at boosting the number of residential homes without the demand-side incentive. This could be achieved via additional funding for social and community housing, more spending on strategic infrastructure projects that can make ‘cheaper’ housing better connected and more desirable, or by improving supply-side ‘blockers’ such as fast tracking the removal of red tape or speeding up town planning reforms.
For demand-side policies, a better model may also target specifically lower income households, so as not to just bring forward purchasing decisions within the timeframe of the grant, because these may have been transactions that would happen anyway. Temporary demand-side policies for all purchasers can be particularly distorting for economic activity because they create short-term, volatile movements in housing demand.
Overall, this new boost for Queensland first home buyers is likely to be a popular policy for those looking to access home ownership, but the unfortunate reality is this policy isn’t likely to improve housing affordability in the long run, in fact, it could make it worse for first home buyers down the track.