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October 26, 2010

First homebuyer incentives

Unless help is granted to our younger generations, the property market will split down the middle and turn the wheel on the long-term trend of home ownership.


Despite lacklustre moves in recent median figures, RP Data recorded a bountiful 17.2 per cent rise in Australia’s residential median since the final quarter of 2008 and the second quarter of 2010. Along with this, other stats collected by RP Data for the same time period show a dramatic decrease in the number of properties selling below $500,000. In 2008 a little over 73 per cent of Melbourne sales were priced below $500,000, however during the second quarter of 2010 this figure dropped nearly 20 per cent to just over 55 per cent. Results were similar across all Australian capital cities and it wouldn’t take much of a jump to assume affordable opportunities were fast disappearing.

In essence the results have much more to do with compositional changes in the market initiated by the first homebuyer boost at the end of 2008. However they present a very interesting insight into first homebuyer trends and an impeding property ownership crisis which needs to be addressed immediately.

For a better understanding we need to take a brief backward glance at movements in the market since the onset of the world’s financial traumas.

Mid 2008 values suffered from reduced demand. Non-first homebuyer and investment loans were down around 15 per cent in some states. Nationally our market recorded an approximate four per cent drop and the outlook was concerning.

The government came to the rescue in July 2008 with the introduction of the First Home Owners Boost. Breathing life into the market, the number of sales below $500,000 rose considerably. Conscious of the grant cut-off date buyers came out of hibernation and loan commitments hit a record 28.5 per cent, for the first time exceeding those of non-first homebuyers. Overall, grant recipients accounted for 40 per cent of housing turnover.

Extra dollar incentives were offered for purchasing ‘new’ properties in developing regions and this is where most of the buying activity centred.

Fast forward to 2010 and Gen Y is still struggling to make a footprint into the property market. In stark contrast to 2008, lending is at a six-year low – now only 15.5 per cent. The current average first homebuyer loan is just $282,500 and with limited options available in this price bracket, it’s no surprise the vast majority currently opt to either live at home or rent.

There are sound and urgent reasons why this issue needs to be addressed. It seems fair to speculate house prices can’t keep rising outside of inflation forever. However values have been rising since records began, with only a few fairly short-term downward trends. The reasons are partly due to increased lending structures which, since the 1980s, have allowed homeowners to take out loans with little more than a 10 to 20 per cent deposit.

Prior to the global financial crisis (GFC) 110 per cent loans were offered to first homebuyers. Thankfully due to mortgage insurance, low unemployment rates and growing demand, most loans have been well managed and default rates kept comparatively.

Unless we see a sudden drop in employment or substantial cuts in population growth (both unlikely scenarios), prices aren’t set to fall by any significant degree. Some buyers are utilising different borrowing strategies and purchasing under joint ownership. Skilled and cashed up immigrants are investing in residential real estate. The millionaire rich list is no longer so exclusive. In short, there is money out there and the desire for home ownership isn’t diminishing for those able to buy in. Currently approximately 65 per cent of Australians own property; this is down from around 70 per cent in 2001, and the number is decreasing.

It’s a catch 22 scenario. Population growth and affordability have resulted in record low vacancy rates fuelling the investor market and putting upward pressure on prices and rents

The only smart way to ease inflation is to make the move ‘outwards’ feasible and attractive for first homebuyers who are most adaptable to adjusting into newer suburbs away from the CBD. It’s not going to suit all homebuyers, however when government incentives are dangled like a carrot, these locations attract large numbers of buyers and the industry as a whole benefits. Newly-built homes are required to meet national building standards and have high construction costs. This, along with low numbers of new home sales, has tied the hands of smaller developers. Re-igniting the first homebuyer market and committing to a strategised plan to adequately facilitate these regions would be a great initial step.

Whether you’ve agreed or disagreed with first homebuyer grants in the past, time is not on our side to debate the finer details. Investment in new housing along with increased demand would have a positive impact on labour, business, and conversely the rest of the economy. We need to bat the ball once again into the first homebuyer arena and give our younger generations who desire the Aussie dream a fair go.

Catherine Cashmore is a senior property adviser and buyer advocate for JPP Buyer Advocates – the largest dedicated buyer advocacy in Melbourne. With extensive experience in all matters regarding real estate, JPP successfully purchases and negotiates over $100m worth of property each year for clients. http://www.jpp.com.au


  1. Well done Catherine, for bringing this serious issue up. Housing affordability has drastically spiralled downwards ever since the 1960’s where the Australian dream of owning your own home was very real.
    Today, this dream is more looking like history. Unless we help our future children, which we as society should be responsible for, the once great dream will infallibly be a thing of the past for our future generations.

    Comment by Steve Basin — October 26, 2010 @ 1:14 pm

  2. Agreed Steve – Cutting stamp duty on new homes and further increasing the bonus on new homes in regional locations should be a major consideration and introduced with a cut-off date to monitor effectiveness and stimulate demand. Construction costs the ease of lending should also come into the equation to keep opportunities affordable. The ABS has previously estimated that 1 million dollars spent on construction (residential or commercial) returns a possible 2.9 Million into the economy and subsequently gives rise to additional employment opportunities, not to mention the increased flow on effects in productivity. The advantages of helping first home buyers would have a positive ripple effect for all.

    Comment by Catherine Cashmore — October 26, 2010 @ 4:25 pm

  3. Living by the KISS rule, the current taxation system is the area that needs revising. Ken Henry’s recommendations that [Capital gains, rental, & interest income] should be treated equally is the most obvious one. Overhauling the unfair and illogical progressive state based land tax system by replacing with a flat federal land tax will be of enormous benefit to the rental market. Its the progressive land tax enacted by the states that deters professional firms with economies of scale to own and operate rental stock. It’s incredible in this day and age that we have mum and dad’s [PUNTERS] controlling the rental market.

    Comment by aushousingcrash — October 26, 2010 @ 7:40 pm

  4. Maybe so, all options are worthy of review – but it is vital we keep leased accommodation affordable. As well as growing demand for houses, we have growing demand for rental accommodation from incoming students & migrants with record low vacancy rates in some states. Therefore care needs to be taken to ensure we don’t push the boat in the other direction – when the tax system was last changed, Melbourne & Sydney in particular recorded sharp increases in weekly rents. There’s a fine balance.

    Comment by Catherine Cashmore — October 27, 2010 @ 7:49 am

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