Victorian FHB property choices unlikely to be dictated just by government incentives

Analysis of the latest Victorian first-home owner grant (FHOG) application statistics suggest first-home buyers (FHB) will not be easily corralled into buying  a new property over an existing one with individual market dynamics dictating buying preferences.

From July 1 a new $10,000 first-home owner grant will only be available to build or buy a new home in Victoria, but those who buy an existing home will lose the existing $7,000 incentive.

Property Observer analysis of $7,000 FHOG applications in the top 10 Victorian postcodes suggests FHBs are primarily making purchase decisions based on what type of property predominates and makes sense within any given market.

For example in postcode 3754, which incorporates the City of Whittlesea suburbs of Doreen and Mernda, where new housing estates are planned, nearly nine out of 10 grant applications are for new homes.

Similarly, in the Melbourne CBD (postcode 3000), where new apartment projects prevail, nearly two-thirds (61%) of FHOG applications are for new homes.

However, in contrast, postcode 3350, which incorporates established suburbs close to the Ballarat CBD, grant applications for existing homes outnumber those for new homes by a healthy margin.

Similarly in a suburb like Croydon, where most of the new housing blocks were sold and developed in the 1990s and early 2000s, FHOGs for existing home dominate making up 81% of applications.

In the top FHOG application postcode of 3029, comprising the suburbs of Hoppers Crossing and Tarneit, there is a fairly even split of grants for new and existing homes, reflecting both the prevalence of new master-planned housing estates such as Tarneit Gardens being developed by Peet and Williams Landing near Hoppers Crossing, being developed by Cedar Woods as well as a fair supply of existing homes.

Analysis of the figures suggest that a one-size fits all approach to incentivising FHBs is unlikely to be very successful as an overall strategy, though it may succeed in suburbs where new house sales predominates such as in the inner city or those on the outskirts.

Developers in some of the outlying suburbs, where grants for new homes predominate, may see a rise in demand for homes in their communities.

However, any artificial rise in demand may only encourage developers to push up their prices – as has been argued by many analysts (from BIS Shrapnel to Steve Keen) which would hardly be to the advantage of FHBs – though perhaps the housing construction industry would be in a better state.

Paul O’Regan, head of home loans at LJ Hooker, expects the new grant will benefit the housing construction industry and hopefully employment but highlights that the majority of FHBs of late have been for established homes “so there is a possibility that this will be impacted given grant has been taken away for established homes”.

He says the ending of previous FHOGs has resulted in kids staying at home longer as they try to save enough deposit monies to qualify for a home loan or getting greater assistance from their parents.

Some FHBs, he says are choosing to buy an investment property initially to enter the home loan market (foregoing any government benefits) and then moving in when they can afford to.

“First home ownership is now very much all about affordability and blue collar workers need to look at the house and land packages available in outer suburbs and weigh up transport / schools / shopping as well as sustainability such as the costs to run the house.

“The obvious preference is an established house close to work and the city but this may not practical or possible in a lot of cases,” he says.

Top 10 postcodes for Victoria $7,000 FHB grant applications (July 2012 to March 2013)

Source: Victorian goverment State Revenue Office figures.