Falling first home buyer numbers the result of state government FHB grant meddling

More data showing the number of first home buyers' finance commitments sits at very low levels in many states across Australia.

September saw just 12.4% of all loans financed were by first home buyers, the lowest level recorded since the ABS began recording this data in 1991, and below the longterm average of 18.5%.

FHBs represented just 6.8% of all owner occupier finance commitments in NSW in September.

FHB accounted for just 12.2% of owner occupier finance commitments in Victoria in September.

The overall number of FHB approvals down 27% over the past year.

But I don’t see it as much about affordability - on most estimates at near decade best levels - but rather the inevitable result of state and federal government decisions.

It’s the outcome of governments trying to herd FHBs into new houses and apartments, by changing the entitlement away from established homes for the highest entitlement in grants and stamp duty exemptions.

The ongoing weakness reflects the absence after FHB's rushed the last of the big grant entitlement in the pull-forwards in buying established home activity. NSW was the first of state governments to make the change in 2012, with others following in their subsequent budgets.

The state government decisions came against the backdrop of the long standing hesitation of FHBs for new housing stock.

The grant's new home limitation has meant a luke warm take-up by first time buyers who have traditionally sought established homes.

Normally just 20% of FHBs went with new houses and apartments.

Westpac economist Matthew Hassan said the weakening recent data had centred on Victoria where FHB approvals had collapsed by a third since June. The Victorian government only made its significant cuts in FHB assistance from July 1 this year.

NSW which is a year ahead of Victoria has seen levels of new home FHB purchasing ebb from the traditional 20% to around 40% at last budget.

Then there are issues of new home stock availability and location that are holding back the buying numbers.

Cost too, and traditionally FHBs were content with buying cheaper homes and then spending extra money over time on bathroom and kitchen improvements. Not all up front on initial purchase.

I recall economist Martin Bregozzo writing on Property Observer that the key factor in the purchase equation for a FHB was the stamp duty. He prepared the following table on the situation faced by a NSW FHB under the prior and current entitlements:

pre-FHOG change

current situation

Equivalent purchase pre-FHOG

Price of property

350,000

350,000

460,953

FHOG

7,000

7,000

NSW Stamp duty

0

(11,240)

0

Legals

(900)

(900)

(900)

Building & pest inspection

(470)

(470)

(470)

Lender's mortgage insurance

(2,469)

(2,469)

(4,066)

Bank establishment fees

(600)

(600)

(600)

Banks LVR

85%

85%

85%

Funds required to complete sale

49,939

68,179

68,179

From the above it can be seen that FHB wishing to purchase a secondhand $350,000 property today will require an additional $20,000 deposit. The table also highlights that FHBs who could have been in the market to purchase a $460,000 established property are now restricted to those priced $350,000 and below.

All highly predictable outcomes, but ignored by successive state governments who progressively introduced their own changes on grant entitlement and stamp duty subsidy. It was only in April this year that the Napthine government decided to scrap its first home owner grant for established house and apartment purchases from July 1, a decision I suggested was simply extraordinary.

I wrote they only had to look north to NSW and Queensland to see the folly of their new scheme that offers incentives only for first home buyers who make new home acquisitions. It was under the headline: Ill-directed new home building first-home buyers grant scheme extended to Victoria as Wayne Swan abdicates his responsibilities, as the Federal Treasurer acquiesced on the states' new direction utilising the federal government co-payment.

The NSW Treasurer Mike Baird told Property Observer today that “first home owners are responding to the NSW Government’s targeted incentives, with first home owner grants for newly built homes up nearly 90 per cent in the six months to November compared to the same period a year ago.”

"When we came to government, the NSW housing sector was at an all-time low. Previous incentives to first homebuyers for existing properties simply increased mortgage sizes, as they increased demand without any boost to housing supply.

 

Notwithstanding the stark recent ABS figures, there was an interesting chart in this month's RBA chart pack on long term first home buyer numbers.

hovering around long term levels after the 2009 spike.

rba_graph_two

Source: ABS

That surge in FHB numbers came after Wayne Swan's GST-triggered First Home Owner Grant Boost.

Naturally that boost brought forward plenty of demand, so it's to be expected numbers would fall after the boost went back to the lower grant levels.

Cameron Kusher at RP Data has provided Property Observer with FHB financing data going even further back which shows the peaks, troughs and patterns since the early 1990s.

fhb_nov_12_one

In February this year I wrote the FHB absence was becoming a major political and housing issue, but it presented a bonus for investors, given the likely lack of competition in securing some properties.

And yesterday's ABS stats showed a 22% jump in investor financing over the past year, so they have seized the opportunity.

FHBs aren't being priced out of the market by unaffordability or property investors, just the result of highly foreseeable state government meddling.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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