First Home Buyers’ Support Schemes in Australia

Government policy to encourage home ownership has a long history in Australia. For example, the War Service Homes Act 1918 (Cwlth) made provision for 45 year loans to ex-service personnel to facilitate home purchase. Since then, home ownership has been encouraged by a variety of measures. A short and incomplete list includes the non-taxation of imputed rent on owner-occupied houses, exemption from capital gains tax, provision of incentives to financial institutions to finance construction of owner-occupied homes, employer-provided incentives for home ownership as part of salary packages and schemes directed towards disadvantaged socio-economic groups.1 These policies reflect a broad consensus as to the virtues of home ownership, which have been articulated many times over the years. Menzies (1942) is representative: The material home represents the concrete expression of the habits of frugality and saving ‘for a home of our own.’ Your advanced socialist may rave against private property even while he acquires it; but one of the best instincts in us is that which induces us to have one little piece of earth with a house and a garden which is ours; to which we can withdraw, in which we can be among our friends, into which no stranger may come against our will. Most Australian households live in a dwelling in which they have some financial stake, either as an outright owner (35.1 per cent) or by paying a mortgage on a property in which they currently reside (34.7 per cent).2 While some analyses (Productivity Commission 2004, for instance) have questioned the merits of broadly based policies to promote owner-occupation as the preferred form of housing, there has been little empirical analysis of the extent to which specific policies have affected the home ownership decision of households. For example, although a number of papers examines the incentives provided by alternative tax treatments—most often, differential rates of capital gains tax and the ability to purchase rental properties under negative gearing3—there appears to have been insufficient temporal or spatial variation in these tax regimes to assess their quantitative effects. This article describes a new quarterly dataset comprising gross and net rates of assistance provided by cash grants and stamp duty concessions to first-time owner–occupiers from 1990 to 2010. These grant and concession schemes comprise a major public policy program; for example, 1.4 million first home buyers (FHBs) took advantage of the Commonwealth Government's FHB support schemes from 2000–01 to 2009–10, with payments between $7000 and $21 000, depending on the time at which the grant was made and whether the purchase involved a newly constructed dwelling (Steering Committee for the Review of Government Service Provision 2009, Table 17). State-based schemes are of similar size in terms of cash outlays and foregone revenue. The first objective of the article is to detail the history of several forms of government assistance to FHBs who are owner–occupiers from different levels of government over the period since 1990. There has been substantial variation in assistance provided across states and territories and over time. Within different jurisdictions, schemes are differentiated by categories of buyers and property characteristics. In general, for example, new home builds have attracted higher subsidies than purchases of existing housing stock. In some jurisdictions, rural housing has attracted more funding, while in others, inner urban housing has been more heavily subsidised. This plethora of arrangements has not, to our knowledge, been previously documented for the panel of states and territories. The second objective is to outline the derivation of time series data for the gross rates of assistance (grants and concessions) afforded by schemes directed towards FHBs. The data are available in Thompson, Dungey and Wells (2011). Currently, there is no similar database on the support schemes for FHBs in Australia, or indeed internationally. Lawson and Milligan (2007) provide an excellent overview of the different incentive systems offered in 13 OECD economies (including Australia) to encourage home ownership, with useful cross-country comparisons of the features of different housing markets in terms of the government schemes available. Examples include a range of affordable housing schemes in Ireland targeted at low-income groups, mortgage insurance and deposit assistance in New Zealand and schemes to promote home ownership for Indigenous people in New Zealand, Canada and the United States. While this provides a useful means of comparing the general background of schemes, no hard data are available for either Australia or for comparison with other jurisdictions. A few empirical studies of individual schemes to encourage home buyers exist: Martins and Villaneuva (2006) find that loan sizes and participation are affected by a change in the subsidised interest rate in Portugal, while Maki (2001) documents differences in consumer portfolios resulting from changes to mortgage tax deductibility provisions made in the United States in 1986. The analysis proceeds in several parts. First, we describe the way in which the various grants and concessions have been converted to ratios for representative home buyers and mortgagees in each state. We then consider cash grants, the most important of which is the Commonwealth's First Home Owners Grant (FHOG), which was introduced in 2000. Some states have supplemented this scheme over the past decade and these supplements are also discussed in this section. In addition to administering and providing grants, state and territory governments have applied a range of duties to housing transactions over the past two decades. The fourth section of the article discusses these schemes and provides a historical analysis and comparison of duty concessions available to FHBs relative to repeat buyers, as well as the net government assistance (grants and concessions) to this group. The fifth section draws out some implications of the data. In this article, quarterly time series data for both government cash grants and duty concessions are expressed as a proportion of the mean FHB house price and the mean FHB mortgage in each state.4 In the absence of published data for FHB house prices, the series were constructed in the following way. We first spliced two shorter Australian Bureau of Statistics (ABS) capital-city house price indices to obtain a quarterly series for each state capital which spans the whole sample.5 Data from the irregularly conducted Survey on Income and Housing (SIH) by the ABS were used to provide self-reported valuations of houses purchased by FHBs. For each state, we generated a quarterly series for the price of FHB houses by rebasing the spliced ABS price index to the mean value of the SIH series at the mid-point of the sample (the 1999–2000 fiscal year). The result is an estimate of the quarterly value of the mean house price for a FHB in each of the capital cities. These six series are the basis for our comparisons of mean house prices throughout the article and are depicted in Figure 1; we use and refer to them as indicators of state prices. We present mean data so as to correspond with mean mortgage data available from the ABS. First Home Buyer House Price Index The states have levied taxes of two types in relation to the purchase and mortgage finance of owner-occupied housing. The first is stamp duty on the value of the dwelling and, in this article, the amount of duty payable is based on the mean FHB house price series described in the previous paragraph. The second tax is stamp duty on the mortgage instrument itself and, in this case, mean mortgage commitment data are taken from the ABS publication, Housing Finance (Cat. no. 5609.0). These data are shown in Figure 2. As our price and mortgage data are quarterly, the data series we construct are quarterly averages of monthly data. This does not always align with the introduction or abolition of government support schemes. Thus, we refer to schemes as beginning or ending in a particular quarter, where we have allocated the actual date of implementation to the quarter in which it occurred. Mean Loan Size of First Home Buyers The beginning of our sample period, third quarter 1991, is dictated by the beginning of the ABS's Housing Finance series. Subsequently, mortgage duty has represented a small and declining proportion of the total duty payable, so for convenience, the sum of the two duties is expressed as a proportion of the FHB dwelling price. The construction of the total cash grants and duty concessions for each state has two components. The treatment of cash grants is straightforward: it is the value of the cash grants received by a FHB owner–occupier as a proportion of the mean FHB price. The value of duty concessions is calculated, from state-specific legislation, against the baseline of a repeat owner–occupier who purchases an existing dwelling and who takes a mean-value mortgage. To offset the introduction of the GST in 2000Q3, the Commonwealth Government negotiated with states and territories a package of grant assistance to FHBs, the FHOG, in the form of a cash grant. This scheme is administered by the state and territory governments and has had an important role in determining the eligibility of home buyers for other programs: eligibility for the FHOG scheme has become the entry criterion for other schemes. Two examples include the first home bonus scheme in Victoria, introduced in 2004Q2, and the first home owners duty concession rate in Western Australia (which also has an additional capital value criterion). The initial FHOG provided a cash grant of $7000 to FHBs for either new builds or existing home purchases, with the only qualifying criterion being that the purchaser had not previously participated in the Australian housing market. Between March and December 2001, the scheme was augmented for the first time by the Additional First Home Owners Scheme, with a further $7000 grant for new homes which was continued at the level of $3000 until the end of June 2002. The scheme then reverted to the original $7000 boost for all FHBs. In the third quarter of 2008, the bankruptcy of Lehman Brothers provoked a tightening in international credit conditions and consequent pressure on funds for Australian borrowers. It was anticipated that this would sharply affect the residential building market and so the Commonwealth Government increased the FHOG funds available to $14 000 for FHBs of an existing dwelling and to $21 000 for those building a new dwelling. This scheme lasted for 1 year and was reduced in the fourth quarter of 2009 to $10 500 for existing homes and $14 000 for new builds and finally returned to its original levels of a $7000 cash grant for either existing or new builds at the beginning of 2010. Figures 3 and 4 show the cash grants provided to FHBs of newly constructed houses and existing homes as a proportion of the mean house price. The impact of the Commonwealth-funded schemes in 2001–02 and 2008–09 is clearly evident in the two major humps in Figure 3. First Home Buyer New Construction Grants First Home Buyer Existing House Grants In addition to the nationwide amounts, a number of states has supplemented the FHOG with their own scheme; Figures 3 and 4 reflect the diversity of these arrangements. Victoria was the first state to supplement the Commonwealth-funded schemes. From 2004Q2 to 2005Q4, its First Home Bonus scheme provided an extra $5000 for either new home or existing home buyers, after which the grant was reduced to $3000 for buyers of existing homes until 2009Q2. From that point, it was gradually reduced to $2000 in 2010Q2 and eliminated for existing homes from 2010Q3. Buyers of new builds, however, received significant increases over and above the amounts available to buyers of existing homes. Until the final quarter of 2008, this amount was an additional $2000 but, in 2008Q4, the additional state-administered (but Commonwealth-funded) grant was increased to $11 000, giving a total grant of $32 000 in 2009Q3 at its maximum. The additional $11 000 remained in place until 2009Q4. Even more significant grants were available for new builds in rural Victoria, where from 2008Q2, the grant was $8000 in total (that is, $5000 more than the additional state grant for the purchase of an existing home) and this rose to $15 500 from 2009Q3. New South Wales (NSW) and Queensland have also supplemented the FHOG. For example, NSW added an extra $3000 to the FHOG for all categories of first home purchases from 2008Q4 and, in 2009Q4, added a $10 000 grant for new builds, which compensated for the reduction in the national scheme at that time. From 2010Q1, the NSW scheme returned to $3000 above the national scheme for all FHBs. The data illustrate several important points. First, nationally mandated policies most likely have had a differential impact across the states. As Figure 3 shows, the stimulus for new construction offered by the FHOG in 2008 represented 10 per cent of the average house price in Tasmania, more than twice the percentage in Western Australia. Second, the FHOG was, in 2008, targeted more closely at new home construction than it had been in 2000 (in South Australia, for instance, the grant ‘rate’ was 9 per cent for new houses in 2008, compared to 6.25 per cent in 2000). Third, in most states, the stimulus package in 2008 did little more than restore the real value of the FHOG for existing houses to its 2000 level. These features suggest that analysis of the effects of cash grants should be based on both spatial and temporal variations of the real value of the FHOG. The majority of states has levied duties on home purchase transactions over the sample period from 1991Q3. The most important of these have been stamp duties on the value of the dwelling and on mortgages. In many instances, the governments have provided concessions for FHBs on these duties, which contribute to a reduction in cost of purchase for FHBs. The importance of these duties and the FHB concessions has changed dramatically over the sample period, particularly as the mortgage duties themselves have been progressively abolished. This section provides data on the alterations in the duties and the consequent impact on the net subsidy available to FHBs, calculated as a total of the grant schemes overviewed in Section 3 and the tax concessions in this section. Duty rates on mortgages are often levied as a dollar amount per $100 of value and are complex, with many different bands applying within each jurisdiction, different bands between jurisdictions and different times of changes in duty rates or bands across jurisdictions.6Figure 5 presents the duty payable by FHB purchasers of a house costing the mean price in an urban area, with the mean mortgage. First Home Buyer Duty These data indicate significant interstate differences in For example, South Australian first home purchasers rates of duty until June 2008, at which the duty concession was abolished. A FHB grant was introduced by way of for the although for a the mean-value mortgage and a mean-value the grant of did not for the duty payable of $10 from South Australia, average duty rates for FHBs have over in Western Australia and Tasmania, rates have from 3 per cent to 1 per also for FHBs, have on which are not with the major changes in In for instance, stamp and mortgage duties for FHBs were in 2004, while in a significant reduction took place in The the objective is to the of policy on the of FHBs, it is to into temporal and spatial variations in both the tax and as a first changes in duty concessions have effects to changes in grants, a net tax rate can be used to the and these are in Figures and In each case, the data refer to net assistance from government by a FHB purchaser who a mean-value owner-occupied house in an urban and who takes a mortgage of mean This assistance is expressed as a percentage of the mean first house price. to First Home New Homes to First Home Existing Homes As a proportion of mean price in each state, it is that to the introduction of the FHOG in 2000Q3, buyers in all jurisdictions were net payments to their government on the purchase of a For both categories of the net payments rate over per cent of the mean was in Victoria, while for FHBs of either or newly homes, net payments were in South Australia. the introduction of the FHOG scheme in 2000Q3, FHBs in the majority of states received net government assistance for most of the the being Western Australia and NSW and Victoria had duties payable on housing transactions to offset FHOG scheme payments at its introduction and net assistance was increased to The introduction of the supplement in Victoria in the third quarter of and the abolition of mortgage duties in in NSW and in Victoria is also evident in the There has been a among the states to out mortgage In with the between the Commonwealth and the states on the introduction of the mortgage duties (which were of the value of stamp were in Queensland in 2008 and in Western Australia and South Australia in 2010. Table 1 the on which mortgage stamp duties were for owner–occupiers in the different states. The in Commonwealth Government and state cash grants to FHBs in 2008 is evident in the in the net assistance rate to FHBs as a proportion of the mean price. The grant to FHBs of an existing home was than for new builds, which can be by comparing Figures and The rate of net assistance for both newly and existing homes is in while this is per cent for existing homes, it is per cent for new The cash applied in NSW are to the net assistance to FHBs to per cent for existing homes and per cent for new builds, the of assistance in the This article presents data on grants and subsidies for first home ownership in different jurisdictions in Australia. In these data be used to previously published in a number of so as to policy the data be used to spatial and temporal effects of assistance to FHB purchasers on for new housing. For example, data in this article be used to the by and who that variations in FHOG grants may to in house prices which FHBs to in prices and in housing as the of assistance is data also suggest an to who tax by Australian data on house prices, with duty to estimate the of stamp duties on house prices and market of the between duty payable and house prices, he an to estimate the of changes in duty rates the to time series for the rates The is the stamp duty in a that property prices in the the national with effects for and this changes in tax features of the data in this article are that stamp duty averages 3 per cent of property over which is with our data for FHB duty rates shown in Figure in the there were few FHB duty duty rates in most states are 3 per The FHB concessions and grants more significant from 2000 particularly so since which is the end of the sample period in (2011). Figures and suggest that net rates of assistance for FHB buyers in some states and at some represented more than per cent of mean property and, as shown in Figure FHB buyers represented as as per cent of market based on average stamp duty rates may be important features of government on prices and First Home Buyers as a of Finance Australian Bureau of Housing Table A number of has the effects of the FHOG on For example, and a which that the price impact of the $7000 FHOG would be the number of households that to than by only percentage points. the grant was to $14 000, the was percentage higher than The major of the grant to increased home ownership was to be in and the deposit which was as the major in housing in and suggest that the of the subsidy was insufficient in general to the deposit in the of the scheme and was only in purchase by households that would have had to the market they had series data of the provided in this article be used to this It has also been that the are at by the of the market the in and 2004, and and and (2007) show that the effects of taxes on are to be by home buyers, but by and (2007) that the FHOG grant subsidised home ownership to the of per cent of the rental value of the housing while stamp duties per cent of the based on data. these have changed dramatically in the period to the end of 2010. In that mortgage duties have been Table and subsidies have been increased in not as a proportion of the value of the housing stock. that and (2007) find that the net of the subsidies to housing the and that and find that reduced stamp duties are to affect housing prices, the impact of an on grants and reduction in stamp duty can only be in with the extent of the net subsidy and changes in the deposit The data for this article for the first these to be the spatial and time series variations in the actual fiscal to housing purchase. Data provided in this article illustrate the diversity of grants and concessions policies housing by to the Australian housing market. The data also show that variations in duty concessions at of the of as for For both there is variation across jurisdictions and over time. directed towards the effects of grant and concession policies should these variations into and this article is to provide a dataset for that The Australian does not duty on mortgage other than the FHOG, has been Duty has been levied on with concessions to FHBs. The concessions are and, in were made on the number of (the with is shown in Table From 9 March to December the provided a of $5000 for purchase or construction of a new The from 2008 to December 2009 and was directed to for the FHOG, providing a grant of $14 000 to or building a new The has levied duty was in Table stamp duty rates are in Table

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