The Effect of the First Home Owner’s Grant on the Perth ...

The Effect of the First Home Owner's Grant on the Perth Housing Market

By Louise Marie Burns Submitted in partial fulfilment of the requirements for the degree of Bachelor of Commerce (Economics Honours) School of Economics and Finance Curtin University of Technology

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Declaration

"This thesis contains no material which has been accepted for the award of any other degree or diploma in any tertiary institution and to the best of my knowledge and belief, the thesis contains no materials previously published or written by another person, except when due reference is made in the text of the thesis." Signature: ..................................................................

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Abstract

Housing affordability has long been a challenge for Australian Federal and State governments. One particular issue facing policy makers is improving the affordability of home ownership for first home buyers. The First Home Owner's Grant (FHOG) was introduced in 2000 as a direct subsidy to assist first home buyers in achieving the goal of home ownership. The grant was recently increased in October 2008 as part of the Federal Government's economic stimulus package, from $7000 to $14,000 for existing homes and $21,000 for new homes and land.

This research investigated the impact the FHOG has had on the Perth metropolitan housing market and first time home owners, particularly since the grant's increase last year. Property sales in the top ten first home buyer suburbs from July 1999 to June 2009 were analysed to determine whether the grant had stimulated sales activity at the lower end of the market and whether lower quartile prices had also increased as a result. In addition, this study provided an insight into how effective the federal government's First Home Owner's Boost (FHOB) has been in stimulating first home buyer activity in the housing market since it was introduced. This research primarily focused on the grant's effect on the market for established dwellings as the majority of first home buyers purchase an existing house.

This study found that the FHOG stimulated activity in the first home buyer market following its inception, particularly in the new suburbs of Perth such as Ellenbrook and Canning Vale. However the price of affordable housing in most first home buyer suburbs rose as a result of this strong demand. First home buyer participation then declined as rising prices negated the grant's effectiveness. The FHOB with the assistance of very low interest rates appears to have achieved

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its intended policy goal of encouraging first home buyers back into the market, although this increase in demand has again stimulated price rises in most of the suburbs studied.

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Acknowledgements

I would like to acknowledge the assistance of the Real Estate Institute of Western Australia, particularly the Director of Policy and Research Mr Stewart Darby, in providing the primary sales data required for the time series analysis. I would also like to acknowledge the assistance and guidance of my thesis supervisor Dr Steven Rowley whose extensive knowledge of the subject area aided the development of my research topic and the completion of this work. Finally, I would like to thank the Mannkal Economic Education Fund for supporting my research by providing a scholarship for the duration of my Honours degree.

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