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Support or setback? Young buyers stung by government grants
The First Home Buyer Assistance in Australia: Policy Effectiveness, Unintended Consequences, and Pathways to Reform report showed that while the introduction of grants has made the idea of ownership more accessible, they have actually left it further out of reach.
While government intervention was intended to help first home buyers (FHB) achieve home ownership, the policy's unintended effects served as a barrier to entry, with property prices skyrocketing.
The original first home owner grant (FHOG) was introduced in 2000 with the intent to reduce the upfront cost of a home by providing a one-off government grant, making it easier for home buyers to purchase or build a home.
Over the year, the grant evolved to reflect the property market, now ranging from $10,000 to $50,000 in 2025 to support the purchase or construction of a new-build or off-the-plan home, with price caps varying by state.
Despite government support, PRD Real Estate chief economist Diaswati Mardiasmo said FHBs have been struggling more to service their mortgages.
Data showed that in 2016, the average FHB loan was $319,633, requiring 30.9 per cent of the borrower's income to service the loan, while by 2025 it had increased by around 75 per cent to $560,249, representing 47 per cent of income.
“This demonstrates an increasingly difficult first home buyer market,” Mardiasmo said.
Despite the significant jump in both average loan size and the number of loans for FHBs, the data showed that in 2025, they accounted for just 16.8 per cent of total home loan commitments, valued at $98 billion.
In comparison, Mardiasmo said loans for owner-occupiers and investors made up the vast majority of total home loan commitments.
“Owner-occupier loans were $59.2 billion, which includes the $16.5 billion from FHB loans, and Investor loans were $39.8 billion, or 40.6 per cent,” she said.
The report found that the housing affordability challenge has led to a clear shift in priorities among younger buyers, with homeownership rates declining, particularly among those born after 1996.
The data showed that just 45 per cent of those aged 30-34 owned a property, 5 per cent lower than the nearest age group, 35-39-year-olds.
Grants: Help or hindrance?
While the introduction of grants to support first-time buyers could help them break into the property market, Mardisamo said it also had unintended consequences.
She said that while grants could be effective in getting young Australians into the market, they often helped those who were already close to achieving ownership by accelerating their purchase, a phenomenon known as the “bring forward” effect.
“The research suggests that FHB grants are often not effective in helping those who would otherwise never have been able to afford a home, whereas the beneficiaries of these grants are usually close to purchasing regardless,” Mardiasmo said.
“The issue with the ‘bring forward’ effect is that it results in short-term growth in demand, rather than long-term housing accessibility and affordability.”
According to Mardiasmo, the competition created by the “bring forward” effect can lead sellers and developers to gain a greater benefit than buyers, which, in turn, can put more pressure on rental prices.
The report found that the effect also affected the broader market, increasing demand for new builds and construction costs.
Round and round we go
Mardiasmo said one of the biggest concerns with FHOGs was that their impact was cyclical, providing only short-term relief before fading and prompting further government action.
“A grant is introduced, FHBs who were thinking of purchasing can do so earlier, demand spikes, prices rise, and the housing affordability market is worse off,” she said.
“The government then takes the ‘fight fire with fire’ approach, creating and/or expanding another FHB grant or scheme.”
“FHBs who utilise the grant after the initial ‘bring forward’ effect are forced to pay a hidden premium on house prices due to the market heating up in a short period of time, rendering the grant useless.”
Additionally, she said the benefits of the grants had a significantly smaller impact in metropolitan markets than in regional centres, due to the higher price floor in capital cities.
“Median house and unit prices in capital cities are far higher than the grant’s property price caps,” Mardiasmo said.
“Many FHBs are still ‘priced out’ of their ideal suburbs and are forced to look at properties elsewhere.”