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First home buyers face severe financial hurdles, smarter government interventions can help

First home owner grants and long periods of low interest rates have actually made it more difficult for aspiring first home buyers, finds new AHURI research. However, there are smart policy options governments can adopt that would support more aspiring first home buyers to achieve home ownership. 

14 Sep 2023

The research, ‘Financing first home ownership: opportunities and challenges’, undertaken for AHURI by researchers from University of Sydney, University of New South Wales, Curtin University and RMIT University, brings together the findings from four supporting Research Projects to examine the challenges Australians have in financing to buy their first home.

It found that the path to buying a first home is increasingly reliant on parental resources, whether from a direct financial gift, inheritance or simply living rent free in the family home. Fewer younger Australians are becoming first homebuyers: the average age of buying a first home increased from 26 years in the late 1960s to 31 years in the mid 2010s.  

‘While high house prices are often cited as the biggest challenge faced by first homebuyers, our Inquiry highlights that the problem is significantly more complex,’ says Professor Stephen Whelan of the University of Sydney. ‘Critically, we found existing policy settings are likely to have exacerbated rather than alleviated the challenge faced by first homebuyers to finance home ownership. Politically seductive measures such as first homeowner grants and tax concessions have failed to arrest declining rates of home ownership over time.’

The Inquiry suggests several areas for where government policy can help more Australians achieve their home ownership dreams:

  • A stronger emphasis on supply side measures – ie making homes more affordable and accessible to more people
    ‘Policy settings in Australia have focussed almost exclusively on demand-side measures that boost first home buyers’ purchasing power, such as First Home Owners grants and stamp duty concessions,’ says Professor Whelan. ‘A mix of supply-side and demand-side approaches would help more households who would not otherwise be able to buy a home.’ 

The research found the following supply-side measures would be effective in Australia: 

  • Tax-transfer reforms that do not disadvantage first home buyers
    ‘Current policy settings tend to disadvantage aspiring first home buyers and benefit existing home owners. Reforms such as abolishing stamp duty for first home buyers, such as those currently underway in the Australian Capital Territory (ACT) are heading in the right direction’, says Professor Whelan.
  • Address key challenges around saving for a deposit and maintaining repayments.
    House price rises have outstripped wages growth, increasing the time it takes to save for a deposit. ‘In the early 1990s average households took just six years to save for a deposit, rising to 9–10 years by the late 2010s,’ says Professor Whelan. ‘Mortgage guarantee schemes can help first homebuyers access the housing market without requiring an unattainable deposit; while shared equity schemes can help first home buyers gain access to the market with a lower downpayment as well as make ongoing repayments more affordable.’ 
  • Encourage new types of long-term home tenure
    ‘We need a system where people can have a secure home for a longer term without needing to own the title, ‘ says Professor Whelan. ‘Government housing policy ambitions need to expand to include longer tenure alternatives such as rent to buy, shared equity and affordable rental, along with social rental. These types of tenure can offer security and life-long wellbeing outside of home ownership.’

‘Policy intended to assist first home buyers must be carefully designed and be aware of any incentives they create and the potential for unintended consequences,’ says Professor Stephen Whelan. 

Read this report

Financing first home ownership: opportunities and challenges