Northern Territory government acknowledges that FHOGs for established houses have "inflationary effect"

The Northern Territory government has abolished its first home owners grant for established homes, extending the grant only to new dwellings from January 2015.

While announcing the changes, Treasurer David Tollner acknowledged that first home owners grants have added upwards pressure on housing prices. The government cited economist Saul Eslake’s submission to a Senate inquiry into affordable housing. Eslake criticised the grant, saying that when applied to established homes, it "served to simply to exacerbate the already substantial imbalance between the underlying demand for housing and the supply of it."

According to Tollner, the unintended inflationary effects of the first home owners grant were a factor in the government’s decision to abolish the grant for established homes.

"That’s why the Territory government will direct the first home owners grant solely towards the construction or purchase of new homes from next year," said Tollner.

"By targeting the first home owners grant towards the purchase of newly built homes, the grant is more likely to contribute to growth in housing supply and employment in the construction sector."

The Territory government will maintain the payment for first home owners of established homes for eight months.

"...ultimately, we want this grant to encourage the construction of new homes, create more jobs in the residential construction sector and improving housing affordability by increasing housing stock." Tollner said.

"This is a far better result than merely creating a churn in existing dwellings that is widely accepted as having an inflationary effect on the cost of housing."

Eslake is not the first industry figure to criticise the first home owners grant. Writing on the grant last year, observer Monique Sasson commented:

"The scheme is meant to make property more affordable for first home buyers. Unfortunately, experience shows that the grants don’t achieve this end.  Instead, the nominal increase in purchasing power it delivers to first home buyers transmits directly into higher prices for the properties they hope to buy.

"The real beneficiaries are the vendors of properties that first timers buy."

The Northern Territory follows Victoria, New South Wales, Queensland and the Australian Capital Territory in its removal of the first home owners grant for established properties.