Mad rush from first home buyers inflates property prices

The mad rush from first home buyers to secure a position in the tightening property market prompts calls for the extension of the First Home Owners Boost.

The scheme, which has increased housing affordability for new home buyers, is aimed at stimulating activity in the lower end of the market in an effort to avoid the stagnate affects of a recession.

More than 42,000 new and first home buyers have taken advantage of the increased grant since it was announced in October. The $1.5 billion time-limited scheme offers first home buyers an increase to the existing First Home Owners Grant boosting it to $14,000 on established homes and $21,000 on new homes for contracts entered into by the 30 June 2009.

However, Greville Pabst, CEO, WBP Property Group says that the surge of new home owners entering the market has given rise to increased property values where the benefits of the boosted grant are all but absorbed. “Although the scheme has stimulated activity in the lower end of the market the boost to the grant has had an inflationary affect on prices through competition for an already limited supply of housing in Australia,” says Pabst.

According to Pabst the action taken by the Federal Government has created an artificial floor in the Australian property market, “prices propped up by strong demand and an increasingly limited supply of housing stock”.

Pabst proposes that in order to be effective the federal government needs to implement the scheme as part of a long term strategy rather than a short term solution to housing affordability and the under supply of housing stock. “After June 30 it is likely that we will see a rather abrupt decline in activity and a relative decline in the hollow growth witnessed in the last few months. The deadline for the scheme should be revisited with a time span horizon of an additional 12-18 months.”

Of the proposed extension to the boost Pabst says “prices will stabilise with the reduction of urgency which means greater opportunity and time for new home buyers to purchase the right property at the right price.”