Sat. Jun 22nd, 2024
volume 7 , issue 6

The government has scrapped the First Home Grants program with immediate effect from May 22 and redirect the funds towards expanding social housing announced Housing Minister Chris Bishop.

The First Home Grant is a financial assistance program designed to help first-time homebuyers using their KiwiSaver funds to purchase a house. To qualify, applicants must meet several criteria: they must be over 18, have an annual income below $95,000 for singles or $150,000 for couples or those with dependents, and have been contributing to KiwiSaver for at least three years at a minimum rate of 3 percent of their income or $1000 annually. Additionally, the property they intend to buy must fall within specified price caps, which vary by region from $400,000 for existing homes in the Far North to $925,000 for new homes in Wellington and Queenstown.

This program, originally introduced in 2005 as part of the KiwiSaver model, has evolved through various forms, including the KiwiSaver deposit subsidy and the KiwiSaver HomeStart Grant. It offers $1000 per year of contribution up to $5000 for existing homes and up to $10,000 for new builds, with the amounts doubling for couples. In 2023, around 12,168 applications were approved, with Auckland receiving the majority. Corelogic data indicates that first-home buyers accounted for approximately 17,000 property purchases that year.

Mortgage adviser Glen McLeod noted that many people adjusted their property searches to fit within the price caps to qualify for the grant. This grant also plays a crucial role for those trying to gather a 5 percent deposit required for the government backed First Home Loan, making a significant difference in their ability to secure financing.

However, as house prices have soared, the impact of the grant has diminished. For instance, in July 2007, the median house price for first-home buyers was $299,000, requiring a $60,000 deposit at 20 percent. In contrast, today’s median price of $700,000 necessitates a $140,000 deposit, significantly reducing the relative value of the grant.

Brad Olsen, chief executive, and principal economist at Infometrics, explained that while the grants may have assisted some buyers, they also contributed to higher housing prices by increasing demand. He argued that the real solution to housing affordability lies in expanding supply rather than subsidizing a limited resource. Despite this, Olsen acknowledged that grants were a practical short-term measure for those struggling to meet deposit requirements.

For households on the margins of affordability, the grants could be substantial. For example, a $10,000 grant for a $400,000 to $600,000 house could account for a significant portion of a 10 percent deposit, aiding those with a 5 percent deposit to bridge the gap.

Kelvin Davidson, Corelogic’s chief property economist, suggested that while the grants provided a helpful boost, other factors such as KiwiSaver, low-deposit loans, and decreased competition from other buyer groups were more critical in supporting first-home buyers. He also highlighted that despite higher mortgage rates, lower house prices and these support mechanisms have enabled first-home buyers to remain active in the market.

Olsen indicated that reallocating funds from the First Home Grants to social housing could indirectly benefit first-home buyers by potentially increasing the overall housing stock and freeing up private market homes. However, this shift will not offer direct support to first-home buyers and might be perceived as less supportive in the immediate term.

The government’s plan to shift funding from First Home Grants to social housing aims to address broader housing issues but will alter the support landscape for first-home buyers. While the grant has been a crucial tool for many, its discontinuation and the potential increase in social housing stock may bring about different, albeit indirect, benefits for those entering the housing market.

Olsen stated that redirecting First Home Grant funds to social housing would not directly benefit first-home buyers, as it may only slightly increase housing stock and indirectly affect the private market. -TIN Bureau

 

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