Comparative Study of FHOG and FHP Schemes in Australian Housing Market

This report provides a comparative study of the First Home Owners Grant (FHOG) and First Home Plus (FHP) schemes implemented by the Australian government to support first-time homebuyers. It examines the eligibility criteria, similarities, and differences between the two schemes, concluding that FHOG is more beneficial for both buyers and sellers by lowering effective home prices and increasing demand. The report analyzes the impact of FHOG on demand and supply patterns across Australia's states and territories, using price elasticity of demand to explain its influence on the housing market. Furthermore, it discusses the market structure of the property market and suggests alternative policies to alleviate the financial burden on first-time buyers, particularly regarding stamp duty. The analysis includes an assessment of the schemes' effectiveness in promoting a stable property market and uses diagrams to illustrate demand and supply dynamics.

Running head: COMPARATIVE STUDY OF FHOG AND FHP IN AUSTRALIA
Comparative Study of FHOG and FHP in Australia
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1COMPARATIVE STUDY OF FHOG AND FHP IN AUSTRALIA
Executive summary
The report made a comparative study of the FHOG and FHP property market schemes of
the government of Australia that supports first home buyers. Both the schemes have similar
objectives but are different in various sector in implementation part. It has been found from the
report that FHOG is more beneficial for both first home buyers and property market sellers.
FHOG lowers the effective price of the homes thus creates the more demand for properties in the
market. Further study revealed that the market operates in a monopoly market structure. The
discussed about how stamp duty creates hurdle for youth home buyers and suggested alternative
policies that would lower the burden of the youth buyers.

2COMPARATIVE STUDY OF FHOG AND FHP IN AUSTRALIA
Table of Contents
Introduction......................................................................................................................................3
Brief on FHOG and FHP.................................................................................................................3
Comparison between FHOG and FHP............................................................................................6
Impact of FHOG..............................................................................................................................7
Market structure of property market in Australia............................................................................8
Unfair pricing in property market....................................................................................................9
Conclusion.....................................................................................................................................10
Reference.......................................................................................................................................11

3COMPARATIVE STUDY OF FHOG AND FHP IN AUSTRALIA
Introduction
The report discusses about the two schemes of the government of Australia that provides
discount or grant to the person who buys their first home. The name of the two schemes are First
Home Plus (FHP) and First Home Owners Grant (FHOG). Even though the schemes are for first
home buyers, they are slightly different in their eligibility criteria. Inn case of FHOG, the
foremost criteria to get the grant is that the first home buyers need to buy a new property
(Budgen et al., 2016). Conversely, to get discount under FHP, first home buyers just need buy a
house be it new or existing. The report thus compares both these schemes regarding the first
home buyers. The report takes eligibility criteria of both the schemes to find the similarities and
dissimilarities between the schemes. Along with that, the discussion focuses on the impact of the
two schemes on the demand and supply of the home property market in the sates of the country it
the schemes exists. Further, with the help of price elasticity of demand analysis the discussion in
the report indicates how FHOG influences the home property market of the country. The report
discusses the market structure of the home property market to understand the applications of the
concerned schemes. The critical assessment of the statement of Ken henry regarding the stamp
duties imposed on the purchase of home in the home property market is a part of discussion of
the report. Hence, the objective of the report is to make a comparative study of FHP and FHOG
schemes and discusses the suitability of the schemes to provide a stable property market.
Brief on FHOG and FHP
First Home Owners Grant
Under the scheme of FHOG, the grant is provided only for one time for new residential
property purchase. The amount of the grant provided in this scheme is a lump sum of $ 10, 000.

4COMPARATIVE STUDY OF FHOG AND FHP IN AUSTRALIA
The aim of the grant is to support the first home buyers such that they get enough encouragement
to buy new homes (First Home Owner Grant., 2020). However, there is a twist to the eligibility
criteria of the scheme and that is the purchased home or property must be new one or else no
grant will be provided even if the home purchased is the first for the buyer (Mangioni, 2017). In
addition to that, the grant is provided based on the number of first home purchase but not on the
individuals who purchase homes. It means that if two persons buy a single property then one
grant will be provided for the purchase of the property but not two. The eligibility criteria of
FHOG are as follows:
 The first home buyer must be of the age of 18 years or above during the time of
transaction or making application for availing the grant. Though exceptions can be made
if proper reasons are provided.
 The first home that is bought should be the primary residential property, it means that the
buyer need to stay there for minimum six month within one year of purchase of the
property.
 The grant is provided to the first home buyers who permanently resides in Australia or a
citizen of the country.
 To avail the grant a buyer need to apply for it before completion of one year of
transaction made for the purchase.
More eligibility conditions
Various criteria are there that has to be met to get the facilities under the scheme of
FHOG. A buyers who have made the contract of purchase within the first six months of 2017 are
eligible to get the payment boost facilities (Carrington, Li & Larkin, 2019). FHOG considers a
transaction eligible for the grant if the date of contract or purchase of home is done after July 1,

5COMPARATIVE STUDY OF FHOG AND FHP IN AUSTRALIA
2000. However, there is a cap to the amount of eligible transactions. The cap for properties
purchased to the south of the 26th parallel is $7, 50, 000 whereas the cap for properties north of
the 26th parallel is $ 10, 00, 000.
First Home Plus
The scheme of First Home Plus is much newer than the scheme of First Home Owners
Grant. The discount under the scheme is based on transfer duty. Unlike FHOG, there is no
requirement criteria that the homes or properties purchased must be new. The only criteria is that
the home purchased is the first home of the buyer (La Cava, Leal & Zurawski, 2017). It does not
matter if the property purchased is new or old. The eligibility criteria in order to avail FHP
scheme are given below:
 To avail the scheme the buyer need to be a permanent resident or citizen of Australia.
 At the time of purchase of property, the age of the buyer should be atleast 18 years.
 If a buyer purchases an en entire property then only he or she is eligible to avail the
scheme benefits.
 To avail the scheme a home or property should be bought individually.
More eligibility conditions
Any property that has been purchased after October 21, 2009 are eligible under the
scheme of FHP. However, a buyer who has served or working in Australian Defense force do not
need to abide the eligibility criteria (First Home Plus., 2020). A buyer who wants to avail FHP
would not get it if he or she owns or co-owns any other property in the country and have availed
the benefit of the scheme earlier. To become eligible for the scheme a buyer should move to the
new home after the completion of purchase of the new home within one year (Thompson, et al.,

6COMPARATIVE STUDY OF FHOG AND FHP IN AUSTRALIA
2018). The concession is given based on the transfer duty and this duty is determined based on
the value of the property.
Comparison between FHOG and FHP
The government of Australia came up with the schemes of FHOG and FHP to support
and encourage the first home buyers. The objective of both the schemes are similar but there are
various differences in their eligibility criteria. The only two criteria that are similar for both the
schemes are the criteria of age and citizenship or residential status. Other criteria however are
different. In case of FHOG, there is no such criteria of purchasing the whole property like FHP.
The kind of benefit provided by both the schemes are different from each other (Crowley & Li,
2016). In FHP, the amount of transfer duty is paid whereas in FHOG lump sum up to $10, 000 is
paid. However, benefit under both the schemes are subject to the value of the property
purchased. Another difference is that in FHOG the property bought must be new, which is not
the case with FHP. From the detailed study of the eligibility criteria of both the schemes, it can
be said that FHP is more welfare centric than FHOG. In case of FHP, any first home buyer who
buys his or her first home will get the monetary benefit under the scheme (Pawson, 2019). On
the other hand, under FHOG only the first home buyers purchasing the new properties are gets
the benefit. Hence, it can be said that FHP encourages more person to buy first home whereas
FHOG encourages first home buyers to purchase new homes. Additionally, benefit under FHOG
is clearer than FHP as it states the amount of benefit in prior (Chirstensen, 2017). Therefore,
from business perspective, FHOG is better than FHP in boosting the property market of the
country since to avail FHOG, first home buyers will purchase new homes and thus causes
building of new properties (Raynor, Dosen & Otter, 2017). Therefore, if economic perspective is
considered then FHOG is more suitable scheme.

7COMPARATIVE STUDY OF FHOG AND FHP IN AUSTRALIA
Impact of FHOG
The first government scheme in Australia to provide financial support to the first home
buyers is known as the First Home Owners Grant. Under this scheme, the first home buyers are
provided with monetary benefit. The major aim of introducing he scheme is to encourage and
first home buyers to purchase new homes. The scheme has been quite successful in its objective.
Owing to this, the property market in Australia faced rise in demand. As a result, sudden increase
in demand for new homes in the property market the price of properties increased significantly in
the six states and Northern Territory of Australia. It has been found that the grant benefit
provided to the first home buyers in different state is different. Due to this difference in grant,
demand for new homes in different states is different (REIQ, 2016). Actually, the grant decides
the effective price of new homes because the price that the first home buyers required to pay for
new homes are determined by subtraction the amount of grant from the actual market price. The
demand and supply of any product is highly dependent on the price of the product. In the case of
property market, there is no exception (Redden, Phelan & Baker, 2020). The amount of grant
given in South Australia and NSW is $15,000. In Queensland, the amount of grant is higher and
the first home buyers in this state get s benefit of $ 20, 000. In the other states, Victoria, Northern
Territory and Western Australia the amount of the grant is $10,000 (First Home Owner Grant.,
2020). However, the capital territory of Australia has the lowest grant of amount $7, 000.
Therefore, it can be said that the states with highest grant has the lowest effective price for new
homes and thus demand for new homes would be maximum in the sates with lowest effective
price.
It is know from the theory of microeconomics that the price elasticity of demand is
greater than 1 in case of luxury goods (de Rassenfosse, 2020). Here, homes and property are

8COMPARATIVE STUDY OF FHOG AND FHP IN AUSTRALIA
highly expensive and belongs to the luxury category of goods. Now, price elasticity of demand
measure the response of the demand of a good due to change in its price. For example, if price of
a luxury good increases by 1% then the demand for eh good will decline by more than 1% and is
called demand for luxury good is relatively price elastic (Fernandez, 2018). However, for other
goods price elasticity of demand is different. Therefore, after the introduction of FHOG the
effective price of ne homes has declined in all the states where the scheme is available (Tai et al.,
2017). Hence, the fall in price increased the demand for new homes and thereby increased the
amount of revenue of the property market in Australia causing it to expand. From figure1, it can
be clearly observed that with fall in price to P* from P has increased the demand to D* from D.
In this case, as new homes are luxury goods, the demand curve is flatter due its relatively elastic
nature. Hence, the rise in demand is greater than the fall in price which leads higher revenue for
the property market companies.
Figure 1: Price elasticity of demand
in property market
Source: (Created by the Author)

9COMPARATIVE STUDY OF FHOG AND FHP IN AUSTRALIA
Market structure of property market in Australia
The property market in Australia is dominated by more than one company. Hence, the
amount fixed investment required and number of companies in the market it can be said the
property market in Australia is of oligopoly structure. The product in oligopoly market is
homogenous in nature but in case of property market, each and every product is different from
each other and thus make them heterogonous. Every product is unique due to its different design,
location and accessibility to hospitals, market, office and educational institutes. In addition to
that, climate of different states are different. Uniqueness of each product cannot be replicated. It
should be further noted that a company or real estate developer builds numerous homes over a
large area of land and thus in those specific area only that company is the only one that sells
properties (Baur, 2019). Even though there are many real estate companies operating in the
property market in Australia, each of them enjoys market power over specific region. There exist
high barriers to entry and exit. Hence, property owners can charge high price to earn super
normal profit (Geltner, Kumar & Van de Minne, 2019). However, due to government regulation
there is no such monopoly practice in the market. Therefore, from above discussion it can be said
that the property market in Australia is of monopoly structure.
Unfair pricing in property market
The argument of Ken Henry that stamp duty creates hurdle for youth new home buyers is
strong and convincing. This is because the imposition of stamp duty would increase the effective
price of homes and thus make then less affordable for youths as they have just started their career
and thus they have limited budget. Moreover, stamp duty has to be paid upfront and in full which
is difficult for youth buyers since gathering lump sum is a tough job for them. Hence, it can be
said that stamp duty does creates a hurdle for youths to buy new homes (Scanlon, Whitehead &

10COMPARATIVE STUDY OF FHOG AND FHP IN AUSTRALIA
Blanc, 2017). Further, stamp duties have adverse effect on the property market as it lowers the
demand since it increases the effective price. Therefore, instead of stamp duty the government
should charge tax that can be paid in quarterly or yearly installments. However, the tax should be
for limited period and not for permanent since it is replacement for stamp duty. Hence, this will
ease the burden of the youth buyers and help them to buy new homes.
Conclusion
It can be inferred from the above discussion reading FHOG and FHP that objective of
both the schemes are same, which is to support the first home buyers. However, both the
schemes have their uniqueness. FHOG is for those first home buyers who purchases new homes
and FHP is for all the first home buyers. The type benefit provided in both the schemes are
different too. In contrary, it has been observed that the FHOG scheme is more effective in
expanding the property market in Australia since it encourages first home buyers to buy new
homes. Hence, it seems that FHOG is a better policy for both property sellers and property
buyers. The rise in demand new homes increases as FHOG successfully decreases the effective
price of the properties or homes. Further, study of the property market helped to find that it is of
monopoly market structure. It has also been found that stamp duty is acting like a hurdle for
youth first home buyers which shall be replaced with other revenue collecting polices that
removes the hurdle for the youths.

11COMPARATIVE STUDY OF FHOG AND FHP IN AUSTRALIA
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