ECON6000: Comparative Analysis of FHOG and FHP in Australia

This report provides a comprehensive analysis of the First Home Owners Grant (FHOG) and First Home Plus (FHP) schemes in Australia, comparing and contrasting their eligibility requirements, similarities, and differences. It evaluates the impact of FHOG on demand and supply patterns across Australia's states and territories, discussing its influence on the price elasticity of demand in the housing market. The report also examines the market structure under which FHOG operates and provides a critical discussion of related economic policies, such as stamp duties. The analysis aims to determine which scheme is more beneficial and suitable for the Australian property market, providing valuable insights into government policies and their effects on the housing sector. The report uses diagrams and academic references to support its findings, offering a detailed examination of the microeconomic principles at play.

Running head: FIRST HOME OWNERS GRANT AND FIRST HOME PLUS IN AUSTRALIA
First Home Owners Grant and First Home Plus in Australia
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1FIRST HOME OWNERS GRANT AND FIRST HOME PLUS IN AUSTRALIA
Executive Summary
The report discussed about the schemes of the government of Australia that are meant for
providing monetary benefit to the first home buyers. The schemes that are discussed in this
report are First Home Owners Grant and First House Plus. Making a comparative study of the
two schemes, the report showed that FHOG is more beneficial in case of direct monetary benefit.
Conversely, FHP is more inclusive and provides concessional benefit to all. Introduction of
FHOG increased the demand in the housing market and since price elasticity of demand of
homes are greater than 1 increase demand was higher than the fall in price. The market structure
of housing market is more like monopoly. It is further found from the statement of Ken Henry
that stamp duty is more like hurdle for the youth and an annual house tax would be more
beneficial for youth first home buyers and housing market as well.

2FIRST HOME OWNERS GRANT AND FIRST HOME PLUS IN AUSTRALIA
Table of Contents
Introduction......................................................................................................................................3
Contrast between FHOG and FHP..................................................................................................3
First Home Owners Grant............................................................................................................3
First Home Plus...........................................................................................................................5
Comparison between FHOG and FHP........................................................................................5
Impact of FHOG..............................................................................................................................6
Market structure of the industry in which FHOG falls....................................................................8
Unfair property pricing....................................................................................................................9
Conclusion.....................................................................................................................................10
Reference.......................................................................................................................................11

3FIRST HOME OWNERS GRANT AND FIRST HOME PLUS IN AUSTRALIA
Introduction
First Home Owners Grant (FHOG) and First Home Plus (FHP) are the schemes that
provide grant and concessions to first home buyers in Australia. Mentioned two schemes are
however different from each other. Under FHOG the grant is given to the first home buyers only
if the home bought is a newly established property (First Home Owner Grant, 2020). A first
home buyer is not eligible for the grant if the property bought is not new. However, for FHP
there is no such eligibility requirement of new property purchase (First home plus, 2020). This
report discusses and compares the two mentioned schemes for first home buyers. The
comparison that is to be done in the report is based on eligibility requirements and structural
similarities and differences between the two schemes. In addition to that, the report discusses the
impact on the supply and the demand patterns of homes in the six states and the Northern
Territory in the country. By analysis of price elasticity of demand of the home property market in
Australia, the report focuses on the influence of FHOG scheme on the concerned market.
Discussing all the above areas related to FHOG and the market structure of property market will
be explained in the report. Finally, the report provides a critical discussion on the statement
related to stamp duties on property purchases made by Ken Henry. The report thus aims to
discuss the policies of FHOG and FHP and try to find out which one is more suitable and should
be followed in order to have a balanced property market.
Contrast between FHOG and FHP
First Home Owners Grant
FHOG is a scheme that provides first home buyers a grant of up to $10, 000 in order to
encourage and the buyers to build or buy new residential property (La Cava, Leal, & Zurawski,
2017). It should be noted that a transaction made for purchase of a new residential property is

4FIRST HOME OWNERS GRANT AND FIRST HOME PLUS IN AUSTRALIA
eligible for one grant only irrespective of the number of purchasers. It means that if three persons
together buy their first home then they will receive a single grant as the number of purchase of
new residential property is one. Purchase of an already established property even if it is the first
home for the buyer is not eligible for the grant. The eligibility requirements of FHOG are:
 The applicant must be above 18 years during the time of application submission.
However, exemption is of this requirement is made on submission of application with
valid reasons.
 Only a citizen or permanent residence of Australia is eligible for the grant.
 The purchased home should be the primary residence and the buyer must stay there for at
least six months within a year from the date of purchase or completion of building of
home.
 A person has to apply for the grant within 1 year of completion of transaction or building
of home.
Other eligibility conditions
FHOG provides the boost payment facilities for the buyers that made purchase contract
between 1st January and 30th June 2017. However, there are various terms and conditions, which
a buyer should meet in order to get the facility (First home owner grant, 2020). Any contract,
starting of building a home and purchase of home should be conducted on or after 1st July 2000
in order to be an eligible transaction for FHOG. The value of transactions are important for the
grant as there is cap on the value. Transactions within the capped value are eligible for the grant.
Value of properties south of the 26th parallel including land of are capped to $750, 000 and
properties north of the 26th parallel are capped at $1, 000, 000. Therefore, to avail the First Home
Owners Grant a buyer need to fulfil all of the above discussed eligibility criteria.

5FIRST HOME OWNERS GRANT AND FIRST HOME PLUS IN AUSTRALIA
First Home Plus
First Home Plus scheme was launched after many years of introduction of First Home
Owners Grant. Under this scheme, concession is given on the transfer duty. First home buyers
are eligible for the concession irrespective of category of property that is new and established.
The eligibility criteria for availing FHP scheme are as follows.
 The buyer have to be over 18 years of age.
 Purchase of the property must be done by an individual.
 A whole property should be purchased in order to avail the scheme.
 Buyer of property should be a citizen of Australia or a permanent resident of the country.
Other eligibility conditions
First home buyers who purchased a property after 21st October 2009 are eligible for FHP.
There are exceptions for the buyers who are member of Australian Defence Force. A buyer who
wish to purchase a new home and is willing to avail FHP then he or she should not be co-owner
of a home in the country and must not have received the benefit of FHP earlier. The buyer must
shift into the new home within 1 year from the date of purchase or completion building of home.
The amount paid for the purchase or building of home determines the amount of transfer duty
that is to be paid by the buyer.
Comparison between FHOG and FHP
FHOG and FHP are both government schemes that aims to assist first home buyers to
buy their first home. Two schemes are similar to each other in various areas and are different in
many other areas too (Coates & Nolan, 2019). The basic criteria of both the schemes are similar
that is the age and citizenship criteria. In case of FHP whole property needed to be purchased

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which is not the case with FHOG. The major difference between the two schemes is the kind of
monetary benefit given to the first home buyers. In FHOG, the first home buyers are provided
with the lump sum monetary benefit of up to $ 10, 000 depending on the value of property
purchased. Alternatively, in the case of FHP the benefit is given by providing concession on
transfer duty only. The buyers have an advantage in availing FHP as the benefit under the
scheme is applicable for purchase of new homes and existing homes. Therefore, in the case of
FHP all the first home buyers get the benefit. However, from the business perspective of the
property market FHP is not very effective since there is no special incentive for the new home
buyers and thus it does not encourages building of new homes. FHOG is effective for the growth
of property market as it encourages purchase of new homes and thereby causes to increase
investment in the property market (Mangioni, 2017). Therefore, FHOG is more suitable policy
than FHP and the government of Australia should follow the policy.
Impact of FHOG
First Home Owners Grant is a scheme under which the first home buyers are provided
monetary for their purchase. It is done with the objective of encouraging buyers to purchase new
homes such that the housing market in the country improves (Murray, 2019). After the launch of
FHOG, there was sudden increase in the demand for the new homes in the country. The rise in
demand for the new homes increased and that was the reason due to which the price of new
homes increased in Australian states (Wong et al., 2018). Even though the FHOG is aimed to
provide the first home buyers benefits, the buyers residing in different states had so far enjoyed
the benefits but the amount has been different since the amount of grant provided under FHOG
was different for different states. The demand for new homes depends on the grant provided by
the respective states. The effective price is highly dependent on the grant as the buyers need to

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pay the amount for homes given by the difference between the actual price of new homes and
grant provided. According to microeconomic theory of demand and supply, it is known that these
two factors are dependent on price (Shi, Rahman & Wang, 2019). FHOG in different states is
different and thus effective price of new homes is different too. In NSW, the grant provided to
the first home buyers can go up to $ 15, 000. In case of Queensland the amount of much higher
which is up to $ 20, 000. In South Australia, the amount of grant is same as NSW which is $ 15,
000 (Gurran & Phibbs, 2017). However, unlike NSW, South Australia do not have the grant
amount option of $ 10, 000. It has only one grant amount. For all the other states that are
Northern Territory, Victoria and Western Australia the grant given to the first home buyers is $
10, 000, only the Australian Capital Territory has the lowest grant (Valadkhani & Smyth, 2017).
The grant provided by Australian Capital Territory is $ 7, 000. Therefore, it is evident that the
demand for new homes will be highest in the states where the effective price is the lowest.
Corresponding to the increased demand for new homes the supply of homes will increase too in
the concerned states of the country.
Home is luxury product because they are highly expensive. The change in price thus
affect the demand for homes significantly. For luxury goods, the price elasticity of demand is
greater than 1, indicating that the demand is relatively elastic (Popova, 2017). Price elasticity of
demand measures the amount of change in quantity demanded in response to the change in price
of the product. For relatively price elastic products, demand decreases by more than
proportionate change in price. It means that due to 1% increase in price the demand for goods
will decrease by more than 1% (Becker, 2017). Similarly, with fall in 1% price the demand will
increase by more than 1%. Therefore, it can be said that the effective price of homes has
decreased in Australia after launch of FHOG and thus due to effect of price elasticity the demand

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for new homes in the country rises (Day, 2018). In figure 1, it can be seen that the due to the fall
in effective price of new homes in Australia from P to P* the rise in demand for new homes has
increased from Q to Q*. It is clearly visible in the figure that the rise in demand is higher than
fall in price (Pawson, Milligan & Yates, 2020). Therefore, FHOG has influenced the price
elasticity of demand and caused the demand for new homes to increase.
Figure 1: Price elasticity of
demand of new homes in Australia
Source: (Created by the Author)
Market structure of the industry in which FHOG falls
FHOG belongs to the housing market in Australia. There are several real estate
companies in Australia that deals in homes. Thus, given the number of companies it seems that
the housing market in Australia is of monopoly structure (Merhav, 2017). However, the product
of the industry is heterogeneous in nature unlike in the case of oligopoly. Houses are of unique
design and unique locational advantages and other features such as availability of transport,
market place and proximity to school, offices and hospitals (Eichner, 2019). Therefore, it is hard

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to find substitute of a particular house depending on the factors mentioned above. Each house is
unique in characteristics and is sold by a single company or seller. This is the reason companies
could charge price as per their wish and a buyer with similar demand preferences and tastes have
to take the price. Thus, it can be said that housing market in a particular area is dominated by a
single company giving rise to monopoly structure in the market. The fixed cost associated with
the housing market is very high (Laszek, Olszewski & Waszczuk, 2016). The major factor of
production of houses is land which is exclusive and unique and cannot be used by more than one
company for development of houses. Therefore, a company enjoys monopoly power for its own
product and charges high price. There is complete restrictions to entry and exit and the
companies operating in the industry earn supernormal profit (Geltner, Kumar & Van de Minne,
2019). It should be noted that all the companies that enjoy monopoly in their region completely
free of any future threat from new companies because of the land factor. There is no substitute of
land. It is the main reason due to which the FHOG benefit provided to the first home buyers is
different in different states in Australia. It can be inferred that with several number of companies
operating in the housing market in Australia, the companies are in monopoly market structure
due to the characteristics of the product.
Unfair property pricing
The statement made by Ken Henry gives the notion that stamp duties creates a hurdle for
the youths willing to buy new homes. It is difficult for youths to pay such duties upfront because
savings for the payment for new home and then again for the stamp duty increases the burden
(Liang, 2018). Stamp duty along with burden increases the effective price of property and that
discourages the buyers from buying new home. It has negative impact on the housing market as
well since buyers judge the price of buying a new home including the stamp duty since the both

10FIRST HOME OWNERS GRANT AND FIRST HOME PLUS IN AUSTRALIA
the payments needed to be paid up front. Therefore, demand for new homes might fall due this
imposition of stamp duty. The government can use an alternative way of collecting revenue from
sale if new homes. Imposition of annual tax for a certain period for example 10 years or 15 years
whatever is suitable to collect the money equivalent to the money the government would have
collected from stamp duty in real terms. Annual house tax will lower the monetary burden on the
youth and they will be able to purchase new home with ease (Cho, Li & Uren, 2019). It should
be noted that the aggregate amount of annual house tax will be higher than the onetime payment
of stamp duty. It is because of the annual house tax is to be inflated to make the tax amount equal
to the stamp duty in real terms otherwise the government would loss revenue. Thus, it can be
said that stamp duty is really a hurdle for the youths willing to buy new home.
Conclusion
The above discussion on the FHOG and FHP leads to the conclusion that in direct benefit
part FHOG is better than FHP since it does not depend on the rate of transfer duty. Conversely,
FHP is better in inclusiveness as it provides concessional benefit to all the first home buyers
irrespective of the type of purchase that is new home or renovated home. Impact of FHOG on the
housing market is beneficial as it increased the demand for new homes. With rise in demand, the
price of new homes increased and thereby supply increased. Increased demand expanded the
housing sector. Homes are luxury products and thus the demand is relatively price elastic and
with rise in price the demand falls more than the proportionate rise in price and vice versa. It is
evident from the discussion about the market that the structure is close to monopoly as the
companies operating enjoy monopoly power in their respective region of operation. Finally, from
the statement of Ken Henry it can be understood that the stamp duty imposes burden on the

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youth buyers and affects the housing market adversely. It is better to have annual house tax
instead of stamp duty.
Reference
Cho, Y., Li, S. M., & Uren, L. (2019). Investment Housing Tax Concessions and Welfare:
Evidence from Australia.
Coates, B., & Nolan, J. (2019). Submission to Inquiry into the National Housing Finance and
Investment Corporation Amendment Bill 2019.
Day, C. (2018). Australia's growth in households and house prices. Australian Economic
Review, 51(4), 502-511.
Eichner, A. S. (2019). The Emergence of Oligopoly: Sugar refining as a case study. JHU Press.
First Home Owner Grant. (2020). Firsthome.gov.au. Retrieved 6 March 2020, from
http://www.firsthome.gov.au/
First home owner grant. (2020). Revenue NSW. Retrieved from
https://www.revenue.nsw.gov.au/grants-schemes/previous-schemes/first-home-owner-
grant
First home plus. (2020). Revenue NSW. Retrieved from https://www.revenue.nsw.gov.au/grants-
schemes/previous-schemes/first-home-plus
Geltner, D., Kumar, A., & Van de Minne, A. (2019). Super-Normal Profit in Real Estate
Development. Available at SSRN 3444309.

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Gurran, N., & Phibbs, P. (2017). Planning reform for affordable housing supply. Planning
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buyers. Reserve Bank of Australia Bulletin, 19-28.
Łaszek, J., Olszewski, K., & Waszczuk, J. (2016). Monopolistic Competition and Price
Discrimination as a Development Company Strategy in the Primary Housing
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Liang, G. (2018). Property structuring for inbound investors. Taxation in Australia, 53(3), 115.
Mangioni, V. J. (2017). Transitioning from a transaction to a recurrent tax on property. Pacific
Rim Real Estate Society.
Merhav, M. (2017). Technological dependence, monopoly, and growth. Elsevier.
Murray, C. (2019). The Australian housing supply myth.
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In Housing Policy in Australia (pp. 339-358). Palgrave Macmillan, Singapore.
Popova, N. K. E. (2017). ARE BOOKS LUXURY GOODS IN RUSSIA OR NOT?.
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Australian capital cities. Urban Studies, 54(10), 2376-2394.

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Wong, S. Y., Susilawati, C., Miller, W., & Mardiasmo, D. (2018). Improving information
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