A year has passed since the NSW Government scrapped the $7,000 first home owner grant for existing dwellings (and even longer since stamp duty concessions for existing homes were dropped). It's become clear these changes were mistakes.  The first home owner grant and stamp duty concessions for existing dwellings should be reintroduced.

First home owners have been pushed out of the NSW property market.  There was a 57% drop in the number of home loans to NSW first-home buyers in the 12 months to the March 2013 quarter.  This decline was despite consecutive interest rate cuts that improved housing affordability during that period.  The record low interest rates have attracted strong demand from investors, resulting in record auction clearance rates and a dramatic increase in property values.  In Sydney there was 5.2% increase in the September 2013 quarter alone and 2014 is forecast to see similar price movements. Without improved government assistance, there will be whole generation of people who simply cannot afford to buy their own home.

Not all first home owners want to buy new dwellings.  Buying new means paying a premium which most first home owners cannot afford.  The majority of new developments are located on city fringes where many first home owners do not want to live for a variety of legitimate reasons (eg lack of infrastructure, long commutes, beyond established social networks, poor investment opportunities etc).

Dropping the first home owner grant for existing dwellings in favour of increasing the grant and offering stamp duty exemptions for new dwellings has done nothing for the local building industry.  Rather than buying new properties that they cannot afford and/or do not want, first home owners abandoned the property market altogether.  First home owner demand has far less of an impact on housing supply than other factors like the convoluted planning system.

The NSW Government can afford to bring these incentives back. NSW Treasurer Mike Baird recently announced that the projected $374 million budget deficit is now shaping up to be a $239 million budget surplus.  This is on the back of a massive $198 million jump in stamp duty revenue that was due in large part to the investor-led booming property market.