The First Home Grant is gone, what will that mean for buyers?

Wednesday, 22 May 2024

Housing Minister Chris Bishop has confirmed the Government is scrapping the First Home Grant.

The programme had paid up to $10,000 per person to buy their first home.

Bishop said ending the First Home Grant would save the Government $245 million over four years. Of that, he said the Government would use $140 million to fund 1500 new social housing places.

Why it matters

Last year alone, 12,000 people were approved to get a First Home Grant. Since June 2017, the Ministry of Housing and Urban Development (HUD) reported that 87,000 grants had been paid.

Infometrics principal economist Brad Olsen says first home buyer grants had assisted up to 40% of first home buyers each year, so removing that option would have an significant impact on prospective buyers.

When Bishop announced the grants would be stopped on Wednesday, applications for the grants immediately stopped.

The grants had been around since at least 2010.

The breakdown

Not everyone was eligible for first home grants. For a couple to be eligible, they needed to earn less than $150,000. For a single buyer, they needed an income below $95,000.

They needed to have been contributing to KiwiSaver for at least three years.

There was also a house price cap, which varied region to region. The lowest cap was in areas such as Ashburton, at $400,000 for existing houses and $650,000 for new builds.

On the other end, in Queenstown, the new build cap was $925,000 - while existing houses worth up to $875,000 were eligible.

The maximum grant for an existing house was $5000, per person. It doubled to $10,000 for new builds.

The arguments

Olsen said the first home grants had never been good economic policy, as it helped increase the price of housing on a macro scale. But on an individual level, he said it was helping first home buyers.

“It was a subsidy on buying a house, and because of how inelastic housing is, that subsidy really was bidding up prices,” Olsen said.

“But I am torn, honestly, from an economist’s point of view it was not good policy. But at lead it did something for first home buyers.”

He said he had already heard from friends who, after Wednesday’s announcement, “put the kybosh” on home ownership dreams.

Bishop said the Government should not have backed demand-side solutions to housing.

“Evidence shows the grant brings forward the purchase of a first home – but in most cases it does not make a difference to whether someone can buy a home or not,” he said.

Both Olsen and Bishop estimated it would delay first home buyers by about a year, if they were looking to buy in the short-term.

Labour housing spokesperson Keiran McAnulty called the policy change “cynical”.

He said the Government’s focus on 1500 social housing spaces was not significant.

“Don't pretend that it's a virtuous thing by saying we're going to be funding 1500 social houses, which, by the way, is significantly lower than the rate of funding that's been happening over the last six years,” he said.

He said ministers had underestimated how meaningful the grants were for first home buyers.

“We're on bloody good incomes and we can't just assume that people work on financial decisions that we do. There are people out there that that are working bloody hard and have been saving for years and banked on that funding. And now it's gone,” he said.