A major incentive designed to help Western Australians break into the property market has had the unintended consequence of pushing prices higher, according to a fresh economic analysis. The state's supercharged first home buyer grant is now directly linked to a significant jump in property values, raising questions about its long-term effectiveness.
The Sugar Hit That Inflated the Market
In late 2022, the WA government significantly increased its First Home Owner Grant from $10,000 to a substantial $15,000 for purchases of newly built homes. For buyers in the Pilbara region, the grant was boosted even further to $20,000. This policy, intended as a stimulus, has been described by analysts as a "sugar hit" for the market.
Research conducted by consultancy firm Macroeconomics has quantified the impact. Their analysis concludes that the enhanced grant scheme has directly contributed to a 4.5 per cent increase in Western Australia's property prices. In practical terms, this translates to an extra $30,000 being added to the state's median dwelling price.
"The policy is inflationary," stated the report's author, Jason Murphy. He explained that while the grant puts more money in the pockets of first-time buyers, it also increases their collective purchasing power. This surge in demand, without a corresponding increase in housing supply, inevitably forces prices upward.
Who Really Benefits from the Grant?
The findings suggest the primary beneficiaries may not be the young families and individuals the policy aims to assist. Instead, a significant portion of the grant's value is effectively transferred to property sellers, who can command higher prices due to increased buyer competition and capacity.
The analysis points out a critical flaw in the scheme's design: it fails to distinguish between different types of new homes. Whether a buyer purchases a modest apartment or a luxury villa, they receive the same flat grant amount. This structure does little to target assistance where it is most needed for genuine affordability.
Furthermore, the policy interacts with other government initiatives. The report highlights that the state's lender, Keystart, which offers low-deposit loans, has seen its lending surge. When combined with the cash grant, these measures inject a powerful dose of demand into the lower end of the housing market, creating intense upward pressure on prices in that segment.
The Broader Impact on Housing Affordability
The Macroeconomics report delivers a sobering assessment for policymakers. It argues that demand-side incentives like cash grants, while politically popular, are ultimately counterproductive if the core issue of housing supply is not addressed simultaneously.
Jason Murphy emphasised that making housing more affordable requires a different approach. "The way to make housing cheaper is to build more of it," he said. The report advocates for policies that streamline planning and construction processes to boost the number of new homes coming onto the market.
This situation places the WA government in a difficult position. The first home buyer grant is a visible and immediate form of support, but evidence now shows it may be undermining its own goal. The challenge will be balancing popular support mechanisms with harder, long-term solutions focused on land release, construction efficiency, and infrastructure planning.
The analysis serves as a clear warning to other states considering similar demand-side interventions. Without a parallel strategy to dramatically increase housing stock, well-intentioned grants risk becoming a subsidy for existing property owners, leaving future first-home buyers to face even higher price barriers.
