Feature article

The scrapping of first home grants is unlikely to seriously dampen the first home buyer market

It may not be all doom and gloom.

5 June 2024

The Government recently announced ‘out of the blue’ that first home grants were to be immediately scrapped. Clearly, this is unwelcome news for those first home buyers who qualified under the income threshold and who were also looking at properties within the various regional price caps too. After all, a couple looking at a new-build property could have got deposit assistance of up to $20,000. But there are many other reasons to believe that this policy change might come and go pretty quickly.

For a start, although it’s estimated that as many as two in every five purchases by FHBs lately have benefitted from a first home grant, there’s always been a sense that the assistance was ‘nice to have’, rather than the primary source of funding for most buyers. Indeed, given that a typical deposit at the moment is probably in the vicinity of $140,000 to $150,000, it’s clear that first home grants were only ever going to be a final top-up for many people.

In addition, it’s also worth remembering that the grants were essentially a subsidy, and if property sellers are aware of the system, economic theory will tell you that this kind of policy just tends to push house prices up. In other words, yes, you might get $10,000 as help with the deposit, but you might need to pay $10,000 more to actually secure the property.

Now, of course the removal of the funding will slow down the buying process for some people, and obviously that’s far from ideal for them. But it’s also worth remembering that there are still many other factors in favour of FHBs at present:

  • The Government’s First Home Loan scheme, which provides access to the mortgage market for people with lower deposits on lower incomes
  • The low-deposit lending allowances at the banks, which mean that 15% of owner-occupiers (soon to be 20% from 1st July) can borrow with less than a 20% deposit, with new-build properties exempt from the rules too
  • Access to KiwiSaver for the deposit on a first home, or at least some of the deposit
  • Less competition from other buyer groups, such as property investors (given that a typical rental purchase in this market needs a considerable cashflow top-up out of other income)
  • A rising stock of property listings available on the market, which is giving buyers plenty of choice and could shift the pricing power on many deals in their favour

And perhaps more importantly than all of that, it’s never easy to get that first home, but FHBs have shown over many decades that they’re willing to ‘do what it takes’, compromising on the location, type, or quality of the property in order to get on the ladder. Our internal data here at CoreLogic also shows that first home buyers are often starting out a fair way up the value tiers in terms of the initial property they buy, so with the grants no longer in place, no doubt some buyers will just start to look in slightly cheaper price brackets.

Of course, there will still be challenges, such as the reasonable probability that mortgage rates don’t fall much until perhaps 2025, and also that buyers will now face formal limits on how much debt they can have in relation to their income (DTI rules will start from 1st July 2024). But I still think that the first home buyer segment of the property market will remain relatively resilient, even without the grants that had previously been paid.


Kelvin Davidson
Kelvin Davidson

Chief Property Economist, CoreLogic - corelogic.co.nz

Kelvin joined CoreLogic in March 2018 as Senior Research Analyst, before moving into his current role of Chief Economist. He brings with him a wealth of experience, having spent 15 years working largely in private sector economic consultancies in both New Zealand and the UK.

In his role with CoreLogic Kelvin’s focus is on keeping up to date with what’s going on in the property market and continually finding different ways for viewing and interpreting it. Kelvin’s economics background means that he knows his way around a spreadsheet, but more importantly he always puts more emphasis on providing the key insights and telling a story, whether his audience be clients or the media.