A new white paper has warned that popular first home buyer grants are driving up prices and debt, even as they help more Australians into ownership.
Real estate network PRD’s report, First Home Buyer Assistance in Australia, has found that the nation’s flagship support schemes have become a double‑edged sword – achieving their immediate goal of boosting FHB activity, while entrenching longer‑term affordability risks.
Drawing on Australian Bureau of Statistics (ABS) housing finance data, PRD reported that between September 2016 and September 2025, the number of FHB loans approved jumped by 34 per cent.
Yet over the same period, the average FHB loan increased from around $320,000 to about $560,000 – a 75 per cent jump, which PRD said highlighted the rapid escalation of borrowing needs for new entrants over the past decade.
The report also noted that at September 2025, total home loan commitments stood at $98 billion, with FHB loans accounting for only 16.8 per cent.
Despite a raft of new and expanded First Home Owner Grants (FHOGs) and deposit schemes since 2023, PRD said FHB loan growth had effectively flatlined since late that year.
PRD chief economist Dr Diaswati Mardiasmo said the schemes’ impacts were evident when studying the most intense periods of policy support.
“The strongest response to First Homeowner Grants occurred between 2020 and 2021, when enhanced state First Homeowner Grants and the temporary Home Builder grant were introduced,” she said.
“First home buyer loan applications increased by almost 80 per cent between June 2020 and March 2021. When these grant programs were scaled back or removed, first home buyer activity declined.”
The ‘bring‑forward effect’ in action
PRD said that the pattern was not a one‑off, but rather the hallmark of how first home buyer assistance schemes operated in practice.
They pointed to ABS figures that showed that after a period of national expansion of support in 2017, owner‑occupier FHB loan commitments jumped by 25 per cent within two quarters.
Over the same period, Domain data revealed that capital city median prices were 5 per cent higher year on year by December 2017.
The report outlined this dynamic had played out again in recent years.
In Queensland, the statewide FHOG was first introduced at $7,000 in 2000, yet Greater Brisbane’s median value only significantly shot up after 2023, which coincided with the grant being lifted to $30,000.
However, FHB loan growth has stalled since September 2023, despite the more generous settings.
In regional markets, the paper highlighted Illawarra as a case study.
One month after the federal 5 per cent Deposit Scheme was introduced, the region’s median house price rose by 1.1 per cent as more stock met eligibility rules, indicating that the impact of assistance was not confined to capital cities.
PRD managing director Todd Hadley said the pattern had become highly predictable.
“A consequence of First Homeowner Grants is the ‘bring-forward effect’, in which government grants result in a short-term artificial surge in buyer activity. This results in immediate short-term growth, rather than long-term housing accessibility and affordability,” he said.
Who really benefits from the grants?
The report was careful to acknowledge that FHOGs delivered tangible benefits, particularly to households already partway through the deposit‑saving journey.
In the Northern Territory, PRD attributed more than 200 new builds and a 23.4 per cent increase in FHBs in the year to June 2025 to the FHOG, noting that this activity had supported the local construction industry.
Meanwhile, in South Australia, the paper said that buyers in 2024 and 2025 received $46.6 million in grant contributions and $73.5 million in stamp duty relief – about $120.1 million in total.
Taken together, existing schemes meant that eligible purchasers could access up to roughly $51,000 towards a new home.
However, PRD stressed that these benefits were not uniform.
Eligibility rules and price caps often trail rising market medians, leaving many priced out of their preferred suburbs, while those within the bands benefit.
PRD also cautioned that the extra purchasing power could quickly impact prices, with a portion of the assistance flowing through to sellers and developers.
At the same time, a 75 per cent rise in average FHB debt since 2016 meant that new buyers were taking on larger mortgages, leaving them more exposed to interest rate shocks.
“Therefore, from a policy purpose perspective, the First Homeowner Grant can act as a friend for Australians close to securing their first home, however, it also has several hidden consequences, such as higher property prices,” Mardiasmo said.
PRD calls for structural reform
Rather than further expanding grants, PRD said the policy focus needed to shift from demand‑side boosts to structural changes.
On the supply side, the paper pressed for zoning reforms to allow higher‑density housing in urban areas, alongside wider adoption of prefabricated and modular construction.
It also flagged the rapid growth in residential property holdings by self‑managed super funds and suggested that restricting such purchases could ease competition for stock typically targeted by FHBs.
PRD pointed to overseas models as potential blueprints.
In Denmark, FHBs benefit from mortgage interest tax deductions and a covered‑bond system, which allows borrowers to refinance more easily, which PRD said provided long‑term support rather than one‑off cash injections.
Singapore’s public housing program and grants, UK‑style shared ownership, and community land trusts, where a not‑for‑profit owns the land, while households own the dwelling, were all touted as ways to deliver lasting affordability.
[Related: FHBs return in force as lending surges]
