Govt's First Home grant not enough for most first home buyers, figures show

New figures show the first home buyer scheme is increasingly out of reach for many.

New figures show the Government’s First Home grant, previously called HomeStart, is increasingly out of touch with the country’s housing market.

“We were very excited that the Government could help us get into our first home, we then soon found out that we just couldn’t find anything that would be suitable for that price range,” Lower Hutt first home buyer Jason Firth told 1 NEWS.

In the last year, Real Estate Institute of New Zealand figures show most house sales in main centres would not qualify for the grant, except for Christchurch.

In the Auckland region, 86 per cent of houses were above the price caps, for Queenstown Lakes District that rose to 91 per cent, in Wellington, just 10 per cent of house sales in the last year would have been eligible and for Porirua, just 11 per cent.

For Hamilton, 76 per cent of houses were above limits, for Hutt Valley, 77 per cent, Kapiti Coast, 82 per cent, Nelson, 72 per cent, Selwyn District, 70 per cent, Tasman District, 83 per cent, Tauranga, 88 per cent, Western Bay of Plenty District, 80 per cent, and for the rest of New Zealand, an average of 60 per cent.

Christchurch and Waimakariri District house sales are still more in line with the scheme’s price limits, at 57 per cent and 67 per cent of sales respectively in the last year being eligible for the scheme.

In Auckland and Queenstown Lakes District, the price limit for existing properties is $600,000 and $650,000 for new properties, in Hamilton, Tauranga, Western Bay of Plenty, Kāpiti Coast, Porirua, Upper Hutt, Lower Hutt, Wellington, Tasman, Nelson, Waimakiriri, Christchurch and Selwyn, the existing property limit is $500,000 and $550,000 for new properties and in the rest of New Zealand the price limit for existing properties is $400,000 and $500,000 for new properties.

After months of searching, Mr Firth and his partner have purchased a two-bedroom home in Lower Hutt, that was priced well above the regional limit of $500,000 for an existing house.

He said the $10,000 he and his partner would have been eligible for through the scheme would have been useful for paying for costs in the lead up to transitioning from renting to home ownership, as well as home alterations.

“Even looking in Upper Hutt we struggled to find anything suitable under 500,” Mr Firth told 1 NEWS.

Mr Firth said many homes his partner and himself came across that were expected to sell for under $500,000 in the Hutt Valley ended up selling for more than the limit or if they were under $500,000, mould was present and there were significant building issues.

The scheme was established in 2015 to get more people into homes, and since then the price limits on houses in different regions have increased slowly but uptake of the grants has consistently been lower than the Government’s anticipated.

Grants range from $1000 for every year a first home buyer has been in KiwiSaver up to a maximum of $5000, or double that for a new property.

In the 2018/2019 financial year, nearly 17,900 grants were approved.

“When you've got a majority of the properties in an area that don’t qualify, it does make it quite difficult to find a property that people can have that HomeStart grant,” REINZ chief executive Bindi Norwell said.

“This is a really good thing to try and help people get into the market, but we should review the cap to ensure they are fit for purpose for the particular regions.”

Ms Norwell said with the country in a different economic climate after the Covid-19 lockdown, it was important new ways to help people get into the market were explored but balanced with ensuring people weren’t in too much debt.

Economist Shamubeel Eaqub said it’s difficult for the policy to achieve the aim of getting people into home ownership when house prices are rising so rapidly in excess of incomes.

“It's a rock and a hard place with the cap because you don’t want so much debt among these new home owners that they become financially vulnerable but at the same time those caps need to keep pace so that enough homes are available for people to buy,” he said.

Mr Eaqub believes the caps should remain the same because of the risk of higher house price caps leading some vulnerable people to being able to take on higher mortgages.

“Yes, it will mean that not as many people will be able to access affordable homes to own but at the same time it means we’re finding the balance of not putting all these new people at risk of financial ruin.”

Government advice considered in the lead up to the Government’s KiwiBuild reset last year stated, "Increasing grants for existing homes in lower priced areas is more likely to flow through to higher house prices."

Housing Minister Megan Woods said she’s asked officials to investigate First Home grant price limits as part of a piece of work reviewing potential housing affordability and first home buyer measures after the Covid-19 lockdown.

“Of course there’s costs associated with a range of measures so I’m waiting to be able to see all of those together and weigh those up because we are determined that we won’t repeat the mistakes that we saw post-GFC (global financial crisis) in terms of the affordable market falling away and first home buyers being shut out,” she said.

She said the caps need to keep price with market prices but not in a way that sets the “price for first homes.”

Ms Woods would not give a timeline for receiving the advice, but said she expected it in a “timely manner.”

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