The Relationship between Housing Market Intervention for First-Time Buyers and House Price Volatility

Abstract

Declining homeownership rates as observed in many western countries have direct and indirect implications for the broader economy; hence, governments have been seeking an effective solution to address this decline. One of the major challenges is the decline in overall homeownership rates with an increasing proportion of households deciding to rent rather than purchase. However, it is surprising that the impact on the housing market following the introduction of a first-time housing subsidy scheme has received relatively little attention. This study addresses this knowledge gap by examining the relationship between (1) housing market intervention based on first-time owner subsidies in a global city and (2) the level of house price volatility in the broader market. For example, the Australian government has implemented different policies designed to ease housing stress among first-time buyers; one high-profile policy was the First-time buyer Grant or First Home Owner Grant (FHOG) in which a cash payment or subsidy is given to new first-time buyers as a direct incentive. Based on a case study approach, an analysis is undertaken of the first-time buyer policy where an innovative approach using the E-GARCH model is employed to assess the effect of the scheme on the housing market. The findings indicated that the FHOG scheme offered a stabilisation effect on the housing market. In addition, there is evidence to support implementation of the FHOG scheme as an effective scheme to enhance housing affordability of first-time buyers. The findings offer a rare insight into the effectiveness of the FHOG scheme in enhancing housing affordability and also maintaining price stabilisation in the broader housing market.