A long-running Australian housing support scheme designed to help first home buyers enter the property market may also be contributing to rising house prices and affordability challenges, according to new research.

A report released by real estate group PRD this month examines the impact of the First Homeowner Grant (FHOG) and similar assistance programs, finding they can both support aspiring homeowners and inadvertently inflate property prices.

The FHOG was introduced nationally in 2000 as a one-off payment to assist eligible first home buyers purchasing or building a new home. While the scheme has helped many Australians secure their first property, the report suggests the long-term impact on housing affordability is complex.

According to the research, the number of first home buyers entering the market increased by 34 per cent between September 2016 and 2025. However, the average loan taken out by these buyers also jumped significantly over the same period, rising from about $320,000 to $560,000 – a 75 per cent increase.

PRD Chief Economist Dr Diaswati Mardiasmo said government incentives have historically triggered spikes in first home buyer activity.

“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,” Dr Mardiasmo 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”.

Despite increased participation, first home buyers still represent a relatively small share of the lending market. As of September 2025, total home loan commitments were valued at about $98 billion, with loans to first home buyers accounting for just 16.8 per cent.

The report also highlights evidence that incentives can influence property prices. In Queensland, where the FHOG reached $30,000, median property prices in Greater Brisbane have continued to trend upward, with a significant increase recorded from 2023 onwards.

Regional markets can also feel the effect. In November 2025, the median house price in the Illawarra, for example, rose by 1.1 per cent shortly after the introduction of a new five-per-cent deposit scheme, as more properties became eligible for buyers using government assistance.

PRD Managing Director Todd Hadley said grants can create short-term surges in demand rather than long-term improvements in affordability.

“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.”

The report outlines both benefits and drawbacks of the scheme. On the positive side, grants can help close the deposit gap for buyers, stimulate new housing construction and support employment in the building sector. They may also encourage regional growth and provide pathways into home ownership for low- and middle-income households.

However, demand-side subsidies can also push up prices, particularly in lower-priced housing segments that fall within eligibility caps. Rising construction demand can increase labour and material costs, while increased home ownership may reduce the number of properties available for rent.

PRD said improving housing affordability will require broader policy responses, including boosting housing supply, encouraging innovative construction methods, and reviewing planning regulations.

While the First Homeowner Grant continues to assist many Australians entering the market, the report concludes it may ultimately be both a “friend” and a “foe” in the nation’s ongoing housing affordability debate.