A potential policy encouraging first-home buyers to go after new homes to boost the residential building sector might not be the best way to provide support to the overall economy, according to the Real Estate Institute of Australia (REIA).

While the construction of new homes has been a crucial support to Australia's economic growth over the past three years, limiting grants and assistance packages to the purchase of new dwellings could have a "detrimental impact" on buyer choice and market activity. This could, in turn, dilute the supposed economic impact of such stimulus, said Adrian Kelly, president at REIA.

"To limit any assistance to first-home buyers to only new dwellings could lead to sub-optimal outcomes in the utilisation of existing property and infrastructure," he said.

Kelly said less than 20% of first-home buyers prefer to buy newly-constructed homes. He believes introducing a grant that limits their choice would only impede any potential activity in the housing market.

"While the participation of first-home buyers has improved over the last year, the current level is well down on the levels 20 years ago. Subsidising the purchase of only new housing will limit this recovery," he said.

Industry groups are urging the federal government to introduce economic stimulus packages to boost the construction sector. One of the suggestions that have gotten a lot of attention lately was the Property Council of Australia's proposal to grant first-home buyers $50,000 for the purchase of new homes. Master Builders also called for a similar cash grant that would provide $40,000 to first-home buyers.

While the aim is to boost the economy and create jobs, Kelly said limiting the assistance to first-home buyers could potentially lead to reduced employment in the real estate sector. He said that many agents are already reporting a 50% cut in listings and enquiries from prospective sellers.

"The indications are that this is unlikely to change for quite some time yet and will result in reduced employment in the sector when JobKeeper ceases,” he said. “This would exacerbate the impact on agents who have been managing the fallout of tenants losing employment and negotiating outcomes that have kept families housed at the height of the pandemic.”

Kelly believes allowing first-home buyers to go after established homes when applying for a state grant would benefit the construction industry more, as this usually leads to sellers looking for larger and newer properties.

"In these cases, the multiplier and employment effects are probably greater than when a first-home buyer purchases a new house, as the size and cost of construction of dwellings purchased by upgraders is generally more than that of first-home buyers," Kelly said. "Furthermore, first-home buyers of lower-valued established homes usually embark on a program of home improvement and renovation, providing a stimulus to the building sector."