The Victorian Government has announced an increase to the First Home Owner Grant and stamp duty cuts for people purchasing new homes.

From July 1 the grant will be increased from $7,000 to $10,000 for newly constructed homes, and stamp duty for all first purchases will be decreased by 40 per cent.

Treasurer Michael O'Brien says Victorian families will be thousands of dollars better off.

"The average price of a newly constructed first home is about $400,000," Mr O'Brien said.

"With these announcements, Victorian families will be over $16,500 better off with the combination of the increased grant and the stamp duty cuts."

But the Real Estate Institute of Victoria's says it is disappointed the Government is scrapping the grant for people who are buying established properties.

The institute's chief executive Enzo Raimondo says the changes effectively mean those purchasing existing homes will be subsidising a discount for those buying newly constructed homes.

"History has shown first home buyers generally buy established [homes]," Mr Raimondo said.

"They generally want to buy close to where they work, and in Melbourne that's inner and middle suburbs, so this is going to make it a bit more difficult for first-home buyers of established properties in Melbourne."

Mr Raimondo says the changes just bring Victoria into line with most other states.

"A number of other states have removed the first home owners' grant for established housing," he said.

"Every state in Australia, with the exception of the resource states, are facing some tough economic times.

"What the Treasurer's done is not unexpected."

But Mr O'Brien says the advantages will be wide-reaching, with the housing construction industry also set to benefit.

"We acknowledge the housing construction industry is a really important employer of people in this state. We want to see that grow," he said.

"We want to see more jobs and we also want to make sure we have more housing stock to meet the needs of a growing population."