State Treasury is understood to be working on a major housing affordability package to better target housing assistance, with the proportion of first home buyers entering the market squeezed to record lows by soaring prices.

High-level sources have confirmed that scrapping a 50 per cent stamp duty concession for first home buyers purchasing properties worth up to $600,000 – a saving of up to $15,500 – is being actively considered as part of the sweeping overhaul. Another is to restrict eligibility by lowering the house price threshold at which it applies.

"There is a reasonable body of evidence to say all this does is inflate prices," a source said.

A spokesman for Treasurer Tim Pallas said the government had "no plans" to change arrangements for first home buyers, although future action was not ruled out.

"The Andrews Labor government is fully aware of the concerns and obstacles facing first home buyers and will continue to take action to ensure they are supported."

While it remains unclear what measures might replace the discount, the move could free up as much as $684 million over four years.

Budget papers show the concession – introduced by the former Coalition government in its first budget – is expected to cost $167.8 million this year, with rising prices pushing the cost steadily higher to $170.3 million in 2016-17, $172.0 million in 2017-18 and $173.7 million in 2018-19.

It follows a controversial budget decision by the Andrews government to hit foreign property buyers with a 3 per cent tax, raising about $279 million over four years. Foreign housing investors will also pay an extra 0.5 per cent in land tax from 2016, raising $53.5 million.

Opposition treasury spokesman Michael O'Brien said the 50 per cent stamp duty concession was vital for young people trying to get a foothold in the property market.

"There is no excuse for removing it or winding it back in any way," Mr O'Brien said. "This looks to be a cash grab from a government that can't control its spending and wants to hit first home buyers in the hip pocket."

It is understood the government is also examining the effectiveness of the $10,000 first home owner grant for newly built houses worth up to $750,000.

Any move to radically overhaul the state-based housing affordability measures will be controversial.

Economist Saul Eslake said first home buyer concessions merely allowed people to pay more for homes than they otherwise would. He said this ended up in the pockets of vendors and on the balance sheets of existing homeowners, who benefited from rising prices.

"This is, of course, why these concessions are so popular despite their obvious failure to achieve their ostensible purpose," Mr Eslake said.

Melbourne University property Associate Professor Piyush Tiwari said stamp duty discounts for first home buyers had driven up prices while doing little to help aspiring homeowners outbid other buyers.

Dr Tiwari said releasing more land and speeding up the planning approval process were more effective measures to improve housing affordability. He said there should also be a curb on foreign buyers purchasing Australian properties for investment purposes.

But Master Builders Association of Victoria chief executive Radley de Silva said encouraging people to buy their first home had important flow-on effects for the entire residential market.

"Support for first home buyers is essential in a market where there are housing affordability and cost of living pressures – and reforms such as stamp duty discounts are an important element of this."