The federal government’s 5% home deposit scheme will make it more difficult for low-income Australians to buy their first home, according to new research that suggests a major rethink of the key housing affordability policy is needed.
The expansion of the measure in October coincided with a sharp acceleration in home values and raised concerns that the policy could prove self-defeating. Labor has repeatedly cited Treasury analysis suggesting a 0.5-0.6% rise to property prices over six years.
But modelling by the economists Hamza Hanbali, from the University of Melbourne, Gaurav Khemka, from the Australian National University, and Himasha Warnakulasooriya, from Monash University, found that the reduced deposit policy could leave home prices 10-20% higher over the coming decade.
It found that the help in overcoming the deposit hurdle would be outweighed by the spike in prices. This was particularly the case for lower income households, who the modelling suggests would have to wait five years longer before being able to buy a home.
Hanbali, a senior lecturer in actuarial studies, said the analysis also had the “surprising” conclusion that a Coalition proposal – to allow first-time buyers to put their retirement savings towards a deposit – would improve access to the housing market for all income groups.
“The reduced deposit scheme in our modelling seems to be harming low-income groups, so it generates inequality,” he said.
“But early withdrawal is not as bad – it just involves a tradeoff, and that is the surprising bit. This is not meant to take a side in the politics; it’s meant to study these two policies in a way that is as objective as we could.”
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Despite efforts by Labor to lift supply, housing affordability is now at its worst on record.
It takes more than a decade to save for a 20% deposit for a home in Sydney, Adelaide, Brisbane and Perth, according to Cotality, while the average household needs to dedicate nearly twice as much of their income to paying their mortgage than they did five years ago.
Hanbali said the fact that both policy approaches led to higher prices showed that building more homes was the only long-term fix for unaffordable housing.
The Coalition’s proposal is to allow first home buyers to access up to 40% of their super to help fund a deposit of up to 20%. The 5% deposit scheme offers a taxpayer-backed guarantee worth up to 15% of the loan, and so helps recipients buy with less savings.
According to the research, the Coalition scheme affects repayment affordability “indirectly”, as the additional demand pushes prices higher, and households are then forced to borrow more.
The reduced deposit approach “shares the same price effect”. But it also increases borrowing “by design”, as the lower 5% deposit means households take on a larger mortgage even before taking into account the impact on prices.
The academics modelled how long it would take a low-, middle- and high-income household – all with no savings – to save for a deposit and buy a home under the two policies.
Under both policies, higher income households can buy earlier: by 10 months for the deposit scheme, and 1.2 years earlier under early release of super.
But the cascading affects on the other households, who buy later and into a more expensive market, are more complicated.
Middle-income households can still buy a year earlier under the super plan, while the reduced deposit scheme has a more immediate “price shock” and the higher repayments start to bite.
Among low-income households, the contrast is sharper. According to the research, getting access to their super allows them to buy six months earlier.
But under the 5% deposit scheme “the larger loan pushes repayments beyond what their income can support, delaying purchase by up to five years in a supply constrained housing market”.
Hugh Hartigan, a principal at the advisory firm Hartigan & Associates and a former head of research at Housing Australia, said the research showed both policies pushed prices higher.
Hartigan said the lowest income families would struggle to ever own a house and “the priority should be a sufficient supply of social and affordable housing”.
