Labor’s major new expansion to the home guarantee scheme will help first-time buyers who would have bought anyway, experts say, and is likely to push prices higher.
The scheme, which has been around since 2020, helps eligible first-time buyers get into the market with a deposit of as little as 5%, without the need to pay tens of thousands in lender’s mortgage insurance and taking years off the time required to save for a deposit.
To achieve this, the government provides a taxpayer-backed guarantee of up to 15% of the value of the home loan, which the government says will slash years off the time it takes to save for a deposit.
Clare O’Neil, the housing minister, at the weekend announced that from October there would be no limit on the number of first-home buyers who could take advantage of the policy, against a previous cap of 50,000.
Eligibility rules will also be significantly expanded, including boosted property price caps and eliminating limits on applicants’ income.
Cameron Kusher, an independent property expert, said expanding the guarantee scheme was “only going to drive prices higher and increase competition for the housing stock”.
Kusher said it was “very hard to believe” Treasury’s analysis that this week’s policy announcement would only add 0.5% to home prices over six years.
He said previous rounds of policies that boosted demand for housing had, combined with falling interest rates, led to substantial price rises.
“This type of stimulus is getting larger and more exotic. I expect prices to be higher and then for the government to provide even larger levels of support for the next cohort of homebuyers.
“It’s good politics; it’s not good economics.”
Brendan Coates, the director of the Grattan Institute’s housing and economic security program, questioned the purpose of easing the scheme’s eligibility rules.
“Everyone who was going to struggle to buy a home, which is overwhelmingly those on low incomes, were already eligible,” Coates said.
“It’s a backwards step in the sense we are offering support to people who really don’t need it and who are likely to buy anyway,” he said.
Coates said the announcement was likely to push prices up, even if it would “not have a big impact” on them.
“This is just another in a long line of policies that sound good but that won’t make much of a difference, or arguably make the [housing affordability] problem worse.
“And it shouldn’t distract us from the fact we are failing to build the houses we need on the supply side, and that’s where the government should be doing more.”
Peter Tulip, the Centre for Independent Studies’ chief economist, said there were no deep studies on the impact of first-home buyer support schemes on property values. But he said expanding the home guarantee scheme was likely to add to froth in the market.
“The problem with the government proposal is it’s giving borrowers a one-way bet: that if prices rise, they make a pile of money, and if prices fall, then the taxpayer cops it.
“So this is likely to encourage reckless borrowing and bidding. To be precise: it’s going to make bubbles more likely.”
Tulip argued that boosting supply was still the number one priority, and while the government had a “reasonable” list of policies in this regard, the estimated impact of tens of thousands more homes was a “rounding error” in the context of Labor’s target of building 1.2m homes over the five years to 2029.
Treasury advice to the Albanese government following the election win warned that the country was not on track to meet the ambitious target. Analysis by the National Housing Supply and Affordability Council suggests the government will fall 262,000 homes short.
Anthony Albanese on Monday said his government was “determined to make a difference on housing”.
“If you don’t have a target, you’re not trying,” the prime minister said.
