Changes could add upward pressure to housing costs
Australia’s plan to expand its home guarantee scheme for first-time buyers may ease entry into the property market, but housing experts warn the policy risks inflating prices and offering support to people who would have purchased anyway.
The program, introduced in 2020, allows eligible buyers to purchase a home with a deposit as low as 5% without paying lender’s mortgage insurance. The government guarantees up to 15% of the loan, effectively cutting the time it takes to save for a deposit.
Housing Minister Clare O’Neil announced over the weekend that, beginning in October, the program will no longer be capped at 50,000 participants. Eligibility rules will also be broadened, including higher property price caps and the removal of income thresholds.
Independent analyst Cameron Kusher (pictured) said the changes will likely fuel competition and add upward pressure to housing costs, according to a report by The Guardian. He questioned Treasury’s claim that the policy would increase home prices by just 0.5% over six years.
“This type of stimulus is getting larger and more exotic,” Kusher said, according to The Guardian. “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, director of the Grattan Institute’s housing and economic security program, also criticized the move, saying the expanded criteria do little for households on lower incomes.
“Everyone who was going to struggle to buy a home … was already eligible,” Coates told The Guardian. “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.”
Peter Tulip, chief economist at the Centre for Independent Studies, said the scheme could fuel riskier borrowing and market speculation.
“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,” Tulip told The Guardian. “So this is likely to encourage reckless borrowing and bidding. To be precise: it’s going to make bubbles more likely.”
While economists broadly agree boosting supply is key to easing affordability, progress remains slow. Labor has pledged to build 1.2 million homes over five years, but government advisers have warned the target is unlikely to be met. The National Housing Supply and Affordability Council recently forecast a shortfall of more than 260,000 homes.
