Housing support measures may lift prices and delay purchases
New research has raised questions about whether the Commonwealth’s 5% deposit guarantee is making it harder, rather than easier, for lower income Australians to enter the housing market.
Economists from the University of Melbourne, the Australian National University and Monash University have modelled the impact of the reduced deposit policy and a rival proposal to allow early access to superannuation, finding both measures could push dwelling values materially higher over the next decade.
While government analysis has pointed to a modest uplift in prices over six years, the new modelling suggests that loosening deposit constraints could result in price increases of about 10% to 20% over a 10‑year horizon, depending on assumptions about supply and demand.
For mortgage professionals, the findings highlight a potential tension between short‑term deposit assistance and long‑term serviceability and affordability, particularly for lower income cohorts.
Price effects may outweigh deposit assistance
The 5% deposit scheme provides a government guarantee of up to 15% of the loan amount, allowing eligible first‑home buyers to avoid lenders mortgage insurance and purchase with a smaller deposit. The policy was broadened in October, coinciding with a renewed upswing in home values in several capitals.
According to the researchers’ modelling, however, the benefit of easing the deposit hurdle is offset – and in some cases more than offset – by the price impact generated by higher demand. For lower income households, this effect is most severe: they are projected to face an additional wait of up to five years to purchase a home under the reduced deposit policy, compared with a scenario without the scheme, in a supply‑constrained market.
By contrast, the modelling indicates that a proposal by the Coalition to allow first‑home buyers to access part of their superannuation for a deposit – up to 40% of the balance, capped at a 20% deposit – would still lift prices but could improve access to home ownership across all income bands.
“The reduced deposit scheme in our modelling seems to be harming low-income groups, so it generates inequality,” Hamza Hanbali, senior lecturer in actuarial studies at the University of Melbourne, said in an article published by The Guardian.
“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.”
Different impacts across income groups
The academics examined three representative households – low, middle and high income – each starting with no savings, and modelled how long it would take them to save a deposit and purchase under the two policy options.
Under both approaches, higher income households are able to bring forward their purchase: by around 10 months under the 5% deposit guarantee and roughly 1.2 years under the early‑access superannuation plan. Middle income borrowers also see time‑to‑purchase reduced under the superannuation proposal, by about one year, according to the analysis.
The dynamics for lower income buyers are more complex. The research suggests that being able to use superannuation for a deposit allows lower income households to buy around six months earlier. Under the 5% deposit scheme, however, the larger loan size associated with a 95% loan‑to‑value ratio pushes repayments beyond what these borrowers’ incomes can comfortably support, delaying purchase by as much as five years in the context of restricted housing supply.
From a lending perspective, this implies that while both policies may generate more applications from higher income first‑home buyers, they could also increase credit risk and extend the effective exclusion of more marginal borrowers if incomes do not keep pace with rising prices.
Affordability pressures at record levels
The research comes against a backdrop of record housing affordability strain despite ongoing efforts by the federal government to boost supply through planning and incentives.
It now takes more than 10 years on average to save a 20% deposit for a median home in Sydney, Adelaide, Brisbane and Perth, according to figures from housing data provider Cotality. At the same time, the typical household is paying close to double the share of income on mortgage repayments compared with five years ago, reflecting both higher prices and the impact of interest rate increases.
According to the study, both the 5% deposit scheme and the early‑access super proposal influence repayment affordability primarily through price. The superannuation plan affects serviceability “indirectly” because the extra purchasing power lifts demand and prices, forcing buyers to borrow more. The reduced deposit scheme “shares the same price effect” but also “by design” increases the initial loan size via the higher loan‑to‑value ratio, before any price impact is taken into account.
Supply flagged as key long-term solution
Hanbali argued that the common outcome of higher prices under both policies pointed to the limits of buyer‑side subsidies.
For those operating in the mortgage sector, this reinforces the central role of housing supply and planning in shaping long‑term loan demand, borrower risk profiles and product suitability, as opposed to relying solely on deposit assistance or superannuation access.
Hugh Hartigan, principal at advisory firm Hartigan & Associates and a former head of research at Housing Australia, said the analysis underlined the extent to which demand‑side measures can feed into prices rather than improving affordability for the most constrained households.
He warned that lower income families may struggle to achieve home ownership without a substantial lift in the stock of lower cost dwellings and targeted public investment. “The priority should be a sufficient supply of social and affordable housing,” he said.
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