As Matt Grudnoff pointed out earlier today, the Government’s new 5% deposit scheme will do little to help new buyers access the market and may push house prices even higher.

This new scheme is in effect a new First Home Owner Grant (FHOG), though this time the government will be paying for the buyer’s mortgage lenders insurance rather than providing a direct grant. FHOGs are nothing new, as Lilia Anderson noted in 2023:

the efficacy of the FHOG in practice is widely disputed – and with over $20 billion going to FHB assistance over the past decade alone, it is critical that such schemes actually deliver what governments say it will, rather than simply giving the appearance of action on Australia’s much-maligned housing crisis.

For one, the FHBG does not appear to significantly increase housing accessibility for new entrants into the market. Instead, research has found that the scheme more commonly tends to accelerate the purchase of a home for those already planning to do so. So, rather than broadening access, the scheme simply tends to hasten purchase for those already about to buy a home.

Second, the FHBG tends to increase the purchasing power of first homebuyers, but in doing so it tends to further inflate house prices. This is because demand-side policies that give people more money to spend on housing tend to just end up increasing prices more. This suggests that the scheme may actually reduce housing accessibility in the long term – the very problem that such measures are designed to address. In turn, it suggests that the FHBG tends to benefit existing homeowners who will profit from their property prices increasing – and disadvantage future first home buyers, who will be forced to pay more for a home.

If the Government is serious about the housing crisis it could crack down on the tax concessions to property investors that encourage and enable investors to outbid others who want to buy a home to live in. These property investor tax concessions will cost the budget around $13 billion just this year, with this figure set to rise each year after, overwhelmingly benefiting high-income earners; over half (56%) of the benefit goes to the top 10% of income earners, while the bottom half get only 13%. This money could be redirected to building new public housing to help bridge Australia’s shortfall of about 640,000 social homes.