New economic research has delivered a stark warning about a key Australian housing policy, suggesting that a scheme designed to help first-time buyers get on the property ladder is actually making it harder for those on lower incomes.
Modelling Predicts Sharp Price Rises
The study, conducted by economists Hamza Hanbali from the University of Melbourne and Gaurav Khemka from the Australian National University, modelled the long-term effects of the federal government's 5% home deposit scheme. Their findings contrast sharply with official Treasury analysis, which predicted a modest 0.5-0.6% rise in property prices over six years.
Instead, the academics' modelling indicates the policy could inflate home prices by a significant 10-20% over the coming decade. This surge would effectively cancel out the benefit of the lower deposit, creating a net disadvantage for aspiring homeowners.
Low-Income Households Hit Hardest
The research highlights a deeply concerning inequality in the policy's impact. While all buyers face higher prices, the consequences are most severe for lower-income households. The modelling suggests that for these groups, the spike in prices caused by increased demand means they could have to wait an additional five years before being able to afford a home.
"The reduced deposit scheme in our modelling seems to be harming low-income groups, so it generates inequality," explained Hamza Hanbali, a senior lecturer in actuarial studies.
The core problem is twofold: the policy directly increases borrowing by design, as buyers take on a larger mortgage with a smaller deposit. Simultaneously, it fuels market-wide price growth, creating a double affordability squeeze.
Surprising Finding on Superannuation Proposal
In a notable comparison, the research also examined a rival policy proposal from the Coalition to allow first-time buyers to access up to 40% of their superannuation (retirement savings) for a deposit. Contrary to expectations, this model showed improved access across all income groups.
Under this scenario, low-income households could buy six months earlier. Hanbali described this conclusion as "surprising," noting it involved a trade-off rather than generating the same level of inequality. The superannuation policy affects repayment affordability indirectly through price rises, but does not mandate a larger loan from the outset.
Hugh Hartigan, a principal at Hartigan & Associates and former head of research at Housing Australia, echoed that both policies ultimately push prices higher. He argued the priority must be "a sufficient supply of social and affordable housing."
The Only Long-Term Fix: More Homes
The research underscores a fundamental truth in housing policy. With affordability at its worst on record—where saving a 20% deposit in major cities can take over a decade—demand-side measures like deposit assistance have limited power.
Hanbali stated the evidence is clear: "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 study serves as a crucial reminder that without a substantial boost to housing supply, well-intentioned schemes risk exacerbating the very problems they aim to solve.
