Key takeaways
Australia's housing crisis has become a fierce political battle that could have major implications for the outcome of the federal election.
The problem is there are no quick fixes to the housing crisis, yet both the Coalition and Labor continue to chase short-term solutions that don't address the real issues.
Anything easy and popular won’t work to solve housing affordability.
As I see it, the fierce battle over housing is set to intensify and define the upcoming federal election as Labor, the Coalition and the Greens target a growing cohort of voters who believe they've been locked out of home ownership for life.
Yet the major parties' election housing promises will only push up property prices.
They fail to tackle the underlying problems and will only create more demand at a time of limited supply.
Australia's housing crisis has become a fierce political battle that could have major implications for the outcome of the upcoming federal election.
The problem is there are no quick fixes to the housing crisis, yet both the Coalition and Labor continue to chase short-term solutions that don't address the real issues.
Anything easy and popular won’t work to solve housing affordability.
As I see it, the fierce battle over housing is set to intensify and define the election as Labor, the Coalition and the Greens target a growing cohort of voters who believe they've been locked out of home ownership for life.
The promises election promises made by the major parties over the weekend fall well short of what’s needed to address our housing crisis — in fact, they are likely to make it worse!
Sunday's election announcement from Labor proposes to allow all first home buyers to purchase a home with a 5% deposit to avoid lenders mortgage insurance and will commit $10 billion to build 100,000 new homes for them.
The Labor Party said, if re-elected, it will expand the current First Home Guarantee Scheme by increasing the property price caps, abolishing the income caps, and removing the limit on the number of places available.
Buyers that have a deposit of less than 20% are typically required by their bank to pay lenders mortgage insurance (LMI) unless a family member guarantees their loan – a cost that easily runs into the tens of thousands of dollars and only goes to protecting the bank, not the borrower.
| LMI costs for a median priced apartment - $673,491 | ||
| Deposit % | Deposit $ | Estimated LMI |
| 5% | $33,675 | $26,888 |
| 10% | $67,349 | $14,911 |
| 15% | $101,024 | $7,255 |
| Source: Canstar.com.au, CoreLogic, Helia. Based on an owner-occupier first home buyer paying principal and interest with a 30 year loan term. Apartment price is based on the national median cost for a unit from CoreLogic for 31 March. | ||
Under the scheme, which was introduced by the former government and began in 2020 as the First Home Loan Deposit Scheme, the government acts as a guarantor, sparing borrowers from LMI costs.
However, it is well recognised that if you give more first time buys more money, or the ability to buy more expensive properties they will spend it, and so I see this is an "established home owner's grant" more than the first homeowners grant s it will push up the value of properties and just kicking the housing affordability problem down the road as nothing has been done to increase supply.
While Labor's promise of building 100,000 homes is a good step, its home deposit support for first-home buyers will also add to demand and these new homes aren’t guaranteed to be affordable.
| First Home Guarantee Scheme | ||
| Current scheme | Proposed new scheme | |
| Places per year | 35,000 | Unlimited |
| Minimum deposit size | 5% | 5% |
| Income cap | $125k for singles, $200k for couples | None |
| Property price cap (Syd) | Up to $900k (Syd) | up to $1.5m (Syd) |
| Participating lenders | 38 | No change |
| Notes: Income based on ATO notice of assessment. Property price caps vary according to location. Open to Australian citizens and residents aged 18 or over who are first home buyers or buyers who have not owned property for 10 years or more. Full details here. | ||
Canstar.com.au data insights director, Sally Tindall, said,
“Lenders mortgage insurance is an unfair thorn in the side of first home buyers trying to get a foot on the property ladder, particularly considering that money spent on this insurance goes towards covering the bank, not the borrower.”
“This proposed expansion to the scheme will put more first home buyers on a more even footing when it comes to purchasing property.
“Removing the need to pay LMI will even-up the playing field between those first home buyers with access to a family member willing to go guarantor and those who do not.
“However, while there are plenty of success stories from Australians who have already used the scheme and had the guarantee removed from their loan, some borrowers who used this program and stretched themselves when rates were at record lows have not found it easy.
“Importantly, first home buyers participating in this scheme will still have to pass the bank’s serviceability checks to make sure they don’t borrow more than their income can handle. However, the scheme does nothing to address property prices, which is the biggest hurdle most first home buyers face.
“Pushing first home buyers to take on big debts more easily is a band-aid measure that will ultimately push up demand, rather than a silver bullet in the housing affordability crisis.”
Of course, buying a home with a deposit of as little as 5% can be risky, and first home buyers would need to understand the financial and logistical implications of taking on this kind of support.
Borrowing with a small deposit using the scheme can potentially mean buyers:
- are charged higher mortgage rates;
- can’t move out of the property and turn it into an investment while the guarantee is in place unless an exemption is granted;
- could fall into negative equity more easily, should property prices reverse;
- could have difficulty refinancing.
Dutton wants to be a PM who 'restores the dream of home ownership
Coalition Leader Peter Dutton said he will be a prime minister who “restores the dream of home ownership” as he announced a plan to allow first-time buyers of newly built homes to be able to deduct interest payments on up to $650,000 of their mortgage from their income taxes.
The policy would mean a family on average incomes would be around $11,000 a year better off — or $55,000 over five years.
The Opposition Leader said the policy would be available for first-home buyers “who purchase a newly built property to live in”.
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“A Coalition government will allow you to deduct interest payments on the first $650,000 of a mortgage against your taxable income,” Mr Dutton said.
“We will allow these deductions for five years, provided you continue to live in that home for that period.
Mr Dutton said this would work with other policies to help first-home buyers, including cutting migration, allowing access to superannuation for a deposit and increasing housing supply.
“Australians well into their late 30s are struggling to buy a home,”
“Despite working hard and diligently saving, too many Australians have been locked into renting forever.
“Some are moving back in with their parents. I won’t accept a situation in our country where the only people who can buy a home are those who can rely on the bank of mum and dad. The Albanese government has only made the housing situation worse.”
Because access to the scheme is dependent on the property being a new build, the Coalition argues it will boost construction activity and housing supply and that's a good move to help ease our supply shortgages.
Coalition housing spokesperson Michael Sukkar said his party would offer
"a massive structural change to our tax system to provide a huge tax concession to encourage first home buyers, to give them the firepower in the first place."
Despite these hurdles, homeownership remains attainable for many Australians
Australia's housing affordability has become an increasingly pressing issue, with recent data highlighting the significant challenges facing prospective home buyers.
In early 2024, the median house price surged to 8.6 times the median gross disposable household income, a significant increase from 4.9 times in early 2002.
Source of Image: Sydney Morning Herald
This escalation has extended the time required to save for a 20% deposit from less than seven years in 2002 to 11.4 years in 2024.
According to CoreLogic, last year (2024) there were around 540,000 property transactions, of which over 110,000 or around 20% were first-home buyers.
So obviously, it's still possible for those with financial discipline to get into the housing market.
Government initiatives played a pivotal role in supporting first-home buyers.
The Home Guarantee Scheme (HGS), for instance, facilitated homeownership for Australians earning modest incomes, with median household salaries of $84,000, compared to the broader first-home buyer market median of $95,000.
Notably, 84% of buyers under the Family Home Guarantee were single women with dependent children, highlighting the scheme's targeted assistance.
The "Bank of Mum and Dad" has also emerged as a significant contributor, with parents providing substantial financial assistance to their children for home purchases.
A recent UBS survey revealed a surprising insight - around 40% of first-home buyers are involved in such transactions, with $200,000 being a typical assistance parents are giving their children to help them on the property ladder.
