Government initiatives designed to help first-time buyers onto the property ladder with smaller deposits may be having the opposite effect, according to new economic research. The study suggests such policies can significantly inflate house prices, ultimately making homeownership less accessible for those on lower incomes.
Modelling Reveals a Price Spike
While proponents argue that low-deposit schemes help overcome the initial savings hurdle, detailed financial modelling paints a concerning picture. Research conducted by economists Hamza Hanbali from the University of Melbourne and Gaurav Khemka from the Australian National University indicates that a reduced deposit policy could lead to house prices rising by 10-20% over a decade.
This surge would far outweigh the benefit of needing a smaller upfront sum. The analysis concludes that for lower-income households, the policy could delay the ability to buy a home by up to five years compared to a market without the intervention.
Comparing Policy Impacts on Affordability
The research compared two popular policy approaches: a taxpayer-backed guarantee for a 5% deposit and a scheme allowing access to pension savings for a deposit. Both were found to increase prices, but their effects on different income groups varied sharply.
Under the 5% deposit model, the immediate "price shock" and higher subsequent mortgage repayments start to bite quickly. For low-income households, the larger loan can push repayments beyond what their income can support, creating a significant barrier.
In contrast, the model suggested that allowing limited early withdrawal from retirement savings to fund a deposit improved access across all income groups, though it still contributed to higher prices. Higher-income households benefited most under both schemes, able to buy up to 1.2 years earlier.
The Unavoidable Need for More Homes
Experts stress that the core issue remains a critical shortage of supply. Hugh Hartigan, a principal at Hartigan & Associates and former head of research at Housing Australia, echoed the study's findings, noting that both types of demand-side policies push prices higher.
Hanbali stated that the fact both policy approaches led to higher prices underscores that building more homes is the only long-term fix for unaffordable housing. The priority, according to Hartigan, must be ensuring a sufficient supply of social and affordable housing, as the lowest-income families may otherwise struggle to ever own a home.
The findings present a significant challenge for policymakers aiming to improve housing affordability, suggesting that well-intentioned demand-side support requires careful calibration to avoid exacerbating the very inequality it seeks to address.
