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The first home buyer scheme is a risk Australia can no longer ignore
As an investor, I want stable and sustainable housing markets. What I do not want is policy-induced price inflation that echoes the early mechanics of subprime lending: minimal equity, maximum leverage, and a taxpayer backstop.
Housing Minister Claire O’Neil this week claimed young Australians could be up to $165,000 better off under the scheme. The analysis, prepared by KPMG, argues that earlier market entry delivers capital growth sooner and avoids the “dead money” of renting.
That conclusion depends on a selective reading of the data.
The modelling relies on detached house price growth, despite the fact that a substantial proportion of purchases under the scheme will be apartments. Units have delivered far weaker returns, rising just 3.3 per cent nationally, with prices falling outright in several oversupplied markets. Applying house-price assumptions to apartment buyers is not optimistic modelling; it is the wrong metric applied to the wrong asset.
To be fair to KPMG, the report itself acknowledges the core problem. Buried beneath the ministerial fanfare is a blunt admission: earlier entry by first home buyers increases competition in entry-level segments, pushing prices higher and benefiting existing owners rather than new buyers.
I think the Minister should have read the report in its entirety before posting about it on social media.
However, this should not come as a surprise from a government that blindly believed Treasury modelling, which suggested the scheme would lift prices by just 0.6 per cent over six years. In October alone, nearly 10 per cent of property purchases were made using the scheme.
The International Monetary Fund has now joined a growing list of critics, warning that the policy adds “price pressures” by artificially inflating demand. Without a corresponding lift in supply, the fund explicitly recommended limiting the scheme.
That warning goes to the heart of the risk. The government is encouraging households with little demonstrated savings capacity to treat housing as a shortcut to wealth. It’s true that some will benefit. Investors like me will absorb the capital gains created by policy-fuelled demand.
But others will not be so fortunate. They will buy low-quality apartments in oversupplied precincts, see no price growth, and find themselves perilously close to negative equity, particularly once selling costs are factored in.
And this is before considering interest rates.
Underlying inflation has not merely stalled; it has reaccelerated. The trimmed-mean consumer price index (CPI), the Reserve Bank’s preferred gauge, is rising again. Much of this inflation is homegrown: demand-pull pressures driven by expansive fiscal spending, public-sector wage growth outpacing the private sector, and massive infrastructure programs drawing labour from an already constrained market.
Ironically, fuel prices, so often blamed by governments for inflation woes, actually softened CPI growth.
Unless spending is reined in, borrowers face the prospect of further rate rises. When highly leveraged buyers with minimal equity can no longer meet repayments, the outcome is predictable: negative equity, defaults, and ultimately a taxpayer liability.
This is not a theoretical risk. It is a policy-created one.
Australia’s economy lacks the diversity and resilience to absorb a housing-led shock of its own making. Driving demand in an already overheated market is not social policy. It is a gamble, and one the country cannot afford to lose.