‘More Debt, Higher Prices’: Experts Poke Holes In First-Home Buyer Deposit Policy
A bipartisan policy on housing affordability could lead to more expensive homes, experts say -- the exact opposite impact hoped for.
Prime Minister Scott Morrison made the surprise 'first-home buyers' deposit' policy announcement on Sunday, and spent all of Monday selling the plan nationwide.
Under the scheme, people would be able to secure a property with a deposit of as little as five percent of the price, far below the usual 20 percent deposit required by banks, with the government essentially acting as loan guarantor and stumping up the difference.
Labor quickly committed to matching the plan if it wins government on Saturday. Many young people have raised the concern that it is obtaining a deposit in the first place which is the hard part of getting a foot on the property ladder -- and with average property deposits in capital cities creeping up to or even beyond $100,000, it is an area of concern.
Morrison defended questions on whether the policy -- by putting more buyers into the market -- might actually inflate housing prices, and if the idea was even necessary considering property prices are falling.
Also on Monday, the Australian Bureau of Statistics released data showing first-home buyers made up nearly 28 percent of all owner-occupier loans, the highest number since September 2012, leading credence to the idea that these buyers may not need more help.
There have also been fears that the plan would push young people into longer than usual term loans and higher debts.
Morrison defended the plan, telling Triple J “the alternative is they don’t get the opportunity to buy a home at all and that means they rent for life”, and claimed it “won’t have a material impact” on housing prices.
But University of NSW housing affordability expert Dr Chris Martin told 10 daily he feared the policy would have unintended adverse effects.
“I don't think it's a good proposal in terms of our affordability problem,” he said.
“Affordability is best tackled by enabling people to spend less, not more, and this [scheme] enables them to spend more on housing, which isn't real affordability in my view.”
Housing has suddenly ignited as a major battleground issue in this election, with the government waiting until the campaign’s final week to unleash the idea. Morrison claimed the policy would have better outcomes than Labor’s plan to curb negative gearing, criticism of which has been a central plank of the Liberal re-election pitch.
Martin raised concerns -- also played out during the recent banking royal commission -- around inappropriate lending practices from banks. Rules around lending were tightened, but Martin said this deposit policy would essentially rout that safeguard.
“It's a myth, because we do have a problem with the way banks were lending too much money to people to spend on houses, and this proposal -- which enables people to borrow a lot of money -- distracts us from the big issues around bank lending practices,” he said.
I think the whole thing goes counter to what a real affordability policy is about… it just means more debt, higher prices, and some people getting less for their money.
Martin said other policies which could have a helpful impact, while dampening down associated risks around price spikes or crashes, would include boosting social housing and decreasing speculative demand for property investment.
Cassandra Goldie, CEO of the Australian Council of Social Services (ACOSS) is disappointed the policy will do little to address issues around homelessness.
“The bipartisan first-home buyers' package will help some first-home buyers but it’s not the answer to the entrenched housing affordability crisis,” she said.
“ACOSS has concerns about its possible impact on the cost of housing, the risk of negative equity for some people, and the risk of encouraging some people into housing debt they can’t sustain.”
The policy does have its backers though. Besides the endorsement of the Labor Party, the Master Builders Australia group praised the plan.
“For many aspiring first-home buyers it is the deposit gap rather than the size of mortgage payments that is the real barrier to home ownership,” said CEO Denita Wawn.
“We have been calling for measures such as this scheme because this kind of targeted and practical approach will do more to assist first-home buyers than doubling capital gains tax and restricting negative gearing.”
With both major parties committing to the policy, it seems certain to become law at some point after May 18. What effect it will have, positive or negative, is yet to be seen.
Josh Butler is travelling with the Morrison campaign.
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