As Australia approaches the 2025 federal election, both major political parties have unveiled housing policies aimed at assisting first-home buyers. While these initiatives are designed to improve housing affordability, experts caution that they may inadvertently lead to increased property prices.
Labor’s Proposal: 5% Deposit Scheme and Housing Construction
The Labor government has proposed allowing all first-home buyers to purchase a home with just a 5% deposit, eliminating the need for Lenders Mortgage Insurance (LMI). Additionally, they plan to invest $10 billion to construct 100,000 homes exclusively for first-home buyers over the next eight years.
While this approach aims to address both demand and supply, critics argue that the construction timeline may not keep pace with the immediate increase in demand, potentially leading to short-term price hikes.
Coalition’s Proposal: Tax-Deductible Mortgage Interest
The Coalition has proposed allowing first-home buyers of newly built homes to deduct mortgage interest payments (up to $650,000) from their taxable income for the first five years. This policy is expected to save eligible buyers approximately $12,000 annually.
However, economists warn that this demand-side incentive could inflate property prices, especially if not matched by an increase in housing supply. Saul Eslake, a renowned economist, described it as “one of the worst policy ideas in 25 years,” emphasizing that such measures could exacerbate affordability issues.
A Growing Public Push: Reforming Negative Gearing
Amid ongoing affordability challenges, there’s increasing public sentiment that negative gearing should be restricted to one investment property per person. This idea aims to curb investor dominance in the housing market, which many believe drives up prices and limits access for first-home buyers. Critics argue that allowing unlimited negative gearing gives investors an unfair advantage and distorts the market, making it harder for younger Australians to compete.
While not yet part of any official party platform, this policy idea is gaining traction among housing advocates and economists as a potential tool to level the playing field between investors and owner-occupiers.
Expert Opinions
Housing experts express concern that both policies, while well-intentioned, may lead to higher property prices. The Grattan Institute’s Brendan Coates noted that these schemes could “inevitably result in higher property prices” by boosting demand without adequately addressing supply constraints.
While assisting first-home buyers is a commendable goal, it’s crucial that policies balance demand stimulation with supply expansion to avoid unintended consequences like escalating property prices.
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