Labor and Liberals agree on one thing for housing. They’re both wrong

3 months ago 24

Opinion

November 12, 2025 — 5.00am

The unfortunate thing about the 5 per cent deposit scheme is that both sides of politics think it’s a good idea. They throw punches at each other over the details, but both are misleading Australians when they claim the policy – introduced by the Liberals and expanded under Labor – helps first home buyers.

In reality, the benefit of the scheme, which allows first home buyers to purchase a property with a deposit as little as 5 per cent without having to pay thousands of dollars in lenders mortgage insurance, flows far more heavily to home owners and property investors.

At first glance, it can seem like a decent idea.

At a time when property price growth has outpaced wage growth, and price rises more broadly have chewed through disposable incomes, many first home buyer hopefuls have struggled to save up enough for a deposit. So anything that cuts additional costs is a good thing, right?

Well, there are at least three questions to ask. First, does the policy help people who really need it? Second, does it make housing affordability better or worse? And, third, is it the best policy for the problem we’re trying to solve?

The answer to the first question is yes ... and no.

The scheme is helpful for a handful of Australians struggling to save for a deposit because of the huge (and increasing) share of their income being burnt up by rent, but who earn enough to make the repayments on a home loan. Of course, they also have to get in early, but we’ll come to that.

The problem is that some people eligible for the scheme would be able to save up a 20 per cent deposit (the amount generally needed to avoid paying lenders mortgage insurance) within a few years anyway. This is especially the case after Labor this year scrapped the limit on the amount of income people could earn every year to be eligible for the scheme.

Under the Coalition, and until October, it was only available to individuals earning less than $120,000 a year or couples with a combined income of $200,000. With those limits gone, the policy is accessible to people who are getting by just fine, who may have simply chosen to buy their first home a few years down the track if not for the scheme.

That would be OK if it didn’t have a knock-on effect. We know (but many politicians ignore) that boosting demand for a scarce resource pushes up its price. The 5 per cent deposit scheme is no different because it “helps” some first home buyers (including those who don’t really need it) to buy now rather than later.

It does nothing, though, to reduce the huge loan they will be stuck with. And for those who can’t get in early (because they’re not earning enough or can’t muster a 5 per cent deposit), it leaves them worse off because the higher demand (combined with a limited supply of houses) pushes property prices even further out of their reach.

For many first home buyer hopefuls, especially those furthest from being able to afford a home, the policy leaves them worse off. Many savings first home buyers make by avoiding lenders mortgage insurance will probably just be added by real estate agents and sellers to their asking price – they hold the power when demand outstrips supply.

To be fair, the price impact has been exaggerated by many, including Liberals who (validly) criticise Labor’s removal of the income limits and caps on the price of properties eligible for the scheme.

Of about 57,000 homes purchased last month (when the scheme was expanded), nearly 5800 were bought using the scheme – up from the 3900 at the same time last year.

That’s in line with estimates from the Treasury, which concluded the impact of the expansion would be to push up the country’s property prices by about 0.6 per cent over six years.

Sure, that’s not huge – especially when compared to the effect of other factors such as interest rates (though it’s important to remember the Reserve Bank’s role isn’t to look after house prices). But to claim that the scheme helps all first home buyers is misleading. The winners are those who already own property.

Since roughly two-thirds of Australians own at least one home, it’s not entirely surprising that our major parties are looking out for the interests of, well, the majority. And perhaps it’s why there’s so little fuss being kicked up about a policy that doesn’t really do what it says on the package.

It’s smart politics because the policy is being sold as a way to help first home buyers (some of whom will believe it, or will personally benefit from getting in early), and existing home owners continue to see the value of their properties climb.

If the government acknowledged that the scheme only helps some first home buyers, it would be more honest. But there’s rarely room for nuance in politics, nor much appetite for politicians to acknowledge where they might be wrong.

To Labor’s credit, they’re looking at housing affordability from several angles, setting ambitious targets and taking action to boost supply.

Whether they’re doing enough is another question. But Labor has invested billions of dollars into building more homes – and even ventured into the traditionally Liberal territory of cutting red tape by pausing changes to the National Construction Code in a bid to make it easier for builders to get things done.

One area both major parties are reluctant to touch is tax: reviewing the incentives in place for investors who are often buying up existing homes (driving up prices) rather than investing in building new homes. That’s a big missed opportunity to help first home buyers.

When it comes to the 5 per cent deposit scheme, the kindest interpretation for both Liberals and Labor is that their heart is in the right place, but their head is not.

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