The Australian government’s decision to launch the First Homebuyer Guarantee scheme—allowing first-time buyers to enter the market with just a 5% deposit and avoid Lenders Mortgage Insurance (LMI)—is set to commence in October, ahead of the originally promised 2026 start. While the aim is to help buyers pay their own mortgages sooner, analysts warn the move may significantly erode housing affordability by driving up prices.
Government Forecast vs Expert Predictions
- According to Treasury modelling, the impact on housing prices is expected to be modest—with only a 0.5% increase over six years.
- Diana Mousina, Deputy Chief Economist at AMP, argues the figure is far from sufficient to account for market dynamics. She suggests it could boost prices by an additional 3% over six years, effectively adding 0.5% more per year on top of the expected 4–5% growth rate.
- Meanwhile, Louis Christopher of SQM Research projects an even more alarming scenario—asserting the scheme “could spark the biggest rush on housing since the GFC,” potentially resulting in over a 15% price increase in six years.
The divergence stems from the interplay between increased buyer access, rising demand, and existing pressure from falling interest rates.
Interest Rates and Buyer Appetite
- Interest rate cuts earlier in 2025 have already lifted national home values by approximately 3%.
- Concurrently, conditional pre-approval applications for home loans have surged 12% this year, indicating heightened buyer readiness.
This adds fuel to potential demand-driven price hikes soon after the scheme rolls out.
Structural Concerns and Market Distortions
Independent economist Saul Eslake cautions the scheme misses the bigger picture—by boosting demand without addressing supply-side weaknesses, it merely amplifies the housing crisis.
He argues that numerous past government interventions—such as first-home buyer grants, stamp duty exemptions, and property-investor incentives—inflate demand while neglecting supply, displacing affordability further.
The Reality of Homeownership Numbers
- Australia currently sees around 110,000 new homeowners per year, out of a total of approximately 12 million owner-occupied households.
- This group represents a minority, which may explain why policies favoring demand stimulus (even if inflationary) retain political popularity.
Policy Outlook: Balancing Access with Affordability
While the accelerated roll-out of the 5% deposit scheme may deliver short-term relief for aspiring first-time buyers, its long-term effects hinge upon complementary strategies that boost housing supply and tackle affordability.
Without meaningful supply-side reforms—such as faster approvals, increased density, and targeted social housing—the risk remains that well-intentioned policies will ultimately deepen the crisis.
