Labor’s scheme to worsen the housing crisis

The federal government’s expanded 5 percent deposit scheme is its latest market-based non-solution to the housing crisis. It will drive up house prices, saddle buyers with more debt, and put billions of dollars in the pockets of banks, investors and property developers.

First introduced by the Liberals in 2020, it allows first-home buyers to apply for a mortgage with a 5 percent deposit, instead of the usual 20 percent. In addition, the government guarantees 15 percent of the loan, so buyers don’t need to take out lender’s insurance. Labor has expanded this to remove income and participant limits and has raised the cap on the price of properties it can be used to purchase. Announcing the scheme, Prime Minister Anthony Albanese crowed that he is “making it easier for young people and first home buyers to achieve the dream of owning a home”. You wonder how he can say it with a straight face.

The median house price in Australia is $800,000, and the median income is $55,000. With a 5 percent deposit, a first home buyer would need to borrow $760,000, paying 71 percent of their income in mortgage repayments. Of course, even the notoriously profit-hungry Australian banks aren’t going to approve that loan; a mortgage lender interviewed by SBS’s The Feed estimated that a first home buyer on the median income with a 5 percent deposit could borrow around $250,000. Some car spaces in Sydney sell for more than that. To purchase a median-priced house in Sydney, a household would need an income of more than $300,000, which is three times the average.

Most first home buyers will not be able to use the scheme to buy a house without taking on unmanageable debt. If people do use the scheme, the effect will be to drive up house prices. A study by Lateral Economics estimates that the inflationary impact on overall house prices will be 3.6 to 6.6 percent by next year. The price increase will be even higher in the bracket of properties that first home buyers might realistically buy, going up by 5.3 to 9.9 percent. As the report notes, most buyers will pay more in increased prices than they will save through the scheme.

There’s good reason to think these predictions are correct. Deakin University academics estimate that the First Home Buyers Grant (through which the government gives first-time home buyers money towards the purchase price of a home) increased house prices by $57,000 between 2002 and 2012.

If the aim is to make housing more affordable, then the scheme is perverse. It is not accessible to most first-time home buyers, but the more people use it, the higher the prices will be, shutting out precisely the people the scheme purports to help.

If shifting more wealth from working-class households to the rich is the aim, the scheme is perfect. An article published by Deepcut News estimated that banks will make $141,000 in extra interest on the average loan, or $24 billion, over the next five years. Investors will be licking their lips—further increases to house prices mean bigger returns when they sell. Developers will also be happy because they can set higher sale prices for properties and increase their profits.

Labor claims it is taking action on the housing crisis, but in reality, the government is making it worse. It is ideologically committed to the market, the buying and selling of residential property for profit, as the only way to provide and regulate housing. The government’s role is limited to lubricating the market, pumping it up with public money that ultimately goes to increased profits, not more affordable homes. Labor rejects any idea that the government should intervene to undermine the market and profits to bring down prices.

Instead of driving up house prices, Labor could use public money to build houses that people can afford. Instead of bankrolling debt to the banks, Labor could establish a public lender providing low-cost loans. Instead of protecting and promoting the interests of billionaires, Labor could improve the lives of millions of working-class households.

Labor won’t do any of this; instead, it will continue to use the housing crisis as an opportunity to increase the profits and wealth of the banks, developers and wealthy investors. If we want homes that are for people, not the profits of the rich, we must fight Labor and its pro-market agenda.