Coalition’s first-home buyer scheme could worsen inequality

The scheme gives a leg-up to those who don't need the help.

The scheme gives a leg-up to those who don't need the help. Photo: The New Daily

Fresh analysis has claimed the Coalition’s new housing deposit scheme worsens inequality and fails to address wider problems in the housing market.

CoreLogic head of Australian research Eliza Owen has argued in a blog post that the Morrison government’s First Home Loan Deposit Scheme (FHLDS) will give a leg-up to high-income earners and do little to boost home ownership rates.

Reserve Bank and Grattan Institute research shows home ownership rates among Australia’s top 20 per cent of income earners already sits well above the national average.

Yet, under the Coalition’s new scheme, these high-income individuals are eligible for the same level of government assistance as low-income earners.

“The scheme could be granting easier access to home ownership to people who are already more likely to attain it,” Ms Owen told The New Daily.

The Coalition’s scheme started on January 1 and provides government-guaranteed loans to first home buyers with deposits as low as 5 per cent of the purchase price.

It will help successful applicants get into the property ladder much sooner and remove the need to pay lenders’ mortgage insurance, which often runs into tens of thousands of dollars.

But critics have said the scheme’s impact on broader affordability issues will be negligible, because it ignores the causes of high property prices and only offers 10,000 loans a year, which is equal to less than 10 per cent of annual loan commitments to first home buyers.

And Ms Owen said it also risks increasing inequality among hopeful home owners by giving a leg-up to high-income earners.

The scheme is open to individuals who earn a before-tax income of up to $125,000 a year and couples who earn up to $200,000.

Given individuals earning an annual salary of $125,000 are in the top 20 per cent of income earners, Ms Owen said the scheme’s income thresholds were too high.

Home ownership rates are much higher among this income bracket  than lower income brackets – yet the FHLDs offers both groups the same level of assistance.

“The scheme may actually provide more advantage to those earning towards the top of the threshold,” Ms Owen wrote in her blog.

“Because they can save a 5 per cent deposit more quickly, and the scheme is currently limited to 10,000 guarantees a year.”

According to Ms Owen’s calculations, individuals at the top end of the scheme’s income threshold can save a 5 per cent deposit on a median-valued property ($540,974) in 18 months, while median income earners ($78,000) need 27 months, and low-income earners ($48,100) need 39 months.

But Ms Owen said high-income earners would likely take even less time to save a deposit, as the calculations assume that buyers across all income brackets will save 20 per cent of their income, when, in reality, higher-income earners can often save much more.

Asked what else the Coalition could have done to make life easier for aspiring home owners, Ms Owen said “there should be greater emphasis on building more social and affordable housing”.

“And some of the most impactful policies on home prices has been policies that limit investor participation in the market,” Ms Owen added.

“That’s not the sole cause … but there’s a strong correlation between higher level of investor participation and added pressure on house prices.”

Ms Owen is far from the only property analyst to criticise the scheme.

Brendan Coates, director of household finances at the Grattan Institute, previously told The New Daily that the scheme was too small to have an impact on affordability, and that an expanded version would only serve to turbocharge prices, by ramping up demand.

Others, meanwhile, have said the scheme offers limited choice, as the price caps are well below the median dwelling price in some major cities.

“It’s not addressing the core problem. It’s trying to help first-home buyers without hurting anyone,” Mr Coates said.

“But for first-home buyers to win, someone has to lose or prices have to fall, in which case first-home buyers are better off and existing home owners are worse off.”

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