In response the new Australian government has fast-tracked implementation of the Housing Accord scheme. It is now set to go live this October — three months early from its initial projection. This means first homebuyers can get into the property market with as little as a 5% deposit. The program aims at addressing the difficulties that first-time buyers experience as home prices continue to rise. It would help curb the national crisis of obtainable housing.
The price cap under the scheme as it stands has been eroded somewhat already, with healthy increases over price caps across major Australian cities. For Melbourne, it has increases of $800,000 to $950,000. Sydney will see a much larger increase, with the cap rising from $900,000 to $1.5 million. Brisbane’s cap will increase as well, from $700,000 to $1 million. First homebuyers using the scheme will be exempt from paying lenders mortgage insurance. The latter saves them thousands of dollars upfront.
The federal government estimates the scheme will increase first home owners by around 220,000 per year. That’s an impressive duplication considering that only about 110,000 new first-time homebuyers typically enter the market each year. At the moment, 12 million Australians are home owners, making this priority even more critical in turning around the country’s housing affordability crisis.
Economic Context and Housing Supply
The Housing Accord scheme comes at a fortunate time, with interest rates declining. In fact, many experts are already predicting another rate cut is imminent this year, if not more. Higher interest rates reduce ability to borrow. New housing supply has plummeted to a decade low. A recent report from the National Housing Supply and Affordability Council highlights yet another troubling trend. New housing supply is approaching a 10-year low.
In 2024, builders finished just 177,000 houses and apartments. This number was woefully inadequate against the projected need for housing—in the neighborhood of 223,000 during that same time span. This shortfall has increased pressure on an already-leveraged and strained housing market.
By the end of the Housing Accord period, that net new supply of dwellings is expected to reach 825,000. Experts are worried that this won’t be enough to keep pace with rising demand. Increased demand schemes like the Housing Accord are pushing that demand even higher.
Perspectives on Demand and Affordability
This latest proposal has been met with an enthusiastic response by economists and housing experts. Their views differ significantly when it comes to its future effect on property values. Saul Eslake is one of Australia’s most experienced economic commentators and housing policy experts. He made a comment about how government programs affect demand for housing. He highlighted how policies such as first home owner grants and stamp duty concessions can inadvertently increase housing demand. This would create an upward price bubble in the market.
“Despite the fact that it is obvious that these policies have the effect of inflating the demand for housing and hence house prices, that is actually what a majority of Australian voters want governments to do,” – Saul Eslake
He made an important point that governments need to stop pursuing strategies that pump up demand while failing to tackle underlying supply challenges. “It would help if governments stop doing things that needlessly inflate the demand for housing,” he stated.
Diana Mousina, an economist at AMP Capital, cautioned that the scheme would provide first homebuyers with only short-term assistance. She argues that, in the long run, it would push prices up, too. “In the long-term, this is a band-aid solution. It just pushes up prices, perhaps an additional 3 percent over six years with interest rate changes,” she explained.
Anticipated Outcomes and Market Reactions
Housing Minister Clare O’Neil expressed optimism about the scheme’s impact on first homebuyers. “That’s perhaps a seven or eight year period where they’re choosing to pay off their own mortgage rather than someone else’s, and that’s a really good thing,” she said.
According to analysts, stimulating demand with these measures would erode long-term affordability. Louis Christopher from SQM Research welcomes the initiative and believes that it can result in the doubling of first home owners. He wouldn’t be shocked if this trend continues. “The removal of the income cap is a strong growth stimulator,” he noted.
He raised a not-insignificant concern about what the future holds for price increases, driven by increased demand. Over the long-term, this creates demand and will ultimately detract from affordability. Our view is that the scheme, combined with interest rate changes, could spark the biggest rush on housing since the GFC,” Christopher added.
