Labor’s Help To Buy Scheme – what does it mean for the property market?

In short, nothing. But let’s elaborate anyway.

The Help To Buy scheme is effectively a shared equity scheme between homeowners and the government designed to solve the nations looming housing affordability crisis. Decades of real estate prices growing faster than incomes have forced the government to create a range of schemes to help people into their first home.

Unfortunately, it often seems like the only thing we can count on the government to do is stuff up. The problem is virtually all the schemes are demand side incentives and end up having the opposite effect. This one is no different except the government is now effectively becoming a real estate investor, so they capture some of the benefits of that as well!

Under the scheme the government will contribute 40% of the purchase price of a new home and up to 30% of the purchase price of an existing home – meaning the government will own a good chunk of your house. The homebuyer will only need to provide a deposit of 2% and qualify for a standard home loan with any participating lender to finance the balance.

The scheme will be available to homebuyers with a taxable income of up to $90,000 for individuals and up to $120,000 for couples. To be eligible you must be an Australian citizen and not currently own part or all of any residential property.

The homebuyer won’t need to pay lenders mortgage insurance and they can buy up more of the home from the government if they are able to (at the market price).

There are price caps for each region though for example Sydney and regional cities have a price cap of $950,000 and the rest of the state has a price cap of $600,000. The lowest price cap is $550,000 for South Australian, Tasmanian and Western Australian cities and $400,000 for the rest of each state.

I assume that the government has a bunch of economists on their payroll, so I don’t know if all the policy mistakes are due to incompetence or willful ignorance. In any case the problem with trying to solve housing affordability using a demand side incentive is that it may help in the very short term, in the long term the extra servicing capacity just ends up boosting prices by the same amount.

More important than all this is it will only be available to 10,000 households – around 600,000 properties changed hands in 2021 making this 1.67% of the addressable market. Unless this scheme is rolled out widely this is really nothing worth getting out of bed for. Its unlikely that the effect on prices will even be measurable.

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