With the cost of houses in Australia soaring in recent years, including up almost 25% last year, both major parties have policies designed at helping people into the property market.
The Labor leader, Anthony Albanese, used his campaign launch in Perth on Sunday to unveil the party’s new “Help to Buy” scheme, while the prime minister, Scott Morrison, has been talking up the Coalition’s existing “Home Guarantee” scheme which it launched in 2020.
So how do the two schemes compare?
What does each scheme do?
Both policies are aimed at helping people into the property market, but have different rules and conditions.
The biggest difference is that the Labor scheme is a “shared equity” program, which means the government basically owns a certain portion of your house by contributing a large chunk of the purchase price. This would be up to 40% of a new home, and 30% of an existing home.
For example, on a $600,000 house that has a government equity share of 30%, you would have to get a loan approved for $420,000 (minus your deposit), while the government would chip in $180,000, substantially expanding a buyer’s purchasing power.
When the house is sold, the government is entitled to its 30% share back, meaning it would get shared benefit of any capital gains from price rises. Likewise, it shares the risk of any fall in house prices.
The home buyer does not pay the government rent for the portion of the house not owned.
The Coalition’s Home Guarantee scheme provides a government guarantee for a portion of the loan for someone with a lower deposit, allowing them to borrow more than they otherwise would be allowed to.
Under this program, the government does not own a part of your home or directly contribute to the cost of a new property.
What deposit is needed?
The Coalition’s scheme requires a deposit of 5% for first-home buyers, whereas Labor’s Help to Buy scheme only requires a 2% deposit.
Both schemes will allow people to borrow money without the need to pay mortgage lender insurance, providing a significant saving for homebuyers.
Who is eligible and how many people will benefit?
The Home Guarantee scheme has 50,000 places annually, including 35,000 for first-home buyers, 5,000 for single parents and 10,000 for regional buyers.
It is open to anyone in these categories who earns up to $125,000 for a single person or $200,000 for a couple.
Labor’s policy is open to anyone who doesn’t currently own a property, and will have 10,000 places annually.
The income caps for the Help to Buy scheme are up to $90,000 for a single and $120,000 for a couple.
Once these income caps are reached, the home buyer will need to buy out the government’s share.
The Grattan Institute’s economic policy program director, Brendan Coates, said that while the Coalition scheme was focused on first-home buyers, Labor’s scheme would also benefit older Australians. An example would be someone who had lost their home after a divorce, and was struggling to get back into the housing market.
Are the policies risky for homebuyers?
The Grattan Institute has highlighted the risk of the Help to Buy scheme only having a small 2% deposit requirement, preferring a 5% deposit to provide a buffer for the possibility of falling house prices and the risk of negative equity.
However, the smaller loan being granted under Labor’s scheme means that the purchaser would have lower loan repayments on a smaller mortgage than they would if they took out a loan under the Coalition’s Home Guarantee scheme.
Under the government’s scheme, the buyer pays the mortgage on the full value of the home.
What about renovations?
The prime minister, Scott Morrison, has attacked the policy on the basis that Labor would “take a cut” from any improvements to the home made by the purchaser.
However, according to Labor, the policy will work in the same way as the Victorian and WA models which use a valuation by the valuer general to account for any increase arising from renovations.
In the WA Keystart program “some examples of changes that may add value are adding an air conditioner, deadlocks, security screens, a bathroom or kitchen renovation, a patio, reticulation, or adding a shed.”
The value of these improvements is then deducted from the amount paid back to the government when the house is sold.
The Keystart program also requires the homeowner to seek approval for any modifications that cost more than $10,000.
Will either policy improve housing affordability?
Coates said that both policies are aimed at accessibility, rather than affordability, and neither was a “panacea” for housing affordability.
He says there are several things that would improve housing affordability, naming housing supply and land use planning which are primarily the responsibility of state governments as two key areas of reform. The commonwealth could offer incentives for states to boost housing supply which in turn would help affordability.
“Paying the states to boost housing construction, set housing targets and if they exceed them, offering incentive payments, would be a good way forward,” Coates said.
He said there were “diminished ambitions” on both sides of politics for changing capital gains tax or negative gearing tax concessions, which were also key to addressing housing affordability.
“There’s lots of things that are politically unpopular that we think would work, and even if we did all of those things like fixing supply and phasing back the tax breaks, house prices might fall at best 20% to 25%,” he said.
“You’re still going see house prices high relative to incomes compared to where they have been historically, so the deposit hurdle is still a problem for young people and serviceability is still a problem for all people.
“So that’s why we think this [shared equity policy] is needed. It’s a piece of the puzzle, but it doesn’t solve the biggest problems in the housing market.”
Will either policy push up house prices?
Coates said both policies would have a very small impact on house prices, with the government’s scheme possibly having a slightly bigger inflationary effect.
He said Labor’s shared equity proposal would add $5bn in stock value to a housing market that is worth more than $9tn.
“Any time you add in to the demand of housing, there’s the risk that you’re going to push up prices,” he said.
“Now, the size of the scheme and the house price thresholds mean it’s going to be pretty small. The deposit guarantee scheme, because it is so much larger will probably have more of an effect, because we are talking about potentially up to one in three first-time buyers in the country in any given year could access that scheme.
“But they’re relatively small price impacts compared to things like interest rates.”
