realestatebusiness logo

Subscribe to our newsletter

Home-ownership schemes a ‘catch-22’: REA

Researchers from REA Group and Domain have agreed that the government’s home-ownership grants inadvertently raise property prices – creating a double-edged sword for buyers.

Representatives from rival property listings platforms REA and Domain appeared before the House of Representatives tax and revenue standing committee on Thursday (4 November), for its ongoing inquiry into housing affordability.

Both parties reflected on the effects of the government’s home-buying assistance packages, such as the First Home Loan Deposit Scheme, the New Home Guarantee and the Family Home Guarantee.

The three programs form the Home Guarantee Scheme, which was rolled out from last year. Last month the government reported more than 50,000 people had signed up to the programs since inception.

Data from CBA from earlier this year showed the first home buyers grants in particular, the First Home Loan Deposit Scheme and the New Home Guarantee, had fast-tracked property purchases by almost five years earlier on average.


But Nicola Powell, chief of research and economics at Domain told the committee that the platform had consistently seen a spike in demand and pricing anytime the government had introduced a new home-ownership scheme.

“When we see any type of new incentive, particularly if it has an expiry date of when that incentive stops, you obviously see an increase in new activity,” Dr Powell said.

“And obviously, first home buyers are all fighting for a similar price and that is on the lower end. And so anything that we find that is a financial incentive, a lump sum, it often just gets added to the purchasing price.”

She pointed to the example of NSW allowing a stamp duty exemption for first home buyers purchasing a property with a maximum price between $650,000 to $800,000.

“A first home buyer in Greater Sydney will be hard-pressed to find anything below that price point,” Dr Powell said.

“And we’ve seen that deteriorate significantly over the past 12 months.”

Labor MP Matt Thistlethwaite posed the question if the government is “pouring fuel on the fire”, despite attempting to help rookie buyers enter the market.

But for Cameron Kusher, director of economics research at REA Group, the government’s grants are more of a tough balancing act.

“If we look at the last 12 months for example, there’s been more than 200,000 first home buyers nationally, since late 2009. Clearly those policies help to get people into the property market,” Mr Kusher noted.

“But equally… they also drive up prices.”

Domain also presented data around first home buyers, noting a younger Australian couple will take at least seven years to save a 20 per cent deposit for a house or five years and five months for a unit.

“What our model has found, and it is what we would expect, is the journey time to save has increased significantly, particularly in Sydney,” Dr Powell commented.

Mr Kusher similarly noted the largest challenge for aspiring buyers is saving the deposit and while the government’s grant programs have limited places, it can bring forward someone’s entry to the market.

However, he questioned if the deposit level, which is set at 20 per cent for first home buyers in order to skip lenders mortgage insurance, should be reviewed.

“That hasn’t changed in my working life. I guess one of questions would be is that 20 per cent still appropriate?” he quizzed.

He also asked if the home-ownership programs should be expanded further, particularly as wage growth has hit its lowest.

However, there are other factors at play, with Mr Kusher pointing to record low interest rates in recent times and during the global financial crisis, which would have also fed into the rise of house prices.

“Giving people more money and more borrowing capacity is going to tend to lead to people paying more for properties. So it’s kind of a catch-22,” he said.

“[The government assistance] does allow more people to get into the market, but it usually tends to happen at the same time that interest rates are coming down and prices go up.”

Meanwhile, REA suggested land planning and zoning changes to allow more supply to be brought to market, pushing for a greater level of density.

“Ultimately, there’s two ways to make housing more affordable and that’s either to bring prices down and a lot of Australians have got a lot of their household wealth tied up in residential property. So that’s not going to be a particularly good policy to bring property prices down,” Mr Kusher explained.

“Or, to build enough so that we don’t continue to see property prices increasing at a rapid pace. And I think that’s probably the more palatable solution where we are today, than bringing down the price of everyone’s property significantly.”

Both Domain and REA urged for a rethink of stamp duty, with the latter’s head of government relations and industry affairs, Umesh Ratnagobal calling it an “inefficient transaction tax” that discourages mobility.

[Related: E-conveyancing reforms on track to begin next year]

Home-ownership schemes a ‘catch-22’: REA

Latest News

Making news this week, Volt Bank set to exit the banking industry, APRA confirms banks treatment for home guarantees, Australian outright ho...

From Friday (1 July), 40,000 new places have become available under the federal government’s schemes to help Australians buy their own ho...

The big four banks continue to dominate the mortgage market with three reporting an increase to their home loan books over May, APRA stats r...


Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

Do you think the new NSW property tax will help or hinder first home buyers?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.