It suits the government’s narrative to downplay the effect that expanding the scheme would have increasing demand and therefore property prices. If prices take off, it limits the number of first home owners who can participate and could ultimately become counterproductive because users would be priced out of the market or be limited by their ability to pay interest costs.
Prime Minister Anthony Albanese and Minister for Housing Clare O’Neil (right) speaking about the expanded housing scheme with new apartment owner Maria. Credit: Dylan Coker
Modelling the impact of the scheme is difficult. Just because a borrower can now save up their 5 per cent deposit doesn’t mean they will meet the bank’s loan worthiness criteria.
A report this year by Westpac estimated that the 400,000 borrowers would be technically captured by the combined existing and expanded scheme. But those numbers would be significantly whittled down by loan serviceability constraints.
Adding to that complexity, home prices are already on a run, with figures released by Cotality showing they were up 0.8 per cent in September and 2.2 per cent for the quarter and 4.9 per year to date across the nation.
If the momentum continues house prices look like they could be in for a bumper year, even without the additional demand from eager first home buyers.
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How the Reserve Bank plays into this increased demand is another issue. It left rates on hold this week and slightly hosed down expectations of further rate cuts this year. Some economists are even speculating that the rate-cutting cycle may have finished.
The effects of rate cuts already made by the RBA are clearly showing up in lending data, with growth in housing credit now running at an annualised rate of around 7 per cent.
The strongest growth is coming from loans to investors squeezing into the market to participate in the strength in house prices and rental returns.
All this is playing out against the backdrop of constrained supply of existing stock. Over the four weeks to September 28, capital city listings tracked about 18 per cent below the previous five-year average, according to the latest Cotality report.
As for adding to the supply of new housing, numbers released on Tuesday showed that total approvals fell 6 per cent in August and the annual growth rate has slowed to a sluggish 3 per cent.
Despite the numerous constraints hitting first home buyers, there is likely to be an initial rush of enthusiasm in the upcoming spring house selling season.
The government has certainly captured the zeitgeist in its understanding of frustrations felt by younger people locked out of the great Australian dream.
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