As Australia heads toward the 2025 federal election, both major political parties have introduced housing policies aimed at helping first-home buyers enter the market. While these initiatives are designed to improve housing affordability, experts warn they could unintentionally lead to rising property prices.
Labor’s Proposal: 5% Deposit Scheme and Housing Construction
The Labor government has proposed allowing all first-home buyers to purchase a property with just a 5% deposit, without the need to pay Lenders Mortgage Insurance (LMI). Alongside this, a $10 billion investment is planned to construct 100,000 new homes exclusively for first-home buyers over the next eight years.
While the policy targets both supply and demand, critics are concerned that the timeline for construction may not align with the immediate surge in demand. This mismatch could potentially cause short-term price increases in the housing market.
Coalition’s Proposal: Tax-Deductible Mortgage Interest
The Coalition’s proposal focuses on newly constructed homes. They aim to allow first-home buyers to deduct mortgage interest (on loans up to $650,000) from their taxable income for the first five years. This could save eligible buyers around $12,000 each year.
However, economists caution that this incentive focuses heavily on the demand side and may drive up property prices, particularly if housing supply does not increase accordingly. Renowned economist Saul Eslake described the proposal as “one of the worst policy ideas in 25 years,” stressing that such measures may worsen affordability in the long run.
A Growing Public Push: Reforming Negative Gearing
Amid persistent affordability concerns, there’s growing public support for reforming negative gearing, with increasing calls to limit it to just one investment property per person. Supporters believe this would reduce investor dominance in the market, making it easier for first-home buyers to compete.
Critics argue that allowing unlimited negative gearing creates an uneven playing field, giving investors an advantage and distorting property prices. While this idea hasn’t yet been adopted as official policy by either party, it’s gaining traction among housing advocates and economists who view it as a potential lever to restore fairness in the market.
Expert Opinions
Housing experts remain cautious about both the Labor and Coalition policies. Despite good intentions, many believe these schemes could inadvertently push property prices higher. Brendan Coates from the Grattan Institute pointed out that such initiatives may “inevitably result in higher property prices” due to demand increasing faster than supply.
To summarise the concerns, experts and economists highlight:
- Short-term demand surges are likely to outpace construction timelines
- Demand-side incentives may inflate prices without addressing supply issues
- Investors continue to dominate the market due to favorable tax policies
- First-home buyers may still struggle despite well-meaning schemes
- Long-term affordability hinges on structural reforms and new supply
While helping first-home buyers is a worthy goal, experts emphasize the importance of balancing demand-side support with tangible supply-side solutions. Without this balance, well-meaning policies may backfire, fuelling price growth and further limiting access to affordable housing.
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