Major think tank player the Grattan Institute says the new federal government plan to help first home-buyers afford a deposit is ineffective and might even be counterproductive.
The scheme is being looked at by a Senate committee and offers eligible first home-buyers the opportunity to purchase a home with just a 5 per cent deposit, rather than the usual 20 per cent.
Home buyers can save around $10,000 or more by avoiding having to pay lenders’ mortgage insurance as a result.
The loans will be underwritten by the National Housing Finance and Investment Corporation for singles earning under $125,000 and couples under $200,000.
But the Grattan Institute says it is unlikely to make much difference to home ownership for young Australians or house prices because the scheme is limited to 10,000 guarantees a year.
“If governments really want to make a difference, they need to stop offering false hope through policies such as grants, stamp duty concessions or deposit schemes,” states the Grattan Institute report.
The moves were introduced to help people tackle the challenge of saving a home deposit, with the time it takes an average household to save that deposit rising from six to ten years over the last 30 years.
On top of this, the rates of people aged between 25-35 owning a home have also fallen dramatically over that time.
The problem with the policy, according to the Grattan Institute, is that it will drive up prices as it increases demand and thereby becomes somewhat counterproductive.
“The fundamental flaw is trying to fix housing affordability by adding to demand for housing,” states the Grattan report.
“It pretends we can make housing more affordable without hurting anyone.”
The Grattan Institute says the government should stick to its current cap of 10,000 loans for the scheme and also would like to see the income thresholds dropped to $80,000 for singles and $120,000 for couples so that it’s only people who genuinely wouldn’t be able to afford a loan that can access the scheme.
The institute says governments’ focus should be on improving state land-use planning laws to encourage higher density and planning laws to encourage more housing construction in the inner and middle rings of major cities.