Thanks to the upcoming federal election, property buyers will get more help under the first home guarantee scheme.
In a bid to win more voters, the Coalition Government has extended the first home buyer scheme (which is supposed to end in June). At the same time, the price cap under this program has been lifted, which will allow buyers to purchase higher-priced properties.
The Opposition has also announced its support for the first home buyer scheme, echoing the Coalition’s promises.
Here are some facts about the home guarantee scheme:
· can be used only for homes under a certain price and are different in each state and territory
· will allow first home buyers to purchase a property with either a 5 or 2 per cent deposit
· can only be used on homes under a certain price guide outlined by the government and a person is eligible if they earn no more than $125,000 a year and $200,000 for couples
· regional scheme applicants must either build or purchase a newly built home and there will be 10,000 places per year available from October 1.
While the extension and increase in the home buyer scheme may be good news for many who are aspiring to buy and own a house, some industry experts say the initiatives are a temporary solution to the housing problem in Australia.
Peter Esho, co-founder at Wealthi, called the expanded Home Guarantee Scheme “a band-aid solution to a wider housing affordability issue.”
He said, “The current scheme is limited in size and scope. The increase in price threshold is more an adjustment of outdated numbers they previously set.”
Boosting demand but not supply
Looking at it closely, the home buyer scheme and the regional home guarantee program can help people to get access to the property market earlier than they could without any government incentive.
There is no doubt that a guarantee or backing from the government in terms of lower deposit requirements and no mortgage insurance fees can be helpful to those wanting to buy a house.
But a closer scrutiny of these home buyer schemes will show that they only push the demand side but not the supply side of the equation.
Think of it this way, if there are only 3 properties available and you give 20 people more ability to buy through the government grants or guarantees, the supply side is still low while the demand has risen.
This means the market is getting more competitive (more people feel and think they can buy a more expensive house now) and tighter which could mean prices will still go up.
From his point of view, Esho said, “The big problem is the looking supply cliff and there's nothing on each side of the political sphere that seems to address that immediately.”
“The supply crunch is likely to push up real estate prices even further and it seems like the current government has gone for a soft, band-aid solution rather than a serious attempt to address Australia's affordable housing problem.” Peter Esho, co-founder at Wealthi
Need to beef up property supply
While the extension and expansion of the home buyer schemes has its merits, it needs to address the supply of houses and properties coming into the market for a more balanced equation.
For example, it may also be worth giving incentives to property investors who contribute to the building of more supply that will be available to the market.
It will also be helpful to review and improve the cumbersome planning and construction regulations that slow down the building process.
If you have any questions and would like to discuss the Australian property market in more detail, please reach out to the Wealthi team.