Two of the country’s most respected independent economists yesterday renewed their critiques of first homebuyer support programs after the major political parties each signalled plans to widen eligibility criteria and loan thresholds for the First Home Loan Deposit Scheme.
Caretaker prime minister Scott Morrison announced increases to the home price caps for the scheme that will allow prospective buyers to bid for higher value homes in metropolitan and rural parts of the country.
The deposit scheme allows new homebuyers to secure a government guarantee on low deposit loans to skirt paying mortgage insurance.
Under the changes slated to take effect at the start of July, scheme participants will be able to acquire property worth up to A$750,000 (up from $600,000) in rural NSW and houses worth up to $900,000 (previously $800,000) in metropolitan areas.
The caps have also been raised in other states.
In WA, South Australia and Tasmania prospective borrowers approved by the scheme will be allowed to bid for metropolitan properties worth up to $600,000 and rural dwellings worth up to $450,000.
The changes to the caps are likely to fast-track the entry of thousands more first home buyers to the property market.
“Saving to buy a house has always been hard work and we know as prices have increased it’s been getting harder,” Morrison said.
“That’s why these higher price caps will help more people realise their dreams and lock in a stronger future for themselves.”
Shadow Treasurer Jim Chalmers said Labor would also boost the price caps if it formed government, saying the opposition had been supportive of the government’s scheme for some time.
While bipartisan support almost ensures the proposals will be implemented, two of the country’s leading economists observed that home buyer support programs had achieved little in the last six decades to boost the rate of home ownership in Australia.
“Ultimately, schemes like this do nothing to boost home ownership rates,” said University of Tasmania research fellow, Saul Eslake.
“We now have almost sixty years of history which shows – unambiguously and unequivocally – that anything which allows people to spend more on the purchase of housing than they otherwise would results in more expensive housing, not in more people owning housing.
“It’s no co-incidence that the home ownership rate peaked at the 1966 Census after the first home owners’ grant scheme was introduced by the Menzies Government in 1964.
“It has been going down ever since.”
Eslake believes that governments have become addicted to homebuyer support programs because they were also popular with millions of existing property owners who want to see the value of their houses continue to increase.
However, Eslake warned that the government scheme could have a damaging wealth effect on young homebuyers if widely expected rate rises this year trigger a property market correction.
“The other point to note about the schemes for which the caps have just been increased, is that they may result in more people finding themselves in a ‘negative equity’ position in the event that house prices fall,” he said.
“We can be pretty confident that rates are going to rise here,