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"This policy is going to have a hugely meaningful impact for the people who choose to use it."
That was Housing minister Clare O'Neil talking about the government's First Home Buyer Guarantee scheme, which will allow all first-home buyers to buy a home with just a 5 per cent deposit.
Under the scheme, a first home buyer looking to purchase a property at the national median price of $844,000 only needs a $42,200 deposit.
The government then acts as guarantor, contributing the remaining 15 per cent and allowing buyers to avoid taking out costly lender's mortgage insurance — which on a $1 million property could cost around $50,000.
At present, the scheme has an annual cap on the number of people accessing it, as well as income caps on eligible participants and price caps on eligible properties.
But starting October 1st, there will be no income limit, no uptake limit, and an increased price cap on properties to better align with the national average.
Ms O'Neil says it's about making the property market more equitable.
"What we know is that it is incredibly challenging for this younger generation to get into home ownership. We are seeing young people having to save 8 or 9 years to build a deposit. With the 5 per cent deposit program that our government is expanding, we see that timeline brought back to two or three years."
Dr Nicola Powell is Chief of Economics and Research for Domain. She agrees it's a faster pathway to home ownership.
"It allows individuals, couples, families to purchase with a much lower deposit and it means they avoid lenders mortgage insurance which can save tens of thousands of dollars. So it is a faster pathway to home ownership and getting onto the property ladder."
However, she says a smaller deposit simply means a larger loan, that must cover 95 per cent of the property's value.
This can leave buyers in a vulnerable position if price growth pulls back, or if they experience a life-changing event like losing a job, which could leave them struggling to service their loan.
Or if interest rates go back up again.
"If you are purchasing with a low deposit, it does place that buyer into the potential for financial vulnerability … There is a risk associated if you are purchasing with such a low deposit and we do see property prices pull back at some period of time, it can put you at the risk of having negative equity ... this is where first term buyers really needs to consider how much loan they actually take on."
Furthermore, Dr Powell says the scheme will fuel demand among first home buyers when housing supply remains insufficient.
And this demand will fuel prices at a time when a downward interest rate cycle is already intensifying competition.
"What they're doing is removing eligibility caps and that could actually trigger a surge of new first home buyers into the market …If you're increasing demand in a certain segment of the market without increasing supply, what that is going to do is push up property prices. It's going to push up property prices at the more affordable end, and particularly in our big capital cities, it will probably support unit prices as well."
Over the long term, Dr Powell says this is counter-productive.
"That just makes it harder for the next wave of first home buyers that come behind them because they're ultimately going to be paying more for the same homes. It actually worsens affordability over that longer run if we do not compliment it with higher levels of affordable supply."
In 2023, the government said it planned to build 1.2 million well-located homes over a five year period from 2024 as part of its National Housing Accord. This means 240,000 new homes every year.
So far, we're not on track.
Professor Nicole Gurran is an urban planning and housing researcher at the University of Sydney. She says the scheme doesn't make sense.
"When all we hear politicians talking about is the need to increase housing supply and then the flagship measure that they introduce pushes up demand without doing anything to directly support supply. It's disappointing overall.”
But worse, says Professor Gurran, is that the scheme ignores the pleas of low-income earners, many who remain in housing stress and for whom saving for a 5 per cent deposit and servicing a home loan remains a pipe dream.
In 2021 to 2022, approximately 1.5 million Australians were receiving Commonwealth Rent Assistance.
"At the end of the day, everyone's going to be paying a little bit more … At the entry level, the impact will probably be bigger. So you've got a government handout on the one side, counterproductive for the system on the other, and you've got more than half a million renting households who get nothing."
Professor Gurran also worries about the large loans first home buyers will be forced to take on.
"We're really enabling people who are selling existing homes in the market to continue to sell them at very high prices by enabling first home buyers who would otherwise be shut out from that market while they're saving their deposit, by allowing them to get in at those high prices, which then, as you say, exposes first time buyers to ever larger debt."
She says solutions include government support schemes that target low-income earners, mandates that require developers to supply a percentage of affordable homes in new housing developments, which would be factored into the land price, and shared equity models.
This is where a third-party equity partner, such as a government agency or financial institution, pays a portion of a home's purchase price in exchange for an equivalent ownership stake.
But as it stands, she says the government is helping those who have a chance of home ownership, while Australia's most vulnerable are once again being left behind.
