Small, but well-formed. The new home deposit scheme will help, and it's unlikely to push up prices

The new First Home Loan Deposit Scheme^[1] announced the Coalition, and instantly backed by Labor^[2], is likely to be popular among those on the cusp of buying their first home.

It’ll be open to singles earning up to A$125,000 and couples earning up to A$200,000 who have saved at least 5% of the value of the home. The government-owned National Housing Finance and Investment Corporation will partner with private lenders to put up as much as another 15% of the value of the home to take the deposit to 20%.

However, the scheme is capped at 10,000 home buyers per year^[3], roughly one tenth of the number of Australians who bought first homes in 2018.

It’ll help them - the latest survey shows that more than half of first homebuyers^[4] needed financial assistance outside of their own savings to get their deposit. The benefits of home ownership^[5] have been widely documented. But will it do enough?

Source of deposits

Authors' own calculations from ABS Survey of Income and Housing 2013-14^[6] An often-expressed concern is that such a scheme will bid up house prices^[7]. However, it is means-tested, making it much less vunerable to this criticism than the non-means-tested First Home Owners’ Grant^[8]. And is also capped at 10,000 loans per year, giving it little scope to price pressure. However, it may not be means-tested enough. Consider the population subgroup that broadly comprises aspiring homebuyers who qualify for the scheme: renters aged 25-34 years who meet the scheme’s income criteria and whose financial wealth is between 5% and 20% of the lowest-priced quarter of houses for sale in the borad area in which they live. In the most-recent 2015 ABS Survey of Income and Housing^[9] there were 127,000 such potential eligible first home buyers, more than 12 times the 10,000 cap. Read more: That election promise. It will help first home buyers, but they better be cautious^[10] The cap is a practical necessity of course, needed to limit impacts on prices and prevent a cost blowout. But the weakness of the scheme is that the cap will be filled on a “first come, first serve^[11]” basis, without distinguishing between those who actually need help and those who are likely to meet the deposit requirement anyway. The graph shows that some 40% of potential first home buyers have managed to save a deposit amounting to not much more than 5% of the home value. Only 7% have a 20% deposit or something near it. Potential users of the scheme, by amount of deposit saved Deposit saved by renters aged 25-34 who meet the scheme’s eligibility criteria, per cent of lower quartile property prices in area of residence, 2015-16. Authors' own calculations from the ABS Survey of Income and Housing 2015-16^[12] The Coalition (or Labor) could get more bang for its buck within the cap by targeting those in greater need of assistance; for example by prioritising those who cannot access the so-called Bank of Mum and Dad^[13]. Not everyone has access to wealthy parents. The Great Australian Dream of owning a home has been fading fast, and not just for young people. Naturally, the scheme’s details of the scheme require scrutiny. But overall, it provides a welcome acknowledgement (by both major parties) that the affordability crisis facing young people has not waned despite recent house price declines. Read more: The brutal truth on housing. Someone has to lose in order for first homebuyers to win^[14] The scheme will restore the opportunity – at least to some – to accumulate wealth in property and enjoy the security and other benefits^[15] that home ownership brings. But seriously addressing housing affordability will ultimately require a bigger intervention.

References

1. ^{^} First Home Loan Deposit Scheme (www.liberal.org.au)
2. ^{^} instantly backed by Labor (theconversation.com)
3. ^{^} 10,000 home buyers per year (www.smh.com.au)
4. ^{^} more than half of first homebuyers (www.abs.gov.au)
5. ^{^} benefits of home ownership (www.tandfonline.com)
6. ^{^} Authors' own calculations from ABS Survey of Income and Housing 2013-14 (www.abs.gov.au)
7. ^{^} bid up house prices (www.theguardian.com)
8. ^{^} First Home Owners’ Grant (www.aph.gov.au)
9. ^{^} 2015 ABS Survey of Income and Housing (www.abs.gov.au)
10. ^{^} That election promise. It will help first home buyers, but they better be cautious (theconversation.com)
11. ^{^} first come, first serve (www.smh.com.au)
12. ^{^} Authors' own calculations from the ABS Survey of Income and Housing 2015-16 (www.abs.gov.au)
13. ^{^} Bank of Mum and Dad (theconversation.com)
14. ^{^} The brutal truth on housing. Someone has to lose in order for first homebuyers to win (theconversation.com)
15. ^{^} security and other benefits (www.tandfonline.com)