Property Australia

Bridging the deposit gap

Ken Morrison Ken Morrison October 22, 2019

It's a tale of two metrics. While east coast newspapers tell the story of recovering house prices and rising clearance rates, the construction of new housing has dropped by 25 percent over the past year.

A smaller construction pipeline in housing means fewer construction jobs and a smaller GDP.  It also means fewer houses for our growing population to live in. It is more important than ever for policymakers to focus on measures which will shorten this construction downturn.

So, it was a good to see Parliament pass legislation last week to establish the government’s First Home Loan Deposit Scheme, announced by the Prime Minister in the election campaign.

Saving for a 20 per cent home deposit takes the average Australian nearly nine years – and much longer in Sydney and Melbourne. This is a huge hurdle for many first homebuyers, despite the recent market softening.

The scheme squarely targets this barrier to entry, at least for 10,000 eligible first homebuyers a year.

The scheme will operate as a government guarantee that will secure the mortgages of eligible first home buyers who have deposits of between 5-20 per cent of the purchase price (provided they meet their bank’s normal responsible lending criteria, as well as income and house price caps). It will commence on 1 January and buyers will access the scheme through their lending institution.

The Property Council has been working closely with the government on the detailed design since the election and I sit on the minister’s reference group for the scheme.

Clearly it will be critical to ensure that the scheme accommodates purchasers choosing to buy a house and land package or an off-the-plan apartment. It would be no point if this scheme didn’t support new housing construction. 

The yet-to-be-announced price caps will also be key. What works in Sydney and Melbourne won’t be appropriate in other Australian cities and we need to ensure the scheme supports first homebuyers wherever they are.

There is also the very real possibility that the scheme will be heavily over-subscribed, at least in its first years. Data is pretty patchy, but the scheme will definitely ‘pull forward’ demand for many people who were busily saving away to get to their 20 per cent deposit.

The government has only committed to 10,000 guarantees being released per financial year (with the six months from 1 January 2020 to receive the full allocation). The Property Council has been urging the government to be ready with a contingency plan if demand for the scheme exhausts supply. The market needs good news stories, not the spectre of people missing out.

The legislation is in place and we will continue to pursue the devil in the detail. After all, we can’t afford to miss any opportunity to support construction jobs and future housing supply.