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Labor’s ‘Help to Buy’ housing scheme: How it stacks up

Anthony Albanese and houses
Labor's 'Help to Buy' scheme would be available to singles earning less than $90,000 a year and couples earning less than $120,000. (Source: Getty)

If elected, Labor will introduce a home co-ownership scheme to help low- to middle-income earners onto the property ladder by buying a stake in their new home.

Under the Help to Buy scheme, the government would chip in up to 30 per cent of the purchase price for existing properties and up to 40 per cent for new builds for eligible households.

The scheme would be available to people earning less than $90,000 a year - $120,000 for couples - and will be capped at 10,000 places a year.

Homebuyers will need to have a deposit of 2 per cent and qualify for a standard home loan with a participating lender to finance the remainder of the purchase.

Participants wouldn’t be required to pay lenders mortgage insurance (LMI) and wouldn’t need to be a first home buyer, but obviously would not already own property at the time of purchase.

According to Labor’s campaign spokesperson, Jason Clare, the scheme would allow people to buy a home with a “smaller deposit, a smaller mortgage, and smaller mortgage repayments”.

“And importantly, this is not just for first home buyers,” Clare said.

“It's for Aussies, in the middle of their lives, that are on lower incomes and need a little bit of extra help to be able to buy a home rather than rent for the rest of their life.”

Minister for Homelessness, Social and Community Housing Michael Sukker told ABC Radio this morning that the policy was a “niche program” most people wouldn’t want to take up.

“They don’t want Anthony Albanese at the kitchen table co-owning their property,” Sukker said.

He said there had been very little take-up of co-ownership schemes at the state and territory level.

What the experts say

Brendan Coates, the economic policy program director at think tank the Grattan Institute, said a federal home equity scheme was a “missing piece of the puzzle in Australia’s housing policy architecture”.

Coates, who authored a report recommending such a scheme earlier this year, argued that Labor’s proposed scheme would help some relatively lower-income earners access home ownership.

In his view, the government co-ownership scheme would serve a different cohort to the Home Guarantee Scheme, which has now been supported by both the major parties.

He pointed to lower-income people who may have lost their home due to a marriage break-up, who were at a “very high risk of poverty” if they continued to rent into retirement.

While the biggest hurdle for young first home buyers is the 20 per cent deposit they need to save, he said older renters were more concerned about paying off the mortgage before they retired.

For these people, a shared equity scheme reduces the amount they have to pay off on a mortgage before they retire because the government acts as a silent equity partner.

For younger first home buyers, whose biggest barrier is the deposit, Coates said the Home Guarantee Scheme would be more suitable.

Also commenting on the scheme, research director Sally Tindall said Australians would still be buying at inflated prices but the government would be taking on a larger share of the load and the risk.

“This new proposal reduces two major barriers for first home buyers: deposit size and how much the bank will lend them,” Tindall said.

“A smaller loan means smaller, more manageable monthly repayments. A smaller loan will also help limit the strain on people’s monthly budgets when interest rates start rising.”

However, she said taking out a loan with a 2 per cent deposit could still be risky, particularly if borrowers had nothing left in reserve.

“Roofs leak, hot water systems burst, and interest rates can go up,” Tindall said.

“Regardless of how you get into the property market, make certain you have money in the tank to deal with any curve balls that come your way.”

Coates also noted the 2 per cent deposit was risky, with his research suggesting a 5 per cent deposit to reduce the risk of people falling into negative equity in the short term.

Will it make house prices go up?

Any housing policy that plays around on the demand side adds to demand and therefore increases prices, Coates explained.

However, he said the impact of a scheme like the one proposed by Labor would be relatively small because of the modest number of places available.

Tindall also said the scheme wouldn’t put massive upward pressure on property prices because it was limited to 10,000 places and targeted at low- to middle-income earners.

“The bigger issue of skyrocketing prices is likely to be eased by rising interest rates,” Tindall said.

“Property prices are expected to drop, potentially by up to 15 per cent in some areas over the next couple of years.”

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