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Why Expanding Australia’s Help to Buy Scheme Risks Deepening the Housing Crisis

March 21, 2025 / Last updated : March 21, 2025 APN Team Buying and Selling

Why Expanding Australia’s Help to Buy Scheme Risks Deepening the Housing Crisis

The Australian Labor government’s decision to expand its Help to Buy shared equity scheme before its official launch has sparked fierce debate. While pitched as a lifeline for first home buyers, critics argue the policy risks worsening Australia’s affordability crisis by inflating demand without addressing systemic supply shortages. Here’s why this well-intentioned initiative could backfire—and what alternatives might work better.

1. Demand-Side Solutions Ignore the Root Cause: Supply

The core flaw of Help to Buy lies in its focus on stimulating demand in a market already crippled by undersupply. By subsidizing buyers’ deposits, the scheme injects more competition into a strained system. As economist Dr. John Quiggin notes, “these schemes have been around forever, but the money is eventually capitalised into house prices, so the beneficiaries gain at the expense of everyone else”.

Existing housing stock dominates allocations: The scheme allows purchases of established homes, diverting funds away from new construction. University of Sydney urban planning professor Nicole Gurran argues that this approach “pumps money into the established housing market without generating new supply”.
Missed opportunity for scalable solutions: For the same $329 million annual investment, Gurran estimates the government could directly fund 1,000+ new affordable homes yearly—a tangible supply boost.

2. Inflationary Pressures Could Outpace Benefits

Shared equity schemes artificially increase purchasing power, enabling buyers to bid higher at auctions. This dynamic risks inflating prices across the board:

Treasury’s alarming admission: During Senate hearings, officials confirmed they hadn’t modelled the scheme’s impact on prices. Independent analysis by the Centre for Independent Studies warns demand-side subsidies typically raise prices by 1–4% in tight markets.
Historical precedent: The UK’s Help to Buy program, which Australia’s scheme mirrors, saw new-build prices rise 6% faster than existing homes between 2013–2022 according to Nationwide data.

3. Poorly Targeted Eligibility Criteria

Income thresholds and price caps raise concerns about equitable access:

Criteria	Detail	Issue
Income caps	$90k (singles), $120k (couples)	Excludes 75% of singles and 39% of couples earning below thresholds
Property price caps	Up to $950k (Sydney houses)	Even at 58% borrowing, $551k loans strain budgets
Ongoing income limits	Participants must stay under caps for life	Penalizes career advancement

These thresholds neglect vulnerable cohorts:

Older renters: 45–54 year-olds in the poorest 40% have seen homeownership plummet from 71% to 55% since 1980.
Women over 55: Fastest-growing homeless demographic, yet unlikely to qualify due to income/equity rules.

4. Negative Equity Risks for Borrowers

Requiring just a 2% deposit (vs. 5% in earlier proposals) leaves buyers exposed:

Price sensitivity: A 5% market correction would wipe out equity for 90% of participants.
Debt traps: Mortgage stress looms for couples borrowing $551k on $120k incomes—repayments could consume 45%+ of pre-tax earnings4.

5. Symbolic Gesture Over Substance

With only 10,000 annual spots, the scheme helps just 0.2% of Australia’s 4.9 million renters yearly6. By comparison:

NSW’s identical scheme: 94% of places remained unused by March 20245.
Construction shortfall: Australia needs 1.2 million new homes by 2029—a target slipping due to rising costs and delays.

6. Superior Alternatives Exist

Critics argue redirecting funds to supply-side measures would yield better outcomes:

A. Social housing expansion

Build 25,000+ affordable rentals annually via direct investment.
Leverage superannuation funds: Industry Super Australia estimates $500 billion in potential infrastructure investment5.

B. Tax reform

Phase out negative gearing and capital gains discounts, which the Greens estimate cost $39 billion yearly—enough to build 78,000 homes annually at $500k each6.

C. Shared equity for new builds

Limit subsidies to newly constructed homes, as seen in Scotland’s successful LIFT scheme.

7. Political Opposition Highlights Flaws

The scheme faces rare bipartisan criticism:

Greens: “A housing lottery for 0.2% while 99.8% face higher prices”6.
Coalition: “Utterly underwhelming… shuffling deck chairs on the Titanic”5.

Even supporters like Savings.com.au concede the policy needs major revisions to avoid “entrenching participants in financial stagnation”4.

Conclusion: A Misguided Race to the Bottom

Expanding Help to Buy before addressing its structural flaws risks locking Australia into a vicious cycle:

Subsidies → Higher prices → More demand for subsidies
Political reluctance to reform taxes → Investors dominate market
Underinvestment in supply → Crisis deepens

Until governments tackle the root causes—land release delays, construction bottlenecks, and investor tax perks—demand-side tinkering will remain a band-aid on a bullet wound. As housing economist John Mangan warns, “The scheme’s only certainty is making affordability worse for the majority”.

References

Note: This analysis synthesizes critiques from economists, housing experts, and parliamentary reports. Hyperlinks connect to primary sources for SEO optimization and reader verification.

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