I'm Daniel James and you're listening to seven AM. The Government says it wants to make it easier for Australians to buy a home. Its latest expansion of the five percent deposit scheme means almost anyone, regardless of income, can now buy a home with a fraction of the usual savings required for a deposit. It's the boldest version yet of a policy first introduced under the Morrison government. But
behind the promise of affordability is a political calculation. There are far more votes to be won from rising house prices than from cheaper homes. Today, leading economists solely slake on Labour's home buying scheme while similar policies have failed in the past, and what it would really take to fix the housing crisis. It's Wednesday, October eighth.
From today, more young Australians will be able to get the keys to their first home quicker, and instead of paying off someone else's mortgage, they'll be paying off a home of their own.
Sol Labor's expanding Scott Morrison's five percent deposit scheme where the government backs you to buy a house with a smaller deposit than you would usually need. So how are they actually broadening who can get it. Well, what the government's proposing is that there be no income test.
Second, that the price caps that set maximum values of homes that can be purchased using the scheme will be significantly increased to for example, one point five million in Sydney and one million in Brisbane down to say six hundred thousand dollars in Hobart. And thirdly, that there will be no cap on the number of people who can
take up the scheme. So the government's intention is that a significantly larger proportion of first home buyers will be able to buy homes with deposits of as little as five percent months.
Because we're absolutely determined to do everything we can to fast track home ownership, fast track improved number of rentals, fast track social ownership.
And obviously this plan is all about getting more Australians into the housing market. Given you'll need less money to get in, it will make it easier. So if that's the goal, then will it be a success?
Well, if it actually happens, then the answer would be yes.
But while people will be able to access mortgage finance with smaller deposits than previously, the criteria that banks apply in determining to whom they lend and how much they are willing to lend still apply, and those rules are typically something like a maximum on the value of the loan as a multiple of the borrower's income, and secondly a ceiling on the proportion of the borrower's income that can be applied to debt service payments, that is, interest
and repayments of principle, and the banks are also required by OPRA, the bank regulator, to stress test their customer's capacity to absorb an increase in interest rates of three percentage points. Now those will still apply. What their scheme will therefore do, I think is help those who arguably have the capacity to borrow anyway, to borrow more than they'd otherwise be able to, sooner than they might otherwise be able to, and thus get into home ownership quicker
than they might otherwise have been able to do. That's why the government says that although on paper it might seem this is open to all commers, in practice the number of people who will be able to take it up is likely to be somewhere between about thirty and fifty thousand a year, so.
It's basically fast tracking people that would eventually be in a position to buy house.
That's my interpretation office, and what that means is that, like almost every other scheme that governments have come up with ostensibly to assist first home buyers get into the property market, it has as its core enabling people to spend more on housing. Whilst the supply of housing remains, as economists say, relatively inelastic, that is, underresponsive to changes in demand in the short term, then the inevitable result
is going to be higher prices. Now, the government concedes that it will result in higher prices, but says, based on Treasury modeling, that the increase will be just zero point five percent over a five year period.
But already one hundred and eighty five one thousand Australians have benefited from this scheme with minimal impact on prices. Treasury did modeling. They suggest a very small increase.
Do you trust that number that that modeling the suggests it's one point five percent increase.
That's a good question. It's important to note that Treasury's modeling is referring to the median priced house across Australia's capital cities, whereas, of course the typical first home buyer does not buy the medium price house, he or she They typically buy a property that is less than the median priced house because the median price includes the houses bought by people who are trading up and investors and
so on. So other analysis, including work done by Nick Grohman and Gene Tunney for the Insurance Council of Australia, who obviously aren't particularly happy about this scheme because it in effect is pushing them out of what has been
an important business for some of their members. They argue that this scheme will push up the price of houses or apartments that typical first home buyers buy by between three and a half and six and a half percent over a somewhat shorter period, and history would suggest, going back to the first first Homeowners Grant scheme introduced by the Menzies government in nineteen sixty four, that anything that allows Australians to spend more on housing than they'd be
able to otherwise, as this scheme will enable some Australians to do, results in more expensive housing, and the result of more expensive housing is that fewer people can afford to own it.
Coming up, why house prices will just keep rising? As you've alluded to. So there have been many schemes in the past to assist first home buiers. Can you walk me through what we've seen in the past and what impact have had on the housing market.
Yeah, I mean, it's not a coincidence that Australia's home ownership rate peaked at the first census that of nineteen sixty six after the introduction of the First home Owners Grant Scheme or Home Savings Grant Scheme as it was called by the Menzies government in nineteen sixty four, and perhaps as an interesting footnote to history, Bob Menzies promised that scheme at the nineteen sixty three election at the urging of the New South Wales Young Liberals, who's president
at the time as John Howard and of course later on as Prime Minister. John Howard insisted when the GST was introduced that state governments give first home owners grants of seven thousand dollars, initially including to purchases of established homes, even though established homes were subject to the GST. So John Howard threw out his career, was always a believer in schemes that have at their heart giving cash that would be first home buyers so that they can spend
more buying the home that they're going to buy. And the result of all of this has been that the overall home ownership rate has declined by about six percent each points between the nine and sixty six census, when it peaked at seventy two percent and the twenty twenty one census, taken during the middle of COVID. That decline doesn't sound very much, but it concealed some enormous divergences
in home ownership rates among age groups. And that's because the home ownership rate among people aged sixty five and over hasn't changed very much over the last fifty five years, but the proportion of the population who was sixty five
and over has increased enormous. The home ownership rate among people aged under thirty has fallen to where it was in nineteen forty seven, the home ownership rate among people in their forties has fallen back to where it was at the census of nineteen fifty four, and the home ownership rate among people aged between forty five and fifty four, who were not exactly young by conventional standards, is back to where it was in the early nineteen sixties, and
overwhelmingly the cause of this huge decline in home ownership rates among people under the age of say, fifty, is the result of a culmination of policies that all three levels of government have pursued over the last sixty years, which have had the effect of restraining growth in the supply of housing and inflating the price of housing.
So why is that so? Why did politicians ultimately want house prices to keep rising.
Politicians of all stripes know that in any given year, there's only about one hundred and ten thousand people who become first home buyers each year, and even if you assume that forever one who succeeds, there's five or six who'd like to but can't, that's still fewer than a million votes for policies that would restrain or halt escalating house prices. Whereas politicians also known that at any point in time, there are eleven million Australians who own their
own home. There are more than two million who own at least one investment property, And even though those two groups overlap a fair bit, that means probably twelve million votes for policies that would keep house prices going up. Preferably at a faster rate than incomes or inflation, which is what's been happening over at least the last thirty years.
So you know, on the one hand, fewer than in a million votes for policies that might actually stop house prices going up, as opposed to eleven or twelve million for policies that would keep house prices going up. Even the dumbest of our politicians can, as the Americans say, do that math, and they do at every election and between every election, which is why you see politicians keep coming up with schemes whose ultimate effect is to keep
house prices going up. And I'll give both mister Albanezi and mister Dutton, the previous opposition lader, credit for being honest enough to admit that during the recent election campaign they both set in different ways that they want house prices to keep going up. Even though the election was ostensibly about the cost of living, and the biggest component of the cost of living is the cost of housing.
They didn't actually want to solve the problem because they know that a very large majority of Australians don't want the problem to be solved.
The government does say it's working on supply. They have a target of one point two million new homes by twenty twenty nine. So how far do you think that will go to addressing the supply side of the equation.
Well, I certainly want to give the government credit for the attention it's paying to the importance of boosting supply, and they're certainly trying hard to meet the targets that they have set, including by giving the states more money for the construction of social and affordable housing. One of their election promises was to finance the construction of one hundred thousand new homes over I think it was five years for sale to first home buyers using, among other things,
under or disutilized government land. And they're also offering the state's what are in effect bribes to encourage them to reform their zoning and planning laws with a view to speeding up the construction of housing. So that's all helpful to boosting the supply of housing. But it's difficult, and it would appear that the increase in housing supply is
going to fall short of the government's targets. The Governor of the Reserve back made that ont specifically, so you know, as I say, I give the government credit for the efforts it's making to try and boost housing supply, but it is hard, and in the meantime, what they're doing is boosting the demand for housing. And the result of more expensive housing is that the people who already own it get richer, and the people who don't own it find it increasingly difficult to join that club.
So you said, most people don't want to house prices to go down. So is it possible to solve the housing crisis without housing prizes being impacted in some way?
Well, I don't think it is, and that's why ultimately I'm very pessimistic that the problem will ever be solved. You know, it's not going to be solved until one or more of three groups of people my age become a majority of voters. And that is first of all, people you know, baby boomers and the like, who are altruistically concerned at the diminishing chances of their own children
or grandchildren becoming homeowners. Second again, people around my age and older who are annoyed at having to be the bank of mom and dad or to go garran tore on their children's or grandchildren's loans when they'd rather use
the money they have to fund their own retirement. Or thirdly, again people my age who are seek and tired of their late twenty and thirty year old kids still living at home, expecting their laundry done, their meals cooked, and a blind eye turned to whoever they bring to the breakfast table of a morning. And all of those groups are increasing, and I think, to be fair the proportion of baby boomers who are genuinely concerned and is made at the difficulties their own children and their peers are
facing becoming home otters. But nonetheless they're clearly a minority. So politicians keep saying that they want house prices to keep going up because they know that that's what a majority of voters want. And you don't get yourself altnan to government by telling a very large majority of voters that they can't have what they want.
So it's like, thank you so much for your time. That's a pleasure.
Also in the news, Australian politicians stopped in question time yesterday to mark the two year anniversary of the October seven attacks on Israel. Prime Minister Anthony Alberici said it was a day of pain and terror for Jewish people around the world. Adding that Australia has consistently been part of the international pressure for a ceasefire in Gaza, the return of hostages, and for aid to flow to Palestinians.
And new details have emerged of allegations made by Australian activists detained by Israel after attempting to bridge its naval blockade of Gaza. Hundreds of activists, including seven Australians and Swedish climate campaign at Greteth Thumburg, were arrested and detained after they were intercepted by Israel's navy off the coast
of Gaza late last week. Australian members of the Global Seward Flotilla have reportedly complained to diplomatic officials of serious mistreatment by Israeli authorities, including physical beatings in a quote dystopian prison environment. Thanks for listening to seven AM. We'll be back tomorrow.