Labor's Homebuyer Scheme Could Boost Prices by Up to $90,000

The Labor government's newly expanded low deposit homebuyer scheme is projected to significantly impact the housing market by next year.

A recent analysis by Lateral Economics suggests that this initiative could propel house and apartment prices to rise by as much as $90,000 within a year.

The report, commissioned by the Insurance Council of Australia, warns of potential short-term price increases of up to nine percent in certain segments, starkly differing from government forecasts that suggested a more restrained influence on the housing market.

This initiative aims to assist first-time homebuyers by allowing them to purchase homes with a deposit as low as five percent, effectively circumventing the lenders’ mortgage insurance (LMI) costs. These changes are poised to increase the demand in the housing market, especially with alterations to income and property price caps, creating eligibility for a broader pool of potential homeowners. The scheme will now allow purchases of homes valued up to $1.5 million in various key Australian cities without an upper income limit.

According to Lateral Economics, this could increase annual demand from first home buyers by 20,600 to 39,100 entrants, boosting national property prices by up to 6.6 percent initially. For high-demand markets, the price surge could be even more pronounced, ranging from 5.3 to 9.9 percent. These estimates contrast sharply with prior Treasury predictions suggesting only a minor market ripple.

The rapid implementation of this scheme ahead of schedule, originally set to begin in January 2026 but now slated for an October start, has fuelled debate over its broader economic impact. Critics point out the struggle lower-income buyers might face due to potential price hikes, which could offset savings made from avoiding LMI. Additionally, there are concerns this may disproportionately benefit higher-income individuals, with no income ceiling on eligibility.

Despite criticism, Housing Minister Clare O’Neil emphasises the savings first home buyers stand to gain, citing a forecasted cumulative LMI saving of $1.5 billion over a year. This significant financial relief is amid accusations from critics who argue that the policy disproportionately assists wealthier Australians and sparks fears among insurers over potentially minimised profit margins from mortgage insurance.

The Albanese government asserts that, while initial price adjustments might occur, long-term factors such as interest rates and housing supply will primarily dictate market trends. The ultimate effectiveness of the scheme will depend on balancing expanded market accessibility for first-time buyers with wider housing affordability considerations.

Looking ahead, it will be crucial to monitor the policy’s market ripple effects and adapt strategies accordingly. Further dialogue between government entities, financial institutions, and consumer advocacy groups will be vital in assessing ongoing impacts and adjusting measures to ensure equitable homeownership opportunities across diverse economic backgrounds.

Published:Tuesday, 2nd Sep 2025
Source: Paige Estritori

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