Why the New First Home Owner Scheme Could Make Things Worse

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Australia’s Labor government recently announced its expanded First Home Guarantee scheme, allowing first-home buyers to enter the property market with only a 5% deposit—with no income caps or property price limits. While intended to boost accessibility, critics warn it will inflate housing prices without addressing the real problem: supply.

Time and again, history shows that when governments inject money into the housing market, prices rise. Sellers, developers, and banks reap the rewards—while the very first-home buyers these policies aim to help end up worse off.

Historical Patterns: When Government “Help” Backfires

1. First Home Owner Grant (FHOG) – Introduced in 2000

  • Originally a one-time grant of $7,000, its introduction coincided with a sharp rise in home prices.

  • During the 2008 economic stimulus, the FHOG was boosted up to $21,000, creating a mini-bubble and inflating demand.

  • The Reserve Bank has since acknowledged that first-home buyer grants, along with programs like HomeBuilder, pushed up housing prices.

2. Superannuation Withdrawals During COVID-19

  • Allowing first-home buyers to dip into superannuation during the pandemic drove demand without increasing supply, raising prices by around 5.5% in less than a year.

3. Successive Demand-Driven Policies

  • For 25 years, both major parties have relied on grants, deposit guarantees, and other buyer incentives. The outcome has been the same: homeownership rates among younger Australians have fallen, while housing has grown more unaffordable.

Why Injecting Cash Doesn’t Lower Prices

Policies that focus on boosting demand—while ignoring supply—simply bid up the price of existing homes. Each new scheme makes it easier for buyers to borrow and spend more, which sellers immediately capture through higher prices.

The result? The government appears to be helping, but in reality, it is locking future buyers into an even tougher market.

What Actually Brings Prices Down—and Helps First-Home Buyers

  1. Boost Supply
    Fast-track approvals, reduce development red tape, release land strategically, and invest in social and affordable housing.

  2. Manage Demand Carefully
    Avoid blanket low-deposit schemes. Instead, use targeted, means-tested aid that doesn’t fuel speculative buying.

  3. Adjust Deposit Requirements
    Maintain prudent minimum deposit thresholds to slow demand until supply can catch up.

  4. Sustainable Immigration Policies
    Align migration levels with housing capacity and infrastructure to prevent persistent upward pressure on prices.

Final Thoughts

The evidence is clear: every time the government “helps” by giving buyers more money or lowering deposit hurdles, the market absorbs that cash and prices surge. The new First Home Guarantee risks repeating these mistakes, worsening affordability for the very people it claims to support.

The real solutions lie in increasing supply, managing demand responsibly, and ensuring population growth is matched with adequate housing. Until then, first-home buyers will continue to find themselves priced out—despite billions in government “assistance.”