Australia's federal government's plan to expand the Home Guarantee Scheme (HGS) will increase house prices, make it harder for lower income earners to enter the housing market and have a negligible impact on home ownership rates, according to an analysis released by the Insurance Council of Australia (ICA).
Analysis of the government’s policy, by independent economic consultancy Lateral Economics, has estimated that the expansion will cause house prices to rise by up to 10% in the first year by bringing forward existing demand in Australia’s already stressed housing market.
The analysis also showed that the highest price increases will be seen in homes up to the HGS property price caps, which will be as high as A$1.5m ($970,000) in some cities, due to the concentrated demand.
Moreover, the analysis has found that the increase in house prices as a result of the expanded HGS is expected to far outstrip any savings from foregoing Lenders Mortgage Insurance (LMI).
Due to the increased house prices, it is estimated that the expansion of the scheme will price out up to 6,500 lower-income prospective buyers in the first year alone.
As a result, the ICA is calling for the HGS to have comprehensive safeguards including asset testing for recipients, transparent risk reporting, independent assessments and reviews, and is fair, accountable and targeted to those most in need.
“While well intentioned, the Lateral Economics modelling makes clear that many first home buyers will be worse off under this plan, at least in the first few years of the expansion,” said ICA CEO Andrew Hall.
“It is a concern that an outcome of the expansion will be price increases greater than what people would have paid in LMI.”
Mr Hall also said, “The insurance industry accepts the government will play a role in first home buyer schemes, but these schemes should be effectively targeted to support people who genuinely need it.”
The Lateral Economics report is available here.