5% deposits and tax deductions for PPORs: Housing policies heat up ahead of federal election

Labor to offer 5% housing deposits for all first home buyers

Prime Minister Anthony Albanese announced that the Labor Party, if re-elected, would revamp its First Home Guarantee (FHBG) initiative by expanding the scheme to all first home buyers.

Currently, the FHBG allows first-time home buyers to acquire a property with a 5 per cent deposit while waiving lender’s mortgage insurance.

However, it has limited capacity and is available only to singles earning less than $125,000 a year and couples with a combined income of up to $200,000 annually.

In contrast, the proposed policy will allow all first home buyers, regardless of income, to purchase their first property with a 5 per cent deposit, while not having to pay for lender’s mortgage insurance.

While the Prime Minister said that the revised scheme would offer higher property price limits to include a greater number of first home buyers, the specific details of this plan have not yet been revealed.

“The median home price in Australia today is $820,000. Five per cent of that is $41,000. The last time $41,000 covered the 20 per cent deposit for a median home was 2002. That’s the generational scale of this change,” Albanese said.

“This means a Sydneysider and first home buyer can purchase a $1 million apartment with a $50,000 deposit with their loan guaranteed by the Albanese government. It means a Queenslander and first home buyer can purchase an $850,000 home with a $42,500 deposit,” he added.

Additionally, the Labor Party also announced that it would make a $10 billion investment to build 100,000 homes in cooperation with state developers, which would only be available to first home buyers.

Coalition announces mortgage deductibility scheme for first home buyers

In a pitch to younger voters, the Coalition also unveiled its new First Home Buyer Mortgage Deductibility Scheme, which would enable first home buyers to access a tax deduction on the interest paid for the first $650,000 of their mortgage on a newly built home.

The measure will be available for individuals earning up to $175,000 and joint applicants earning up to $250,000, but would enable participants to continue accessing the tax deduction even if their income rises.

While there will be no cap on the overall mortgage size or home price in the scheme, the measure will only apply for first home buyers purchasing newly built homes as their principal place of residence.

Opposition Leader, Peter Dutton, said that the scheme would mean that a first home buyer with a taxable income of $120,000 and mortgage of $650,000 at 6.1 per cent would receive a benefit of around $12,000 (depending on individual circumstances such as the size of a mortgage, interest rates, income and other tax deductions).

“This policy is designed to make housing more accessible by reducing the cost of borrowing, improving loan serviceability, and helping builders build equity faster,” he said.

By only applying to newly built homes, the Opposition Leader said that the First Home Buyer Mortgage Deductibility Scheme would help to boost construction activity, create jobs, and increase housing supply across the nation.

The Coalition also announced an expansion to the Home Guarantee Scheme, which would lift the income cap from $125,000 to $175,000 for individuals, and $200,000 to $250,000 for joint applications, alongside raising property price caps nationwide and removing placement limitations for both the First Home Buyer Guarantee and Regional First Home Buyer Guarantee.

Industry reactions to major party announcements

The Property Council of Australia welcomed Labor’s policy pledges, stating that the investment into new home building would bolster progress towards the national housing target.

The peak body’s CEO, Mike Zorbas, described the decision as a “game changer for new housing supply”, and added that “100,000 new homes will be a big boost to our welcome and ambitious 1.2 million new homes target”.

Zorbas said the revisited First Home Guarantee Scheme would help first home buyers enter the housing market.

“Bridging the deposit gap is a critical factor in getting more young Australians into their own homes, many of whom are otherwise watching their dreams of home ownership slip away,” Zorbas said.

The council also welcomed the Coalition’s First Home Buyer Mortgage Deductibility Scheme, which it said would help to provide more supply across the nation and ease affordability issues in the housing market.

“First home buyers in capital cities are getting closer and closer to a median age of 40 just as we are undershooting our 1.2 million home ambition by a quarter or more,” Zorbas said.

“Many tens of thousands of new homes over five years alongside last mile infrastructure improvements are a shot in the arm for our national supply numbers,” he added.

Master Builders Australia welcomed the Coalition’s mortgage deductibility scheme, which CEO Denita Wawn said was a “positive and long-term incentive that encourages more Australians to build their first home”.

“Helping first home buyers enter the market by supporting new builds and increasing housing supply is exactly the kind of stimulus we need to keep the pipeline of new housing strong,” Wawn said.

Wawn also applauded Labor’s targeted investment for homes for first home buyers, but stated that the policy necessitated reforms that would address the challenges that are obstructing construction efforts.

“Our industry is ready to deliver these homes, but rising costs, complex regulation, and a growing skills gap risk dragging down value for money,” she said.

“If we’re going to make housing more affordable and accessible, we need serious action to improve planning systems, streamline approvals, and lift productivity in the construction sector,” she said.

The Housing Industry Association (HIA) said the number of placements and recalibration to median national purchase prices under Labor’s First Home Guarantee Scheme would allow first home buyers to enter the property ladder sooner.

“The scheme should also see at least an additional 10,000 new homes per year commence construction, if new home building is prioritised,” HIA managing director, Jocelyn Martin, said.

The HIA also welcomed the Coalition’s announcement and said the mortgage deductibility scheme could take pressure off established house price growth by increasing the supply of new homes across the nation.

Martin explained said that the scheme proposed by the Coalition would bolster housing development and “could be sufficient to achieve 1.2 million new homes commencing construction over a new cycle”.

“The scheme could see at least 30,000 new homes commence construction, as first home buyers move out of the established market to build new homes,” Martin said.

“There is an acute shortage of housing in all regions across Australia. The only solution to this problem is to increase the supply of new homes commencing construction,” she concluded.

Regardless of the outcome of the federal election, Martin said that all tiers of government need to continue working together to bring down the cost of delivering a new home market.

“All three tiers of government have added additional, unnecessary costs, to delivering a new apartment and detached home over the past five years. Offsetting these costs is a step forward," she concluded.