As Australia approaches the 2025 federal election, both major political parties have unveiled ambitious housing policies aimed at assisting first-home buyers. While these initiatives are designed to improve housing affordability, they may inadvertently recreate the challenges experienced during the HomeBuilder Grant era, where increased demand massively outpaced supply, leading to significant industry strain and increased land and house prices. 

The New Wave of Incentives

The proposed policies encompass a range of financial incentives:

Coalition Only:

1. Superannuation Access: Eligible first-home buyers can withdraw up to $50,000 from their superannuation savings to contribute to a home deposit.
2. Mortgage Interest Tax Deductions: First-home buyers will be able to claim tax deductions on mortgage interest for loans up to $650,000 over five years, potentially saving up to $12,000 annually. Whether banks factor this is in serviceability calculations will remain to be seen. 
3. Serviceability Buffer Reduction: The Coalition proposes reducing the Australian Prudential Regulation Authority’s (APRA) serviceability buffer from 3% to 2.5%, significantly increasing borrowing capacity for buyers.

State Government

4. State Grants: State governments offer substantial grants, such as Queensland’s $30,000 First Home Owner Grant for new homes valued up to $750,000.
5. Stamp Duty Exemptions: Several states, including Queensland, have abolished stamp duty for eligible first-home buyers purchasing new homes or vacant land.

Joint Commitments: 

6. Expand the Home Guarantee Scheme: Both parties will allow first-home buyers to purchase a home with as little as a 5% deposit without paying Lenders Mortgage Insurance. This scheme, in place since 2020, has been significantly expanded to include homes by to $1m in Brisbane, $1.5m in Sydney and $950k in Melbourne. 

Labor: 

7. Help to Buy Scheme: Labor’s Help to Buy scheme will allow buyers to buy up to 40% of their home with the government, allowing a 40% uplift in the potential price range for first home buyers. 

Combined with multiple anticipated interest rate cuts by the Reserve Bank of Australia, these measures are poised to stimulate a surge in housing demand.

Déjà Vu: Lessons from HomeBuilder

The HomeBuilder Grant, introduced during the COVID-19 pandemic, led to an unprecedented spike in housing demand. It spiralled the construction industry into a chaotic state, without the material and trade supply required to meet the demand. The result was some of the most devastating project delays, cost escalation, and financial strain seen by builders in the past 50 years. 

The current policy proposals risk repeating this scenario. Without corresponding measures to increase housing supply and address workforce shortages, the industry may once again struggle to meet demand, leading to similar adverse outcomes.

Supply Constraints and Industry Concerns

While both parties have announced supply side initiatives, including the Coalitions $5B investment in critical trunk infrastructure and Labor’s $10b to construct 100,000 new homes on State land, each of these initiatives will take years to shift the needle on supply.

The raft of initiatives supercharging demand will have an immediate impact. 

Builders, developers and trades alike have emphasised the need for balanced strategies that include:

• Land Release: Accelerated release of land for development to ensure adequate supply.
• Workforce Development: Investment in training and retaining skilled labour to meet construction demands.
• Infrastructure Support: Enhancing infrastructure to support new housing developments.

Without these measures, the risk of inflating housing prices and overburdening the construction industry remains high.

A Call for Balanced Policy Making

As housing has taken the centre stage of the election and the nation stands on the cusp of implementing significant housing reforms, it is imperative to learn from past experiences. 

Policymakers must ensure that demand-side incentives are matched with robust supply-side strategies to prevent repeating the pitfalls of the HomeBuilder era.

For builders, the message is clear: secure your supply chains and labour force now to navigate the impending demand surge effectively.

Stay informed with The Good Builder for the latest insights and updates on industry developments.

Author: Peter Love

Pete was the General Manager of one of Australia’s largest home builders for six years, before starting his own business as a buyers’ advocate, building over 200 homes in five years across South East Queensland and working with over 20 builders to deliver them. Across this time he has seen most facets of the industry, the good, the bad, and the beautiful.