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An expert has forecast that the new 5 per cent deposit and LMI removal in the home buyer scheme will ease home prices over time, though industry professionals remain divided on its effect.
Since the government’s announcement to expedite the changes to the Home Guarantee Scheme, the industry has been split, with peak bodies unable to come to a consensus on the impact that the changes will have on the property market.
While a large portion of the industry takes the stance that the proposed changes will see house prices rise following a surge in demand, the Housing Industry Association (HIA) said the scheme will see home prices drop around the next federal election.
Additionally, the HIA said that the removal of lender’s mortgage insurance (LMI) will lower rental prices and increase the supply of homes without increasing demand, leading to lower home price growth.
According to the housing peak body, since 2000, the LMI requirement for first home buyers with deposits under 20 per cent has added heavy costs, delayed ownership, driven up rents, and worsened housing affordability.
Over time, the decline in first home buyers entering the market has curbed new housing construction, deepened Australia’s shortage, reduced ownership rates, and driven higher returns for investors.
HIA chief economist Tim Reardon said that by removing LMI requirements, first home buyers will be able to enter the market faster.
“With the supply of new homes impaired and demand growing through population growth, home prices rise faster than they otherwise would, making it increasingly difficult for FHBs to save a deposit.”
While the HIA agrees that the new first home buyer scheme will see house prices climb, it said that the increases will be marginal and will only last for a little over three years before supply begins to catch up and we see prices fall.
This estimate far outpaces the Treasury estimate of a 0.5 per cent growth over the next six years, and undercuts the Insurance Council of Australia’s growth prediction of between 3.5 per cent and 6.6 per cent.
Reardon said the difference between their estimate and the Treasury’s is based on differing assumptions.
“HIA contends that because the change to LMI is permanent, it does not have the same ‘draw forward’ impact of HomeBuilder or other short-term stimulus policies that would see new households form,” he said.
With around a third of new homes already being built by first home buyers, the HIA expects the removal of the LMI barrier to create an increased demand for new homes.
Reardon said that the government should be commended for “taking a view on housing policy that extends beyond the next election”.
“More new home construction, fewer households renting, and increased home ownership will all occur because of this policy announcement, eventually,” Reardon concluded.
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