Comparing Liberal and Labor's housing proposals: which one will actually solve housing inequality?

Home ownership rates have been falling for decades, especially among younger and poorer Australians. And the latest property boom has made the prospect of buying a home seem even more distant for many.

In 2021 alone, capital city property prices jumped up by more than 23%. Far from being the sledgehammer to property prices many initially thought it would be, the COVID-19 pandemic fuelled the strongest annual rise on record.

Both the LNP and the Labor Party have come out with proposals to reduce home loan costs and give Australians a better chance at buying their own home. Let’s take a look at the pros and cons of each below.

The LNP’s Super Home Buyer Scheme would let eligible Australians unlock up to 40% of their superannuation (capped at $50,000) to put towards purchasing their first home. Importantly, the withdrawn funds (along with any capital gains) must be returned to the fund if the property is sold down the track.

The eligibility criteria isn’t as strict as other schemes currently available to first home buyers. To qualify, you’ll need to tick the following boxes:

• You must be a first home buyer.
  
• You must have saved at least a 5% deposit.
  
• There are no income caps.
  
• The scheme is available to each person in a couple so long as they are eligible.
  
• Can be used to purchase a new or existing home.
  
• Can be used to purchase a property of any price.
  

“Our Plan makes it easier for first home buyers to save for a deposit, reducing the time people need to pay rent, and also means a smaller mortgage with less debt and smaller repayments,” said Prime Minister Scott Morrison.

“Superannuation is there to help Australians in their retirement, and the Super Home Buyer Scheme will ensure Australians can use those savings they are responsibly building up to improve their quality of life now and standard of living in retirement.”

But the scheme has already drawn plenty of criticism for its shortsightedness. For starters, there’s the fact that the amount of super available to access will vary depending on age and income.

RELATED: First home buyer grants in Australia: How much can I get in each state?

A report by property research firm CoreLogic points out that Australians aged between 25 and 34 have on average around $25,000 in super. Under the proposed scheme, this cohort could only access $10,000 to put towards a home.

To be able to withdraw the maximum amount of $50,000, someone must have a superannuation balance of $125,000, meaning the main beneficiaries of the scheme would likely be Australians on higher incomes.

More broadly, the scheme fails to address any of the supply challenges the property market currently faces. What’s more, Domain’s chief of economics and research, Dr. Nicola Powell, said the focus on boosting demand could backfire in the long-run.

“Historically we’ve seen schemes like this increase demand amongst a certain demographic leading to higher demand for similarly priced homes, and subsequently push up property prices at the more affordable end of the housing market,” she said.

Labor, on the other hand, takes a different approach. Instead of encouraging Aussies to dip into their own supers, Labor has proposed the government help Australians climb the property ladder by purchasing a portion of their property with them.

The $329 million “Help to Buy” shared-ownership scheme would allow eligible Australians to apply for an ‘equity contribution’ from the government (i.e. money toward a property’s value). 

If successful, they could receive up to 40% of the purchase price for new properties, or up to 30% for an existing home. 

“This will mean a smaller deposit, a smaller mortgage and smaller mortgage repayments,” writes Labor, all without resorting to your own funds. 

Successful applicants also wouldn’t have to pay Lender’s Mortgage Insurance, shaving another $30,000 off the cost of buying a home. Additionally, applicants wouldn’t have to pay rent on the portion of their home owned by the commonwealth. 

Only up to 10,000 applicants would be approved for the scheme every year. To qualify, applicants would have to save enough for a housing deposit of at least 2% and meet the following criteria:

• Australian citizens at least 18 years of age.
  
• Not current home-owners.
  
• Low to middle income earners, earning no more than $90,000 for individuals or $120,000 for couples in annual taxable income.
  
• Eligible for a standard home loan with a participating lender (to finance the rest of their purchase).
  

Similar co-ownership schemes have already operated successfully in Western Australia and Victoria, despite very few Aussies actually taking them up. But while “Help to Buy” sounds promising, will it actually work?

Labor’s proposal tackles two major barriers to home-ownership for buyers of all ages: mortgage repayments and deposits. Smaller deposits and repayments eases some of the financial burden, especially during market fluctuations like rising interest rates, without boosting demand too much and artificially inflating house prices. 

Both young buyers and older buyers hoping to secure a property before retirement could benefit from the scheme, reckons Grattan Institute economic policy program director Brendan Coates.

With the government essentially acting as a silent equity partner, young Australians stand a reasonable chance of affording a deposit while older Australians could enjoy more manageable repayments without dipping into a retirement fund they’ll soon desperately need.

RELATED: New report on high property prices: recommendations on addressing housing unaffordability

However, Coates pointed out some significant drawbacks to Labor’s proposal.

Firstly, a 2% housing deposit is considered risky, since it means applicants would own considerably less of their property to start. If the market swings badly and their dwelling loses value, they could find themselves put into negative equity. 

Instead, Coates recommends the proposal increase the required deposit to at least 5%, similar to what’s already provided through the First Home Loan Deposit scheme.

Coates also warns the income caps of $90,000 for singles and $120,000 for couples are much too high. Only 20% of singles and 58% of couples earn more than the scheme’s salary limits, he writes, making it “hard to argue for extending the scheme to people earning above-average incomes who have a good chance of buying a home anyway.”

So while “Help to Buy” could do something meaningful to lessen housing inequality, it may not do enough.

Both schemes propose avenues toward home-ownership, but they both bring partisan philosophies to the issue and ultimately fall shy of what Coates terms as genuine housing reform.

“Real reform would tackle the fundamental factors that are making housing less affordable,” Coates wrote earlier this month. “Real reform would result in house prices and rents slowing, even falling. Neither party is bringing any such proposals to the table.”

Such reform would inevitably risk harming some existing property owners, meaning there’s no easy answer to Australia’s housing crisis.

Interested in housing finance? Head over to our home loan news hub for more market updates, including how we could potentially balance home-ownership and renting in Australia's property market.