Why Anthony Albanese’s new scheme to help low-income earners buy a house will cause prices to rise

Anthony Albanese’s plan to subsidize home purchases for low- and middle-income earners will only push prices up with new data showing immigration rising to a record high, a leading economist says.

The prime minister unveiled a plan at Labor’s national conference in Brisbane on Thursday where the government would contribute 40 percent equity for new homes and 30 percent for existing homes to eligible applicants.

The Help to Buy scheme, capped at 40,000 places, was announced as new official data revealed that 353,670 migrants moved to Australia in 2022-23.

This was slightly lower than the Treasury’s May forecast of a record 400,000 new arrivals for the same period, but it was the highest ever in a fiscal year.

Australian Bureau of Statistics figures showed 1,003,590 permanent and long-term arrivals in the year to June 2023, including skilled migrants, family reunions and international students.

This was offset by 649,920 permanent and long-term departures.

Economist Saul Eslake, the director of Corinna Economic Advisory, said the Help to Buy scheme, which Labor promised ahead of the 2022 election, risked driving up prices at a time of high immigration.

“The risk of these types of programmes, unless they are limited in number and have strict eligibility criteria, is that they will push up the price of housing,” he told Daily Mail Australia.

READ MORE: Australia’s new median salary revealed

An Australian now needs to earn more than $95,581 a year to earn an above-average income – with men now earning six-figure salaries for the first time.

Average full-time salary, before bonuses and overtime, increased 3.9 percent in the year to May, compared to $92,030 before tax.

“We have almost 60 years of history telling us that anything that enables Australians to buy more expensive homes results in more expensive homes rather than more people owning houses or apartments.”

Mr Eslake said Labour’s plan to subsidize new homes with a 40 per cent equity stake would drive up prices as supply would not keep pace with strong population growth.

“If housing supply doesn’t respond sufficiently, chances are that in a market where prices are no longer falling and where there is excessive demand for housing due to strong population growth, $500,000 homes will become $600,000,” he said.

“That’s one of the costs of high immigration along with congestion on roads and extra demand for places in schools and hospitals and so on. I wouldn’t deny that, but I think immigration also addresses skills shortages and is a key factor in economic growth.’

Without Labor’s scheme, a middle-income earner with a $65,000 salary would be in mortgage stress if he bought a $500,000 house with a 20 percent mortgage on $100,000.

That’s because the $400,000 loan would be 6.2 times what this person earned before tax, which is above the Australian Prudential Regulation Authority’s “six” threshold for mortgage stress.

Under the Help to Buy scheme, the government would contribute 40 percent equity, or $200,000.

This middle-income earner with a $100,000 mortgage deposit would then only owe the bank $200,000, giving a low debt-to-income ratio of 3.1.

“The amount you have to borrow is significantly less,” said Mr. Eslake.

“Hence the practicality of a mortgage. It’s like a much larger down payment.”

If this house was sold and the government put in a 40 percent interest, they would get back 40 percent of the sale price if it increased in value.

“The catch is you have to pay it back when you sell the property, including some of the capital gain you make.

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An eligible home buyer under this scheme could buy a house in Salisbury in northern Adelaide, where the median house price is $501,808, or an apartment in St Kilda in Melbourne Bay, where the median price is $537,922.

Economist Saul Eslake, the director of Corinna Economic Advisory, said the Help to Buy scheme, which Labor promised ahead of the 2022 election, risked driving up prices at a time of high immigration (pictured is the Wynyard train station in Sydney)

Both sides of politics went into the last election with plans to subsidize housing.

Former Liberal Prime Minister Scott Morrison promised a First Home Guarantee Scheme, under which a newcomer to real estate can buy a home on a five per cent mortgage, with the taxpayer underwriting the rest of the usual 20 per cent deposit.

Labor agreed to this policy and it has continued with a change of government.

Mr Albanese pledged on Wednesday to build 1.

2 million homes over five years, from 1 July 2024, following meetings with state prime ministers and chief territorial ministers in Canberra.