By Alex Blair
Copyright news
During Monday’s questioning from independent MP Allegra Spender, RBA governor Michele Bullock confirmed the central bank had assessed the impact of the scheme, which guarantees loans for buyers with small deposits who would otherwise need to pay Lenders Mortgage Insurance.
The Albanese government has been forced to do something to combat the oppressive housing market and help young Aussies get on the ladder. Those without outlier incomes or the “bank of mum and dad” on hand have been left behind amid the last two decades of unprecedented growth, with the national average wage proving far too little to service the average mortgage in Sydney.
“The deposit scheme thing is more a demand side thing. We have done a little bit of work on this,” Ms Bullock told the House of Representatives Standing Committee on Economics.
The only problem is that the demand for houses will likely increase immediately as more eligible buyers enter the pool. The criticism is similar to that levelled against the Coalition in the last election, where Peter Dutton proposed letting Aussies dig into their superannuation to make up their deposit.
The RBA says the government’s measure is good news for current homeowners, and terrible news for the next generation of workers. In an unrelated matter, among the 227 sitting MPs and senators in Australia, only 12 declared no property ownership, according to an ABC report in 2024.
RBA assistant governor Brad Jones said the policy was expected to lift housing credit by between 1 and 2 per cent.
“Our sense is that it could add to overall housing credit in the order of 1 to 2 per cent at the margin, you may see a little more upward pressure on house prices in the short term, recognising that first home buyers account for about 20 per cent of the flow of new housing credit,” Dr Jones said.
“Purely on the demand side, most of the estimates out there, including from Treasury, suggest that, almost by definition, because of the way the policy is set up, it will bring forward more purchases.”
While demand will rise immediately, Treasury modelling suggests additional construction will follow.
“The Treasury has also done some work on medium-term supply response, and their sense is that you will see, over time, an uplift in supply in response to that extra demand as well, and so that will end up dampening the price effect over the medium term,” Dr Jones said.
The warning is another bleak stroke on the broader picture painted by the RBA. If it wasn’t clear already, Australia’s cost-of-living pressures, including housing costs, are here to stay.
Earlier in the hearing, Ms Bullock said monetary policy was not the major driver of property prices, pointing instead to weak supply and the way Australians were using housing.
“Demand for housing is new households being formed and the size of the household, and we’ve had declining household size,” she said. “Supply is an issue, but demand is impacted not just by the number of new households being formed but the average household size.”
She also conceded that while inflation has fallen, high prices are now locked in across the economy, with poorer households most exposed. Several single-income households are being pressed up against the wall, and younger generations are struggling more than ever to save.
“We know that high inflation has pushed prices up across the board over the past few years,” Ms Bullock said. “While inflation has fallen materially, the price level isn’t coming back down.”
“It’s been especially tough on people with lower incomes and those in more vulnerable situations.”
Australians are also bracing for higher electricity bills next year, with federal rebates set to expire in January.
Adding to the pain, electricity prices also surged 13 per cent in July as state subsidies were unwound, with Ms Bullock warning households would once again feel the pinch when support ends.
“Even if energy prices did not increase, say they were stable, when the rebate comes off, prices go up for the consumer,” she told the committee.
RBA assistant governor Sarah Hunter echoed her warnings, saying that Australians should prepare for a permanently higher cost of living in the post-Covid era. Billions of dollars pumped into the system to keep it afloat throughout two years of intermittent lockdowns unfortunately appears to have made an impact.
“The cost of living is now higher and we are not trying to bring the price level down,” she said.
“The price of milk will not go back to where it was pre-Covid, same with bread, other staples, petrol and so on. We all have to get used to that and we know it’s tough and it stings when you do your weekly shop.”