Cheaper houses have lift-off as guarantee takes effect
The federal government’s signature housing policy appears to be driving a divergence in the market, making lower-priced homes less affordable for first home buyers.
Prime Minister Anthony Albanese was re-elected after campaigning for a five per cent deposit guarantee and introducing the policy on 1 October.
In the weeks before the expanded plan came into force, senior Labor ministers argued it would not lead to a runaway rise in house prices.
But that’s exactly what’s happening, according to Cotality, which shows prices are rising on lower-priced homes suitable for smaller deposits.
Data for the December quarter showed growth of 3.6 per cent for homes priced below the cap, which varies by city and region, while growth of 2.4 per cent for those priced above it.
“The expanded five per cent deposit guarantee has sharpened demand at lower price points, with lower-end markets outperforming in almost nine out of ten regions,” Cotality research director Tim Lawless said.
“We are seeing a clear shift in momentum, with buyers increasingly targeting homes that fall within the new price cap – particularly in Sydney, where the value gap is most pronounced.”
In Australia’s largest city, low ceiling values increased by 2.3 per cent, compared to a 0.1 per cent decline in homes with lower ceilings.
In total, 78 of the 88 regions analyzed by Cotality showed stronger growth for those eligible for the program.
The housing market is showing very good results; The national average home price increased by 8.6 percent to $901,000 in 2025.
Values rose 1.1 percent in October; The fastest growth rate since June 2023; 1 percent in November and 0.7 percent in December.
The different growth figures are embarrassing for the government, which argues that the expanded plan will not add fuel to the house price fire.
Defending the policy, Housing Minister Clare O’Neil repeatedly pointed out that Treasury analysis had shown that prices could only be increased by 0.5 per cent overall over six years.
“The best economists in the country looked at this and this is what they found,” he told Sunrise on the first day of the plan.
Before the scheme, first home buyers had to pay 20 per cent of the property price as a deposit to avoid costly mortgage insurance.
The government argues that some price increase is a fair trade-off for lowering the hurdle for many first-time homebuyers from 20 per cent to 5 per cent.
“For people who are desperate to get into the homeownership market, we’re giving them a lifeline,” Ms O’Neil said.
Most other economists have suggested that the policy will lead to higher growth; This includes the Insurance Council suggesting it could increase house prices by 10 per cent in the first year alone.
While the deposit guarantee has increased house prices, other analysts believe the deposit guarantee could reduce rents as first home buyers exit the rental market and demand softens.
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