The Coalition’s tax deductions for mortgage interest could cost the federal budget billions of dollars more than the $1.25 billion it has claimed, according to economists, because first home buyer demand is likely to be stronger than it has assumed.

On Sunday, Opposition Leader Peter Dutton escalated the political battle over housing affordability with a promise to enable first-time buyers to deduct the interest they paid on a mortgage on a newly built home for five years, saving an average family about $11,000 a year, or $55,000 in total.