Coalition housing mortgage plan receives mixed response

The Opposition Leader has upped the ante on housing policy in a bid to woo young voters ahead of the May 3 election, pledging to enable first-home buyers to deduct their mortgage repayments.

The Coalition has labelled its new housing policy proposal a ‘structural change’ to the property market. Picture: Thomas Lisson

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The construction industry has widely hailed the Coalition’s $1.25bn plan to allow tax deductions for first-home buyers on mortgage repayments on new constructions, saying it will get thousands of young people into the market.

But economists widely panned Peter Dutton’s latest housing initiative, with one saying it was a contender for the ‘dumbest” policy offering of the past 25 years.

The Opposition Leader, announcing the policy at the Coalition’s campaign launch in western Sydney on Sunday, said it would allow first-home buyers to deduct the interest paid on the first $650,000 of their mortgage from their taxable income.

First home buyers will face no caps on the price or the size of their new build if they want to access the tax deductions. The policy will cover both houses and off-the-plan apartments.

All first home buyers earning up to $175,000 if they are single and $250,000 if they are part of a couple will be eligible.

The Coalition estimated this would mean a first-home buyer who earns $120,000 a year with a $650,000 mortgage at 6.1 per cent would receive a benefit of around $12,000 a year.

“I will be a prime minister who restores the dream of home ownership,” the Opposition Leader declared at the Coalition election launch in Liverpool.

““Australians – well into their late 30s – are struggling to buy a home ... Despite working hard and diligently saving. Too many Australians have been locked into renting forever.

“Some are moving back in with their parents. I won’t accept a situation in our country where the only people who can buy a home are those who can rely on the bank of mum and dad. The Albanese government has only made the housing situation worse.”

Building and construction industry body the Master Builders Association said the Coalition was “slightly ahead” of Labor on policies to drive new property construction.

“This is a tax cut that will help increase the borrowing capacity of aspiring homeowners,” chief executive Denita Wawn writes in The Australian on Monday.

Master Builders Australia chief executive Denita Wawn.

Economist Saul Eslake.

Residential developer Stockland said it welcomed “targeted initiatives aimed at improving affordability for first-home buyers to enter the housing market” and the nation’s largest home builder, Metricon, said it was a “much-needed boost to housing affordability for young Australians”.

But leading economists have slammed the Coalition policy.

“When you combine this policy with the Coalition’s super-for-housing policy … I say that this would rival the Western Australian GST deal – obscene as that is – for the title of the worst public policy decision of the 21st century so far,” economist Saul Eslake said.

“And I’m not being flippant in saying that. I think the two things together would be absolutely dreadful policy.”

Mr Eslake said the policy did nothing for the supply of housing and that history had shown “anything that allows Australians to spend more on housing than they’d be able to otherwise results in more expensive housing, and a smaller proportion of the population owning that housing”.

“The Coalition wants to say people who avail themselves of this scheme will save an average of $11,000 a year,” he said. “They won’t. What they will do is take out bigger mortgages that absorb that $11,000 a year because they were prepared to pay it.

“So they’ll now say to themselves, ‘by spending the same amount after tax, I can take out a bigger mortgage and buy a more expensive house’.”

Economist Peter Tulip. Picture: Supplied

Economist Chris Richardson. Picture: Richard Jupe

Peter Tulip, chief economist at the centre-right Centre for Independent Studies, said the Coalition proposal was “bad policy”.

“Like the majority of housing experts in Australia, I think it’s a problem when you subsidise demand,” he said.

“If you boost demand then the lucky beneficiaries will bid higher on prices and that will be good for them but it will make houses more expensive for everybody else. So you need to do something to boost supply otherwise you’re just reshuffling a given housing stock.”

Independent economist Chris Richardson called the housing policy offer from both parties “dumb policy” and their broader policy platforms a “dumpster fire of dumb stuff”.

“Australian housing suffers from too much money chasing too few homes, so adding to the extra money going in results in ever higher prices,” he said. “Ditto the opposition’s plan to allow first-time buyers of newly built homes to be able to deduct mortgage payments from income taxes.

“More money chasing the same amount of housing is the most well worn path to failure in Australian policymaking, and both the government and the opposition seem intent on proving that they can double down on that dumbness yet again.”