The Insurance Council of Australia (ICA) has warned that the federal government’s planned expansion of the Home Guarantee Scheme (HGS) could push up property prices and reduce access for the buyers the program is meant to support.
Economic consultancy Lateral Economics, commissioned by the ICA, estimated that the policy could lift national house prices between 3.5% and 6.6% in its first year, with some first-home-buyer markets seeing rises of nearly 10%.
The strongest increases are expected in homes priced up to the scheme’s caps, which reach $1.5 million in some metropolitan areas.
Savings from avoiding mortgage insurance outweighed by higher costs
The analysis indicated that the benefits of avoiding lenders mortgage insurance (LMI) may be outweighed by higher property costs.
For example, a purchaser of a $700,000 dwelling may save $21,000 to $28,000 in forgone LMI, but could face additional housing costs ranging from $37,100 to $69,300.
ICA chief executive Andrew Hall said the findings raised concerns for potential buyers.
“While well intentioned, the Lateral Economics modelling makes clear that many first home buyers will be worse off under this plan, at least in the first few years of the expansion,” he said. “It is a concern that an outcome of the expansion will be price increases greater than what people would have paid in LMI.”
The study also projected that up to 6,500 lower-income buyers could be excluded from the market in the first year due to higher prices.
Although demand may increase by up to 40,000 additional buyers, most of this group is expected to consist of people who would have purchased a home through other means, such as parental support or larger deposits.
Over the long term, the analysis suggested that national home ownership would rise only marginally, from 66% to 67.2% over five years.
Lateral Economics recommended changes including:
The housing challenges come as many Australian households face continued increases in home and contents insurance premiums.
A survey by Finder conducted in late 2024 found that 69% of homeowners reported higher premiums over the year, affecting roughly 6.4 million households.
About 9% of respondents were uncertain if their premiums had changed, pointing to possible gaps in awareness of insurance costs.
Separate research from the Actuaries Institute, undertaken by Finity actuaries, highlighted the growing affordability strain.
The Home Insurance Affordability and Home Loans at Risk Report estimated that 1.6 million households, or 15% of the market, are now in “affordability stress,” where premiums exceed more than a month of gross annual income. This represents a rise from 12% the year before.
The report said households on average spend the equivalent of 9.6 weeks of gross income on home insurance, with the impact most acute in regions prone to severe weather events.
Properties in flood- and cyclone-exposed areas saw premium increases exceeding 30%, compared with a national median rise of 9%.
