It’s not uncommon for the federal government to offer Australians a leg up into the property market. However, the unique shared equity scheme that the Albanese government plans to kick off in 2024 could be fraught with unintended consequences.

Initially flagged within the last federal election campaign, the Albanese government, under a scheme dubbed Help To Buy, proposes to help 40,000 residential property buyers – on maximum salaries of between $90,000 0r $120,000 for couples –  through a shared equity arrangement.

Canberra’s bid to give Aussie battlers a leg up into the property market is expected to launch in 2024 and coincides with plans to build 1.2 million “well-located” homes over the next five years from 1 July 2024.

Rather than boosting supply, it could push valuations up nationally, with more investors encouraged to enter the market – motivated by expectations of capital gains

What we know so far

The brainchild of the Grattan Institute, the scheme’s specifics are yet to be released, but what we know so far is that applicants will only need to stump up a 2% deposit of the home price, which could result in them buying pricier houses than they would have otherwise considered. However, applicants also need to cover all fees and taxes – including stamp duty – associated with the property purchase.

The value of homes eligible under this scheme will be capped, based on the city and region.

Acting as a ‘surrogate bank’ of mum and dad, the federal government, under this scheme, will offer an equity contribution of up to 40% of the cost of a new home, or 30% for existing homes.

It’s understood that the scheme will, subject to legislation being passed by state and territory parliaments, be progressively rolled out to 40,000 participants over four years.

Unlike previous government-sponsored schemes, including the First Home Guarantee scheme, which currently has 50,000 participants, home buyers [under the Help To Buy scheme] won’t be required to pay rent on the portion of their home that’s owned by the government.

The interesting twist here is that the government will only recoup taxpayers’ money, plus its share of the capital gain when the property is finally sold.

Based on Treasury estimates, the program is expected to cost $553.5 million over the forward estimates to 2026/27.

Benefits for buyers

In addition to the government’s proposed shared equity plan, home buyers will also be required to finance the remainder of the purchase with a participating lender.

As well as sidestepping costly lenders’ mortgage insurance (LMI), typically charged when borrowing over 80%, another plus for home buyers is the opportunity to increase their equity in the home during the loan period.

Based on data provided by Labor, the scheme could potentially slash the cost of a mortgage by up to $380,000.

Applicants who find that their income exceeds the annual threshold for two consecutive years may be required to repay the government’s contribution – either in part or in full depending on the circumstances.

But on the flipside, applications can increase their stake in the home by buying a “minimum” stake of 5% from the government share at a time.

Rarer than Willy Wonka’s ‘golden ticket’

To be eligible for the Help To Buy scheme applicants must plan to live in the purchased home and must not currently own any other land or property in Australia or overseas.

But based on the limited availability nationally, Greens leader Adam Bandt compared the Help To Buy scheme with winning one of Willy Wonka’s golden tickets.

Cameron Kusher Director of Economic Research at REA Group sees the Help To Buy scheme as a free loan to help a ‘chosen few’ get into the property market.

“But I think it is a case of taxpayers taking one for the team to help those less fortunate in this high-interest rate and high property price market,” said Kusher.

While the scale of the Help To Buy scheme is relatively small, AMP Capital’s Chief Economist, Shane Oliver suspects it may boost demand [as opposed to supply], which could create upward pressure on prices.

“Rather than boosting supply, it could push valuations up nationally, with more investors encouraged to enter the market – motivated by expectations of capital gains,” notes Oliver.

“It remains to be seen how homeowners will step up to take the government’s share and what exit strategy the government will have if they’re [homeowners] not in a position to do so.”