This report assesses the impacts of the Australian Government's proposed Home Guarantee Scheme (HGS) expansion. The analysis finds that the expansion will increase house prices, make it harder for lower income earners to enter the housing market, and have a negligible impact on home ownership rates. It provides six recommendations.

The report calls for the HGS to have comprehensive safeguards including asset testing for recipients, transparent risk reporting, independent assessments and reviews, and is fair, accountable and targeted to those most in need. It suggests significant concerns that the HGS breaches the principles of good public policy.

Key findings

• Estimates that the expansion will cause house prices to rise by up to 10% in the first year in the housing market of greatest interest for most first home buyers.
• The increase in house prices as a result of the expanded HGS is expected to far outstrip any savings from foregoing Lenders Mortgage Insurance (LMI).
• While the expansion of the HGS is expected to bring forward up to 40,000 first home buyers in additional demand, it will generally benefit those who already intended to buy a home using other means.
• Due to the increased house prices, it is estimated that the expansion of the scheme will price out up to 6,500 lower-income prospective buyers in the first year alone.

Recommendations

1. Ensure fairness by applying an assets test to HGS recipients.
2. Provide transparency by including contingent liability created by the HGS in the Statement of Risks.
3. Ensure equitable treatment by levelling the APRA risk weighting between an HGS-backed loan and an LMI-backed loan.
4. Ensure probity by undertaking an independent assessment ahead of introduction.
5. Provide appropriate governance by embedding regular, independent reviews.
6. Support those most at need by introducing a scaled fee for the scheme.