Government miscalculations don’t mean government fix
The Greens are right that the First Home Guarantee scheme harmed buyers — but their proposed fix could make the underlying problem worse.
The government's First Home Guarantee scheme did something real to real people. It gave low-deposit borrowers access to the market at the top of the cycle, dressed it up as opportunity, and left some of them exposed to falling prices and rising repayments. The Greens are right about the problem. Where they are wrong, and wrong in a way that matters, is in what they want done about it.
Demand-side subsidies capitalise into prices - that is what they do
The mechanics of the original failure are not complicated. A guarantee scheme reduces the upfront cost of buying without changing the underlying price of the asset. It does not create housing supply. It allows buyers to borrow more than they otherwise could, which is useful if prices are stable or rising, and catastrophic if you borrowed at the peak before they fell. The scheme was always going to capitalise into prices at the margin — that is what demand-side subsidies do. We have covered this pattern before: One Nation's proposal to let first homebuyers access their superannuation for deposits operates on the same logic, and would produce the same outcome. More money chasing the same stock of homes does not make homes more affordable. It makes them more expensive.
So the scheme had a design flaw that was identifiable in advance. The Greens are entitled to say so. The harder question is what follows from it.
A price control on credit does not make credit cheaper — it makes it scarcer
Senator Barbara Pocock's proposed fix is that Australia's big banks be required to offer low-interest mortgages to first homebuyer owner-occupiers. The idea is to shift the cost of entry away from buyers and onto lenders. It sounds like redistribution. What it actually is, is a price control on credit — and price controls on credit have a reliable track record of reducing the availability of the thing being price-controlled. If a bank is required to offer below-market rates on a particular class of loan, it will either shrink the pool of such loans, tighten eligibility, or price the subsidy into other products. The cost does not disappear. It moves.
There is also a structural irony here. The Greens are simultaneously arguing that banks have too much power over the housing market and proposing to make banks the mechanism for solving the problem.
There is also a structural irony here. The Greens are simultaneously arguing that banks have too much power over the housing market and proposing to make banks the mechanism for solving the problem. If corporate profit is driving the distortion, mandating a specific product at a specific price does not break that dynamic. It just gives the banks a new regulatory frame to operate within, one that they will optimise around rather than against.
Falling prices are the correction, not the problem to be fixed
The more honest accounting of the situation is this: some first homebuyers who entered the market under the scheme are now in genuine financial distress. That is a real harm. The question is whether that harm is best addressed by further intervention in the same market, or by letting the adjustment run its course. Falling prices, which the Greens themselves say they want, are the natural correction mechanism. Negative equity is painful, but it is temporary for buyers who can hold. Schemes that prop up prices to protect recent buyers are directly at odds with schemes that make housing cheaper for future ones.
The government's error was a policy design error, not a market error. Markets priced risk accurately. Prices rose when demand rose; they are correcting now that conditions have tightened. The scheme created an artificial demand pulse and some buyers were caught in it. That is an argument for better policy design, not for layering more intervention on top.
Supply reform is the answer the Greens keep not giving
What actually fixes housing affordability is supply. Zoning reform, faster development approvals, infrastructure funding, removal of developer levies - the politically difficult levers that neither major party has been willing to pull at scale, and that the Greens have rarely focused on with comparable energy. As we've noted in looking at the ACT Greens' housing proposals, interventions that address the price of housing without addressing the volume of it tend to protect insiders while making the problem structurally worse.
The government miscalculated. That is worth saying clearly, and the people caught by it deserve acknowledgement. But the lesson to draw from a badly designed intervention is not that the next intervention will be better designed. Sometimes the lesson is simpler than that: do not do the thing.
Sources
Australian Greens — Gov must find solution for first homebuyers conned by Labor's 5% deposit scheme
The Bearing — One Nation's super-for-housing plan risks inflating housing prices further
The Bearing — Unaffordable, affordable, price-capped public housing
Frequently Asked Questions
What is the First Home Guarantee scheme and how does it work?
The First Home Guarantee allows eligible buyers to purchase a home with as little as a 5% deposit, with the federal government guaranteeing the remaining deposit amount so buyers avoid lenders mortgage insurance. It reduces the upfront cost of entry but does not change the underlying price of the property or increase housing supply.
Why did the First Home Guarantee hurt some buyers?
The scheme enabled low-deposit borrowers to enter the market near the top of the price cycle, leaving them with thin equity buffers when prices fell and repayments rose. Because the guarantee increased purchasing power without adding supply, it pushed prices higher at the margin — meaning buyers paid more than they would have in a market without the scheme.
What are the Greens proposing to fix the problem?
Senator Barbara Pocock has proposed requiring Australia's major banks to offer low-interest mortgages specifically to first homebuyer owner-occupiers. Critics argue this is a price control on credit, which tends to reduce the availability of the product being price-controlled rather than making it genuinely cheaper.
Do mandated low-interest mortgages actually make housing more affordable?
Requiring banks to offer below-market rates on a class of loans does not eliminate the cost — banks typically respond by tightening eligibility, reducing loan volumes, or recovering the margin through other products. The subsidy moves rather than disappears, and the underlying problem of insufficient housing supply goes unaddressed.
What actually fixes housing affordability in Australia?
The evidence consistently points to supply-side reform: zoning changes, faster development approvals, infrastructure investment, and the removal of developer levies that raise construction costs. Interventions that increase purchasing power — guarantees, superannuation access, mandated cheap credit — tend to capitalise into higher prices rather than lower them.