As Peter Dutton pitched his bold plan to make mortgage interest tax-deductible for first home buyers, experts warn Australia could be heading down a costly path well-trodden by the Netherlands - with little to show for it but higher house prices and ballooning public debt.
The Opposition Leader’s headline-grabbing housing policy - unveiled as the Liberal Party’s campaign centrepiece - promises up to $11,000 a year in tax relief for Australians purchasing newly built homes. Framed as a lifeline for working families, the plan has ignited fierce debate not just on the campaign trail but among international housing experts, many of whom point to the Dutch experience as a cautionary tale.
Cody Hochstenbach, an urban geography expert at the University of Amsterdam, didn’t mince words: “The Netherlands should serve as a cautionary tale: it’s not a good scheme,” he told The Guardian.
For decades, Dutch homeowners have been able to deduct mortgage interest from their taxable income. While the policy was initially sold as a means of helping first-time buyers enter the market, analysts say it has ultimately inflated property prices and entrenched inequality - all while draining the national budget.
“I can’t really envisage why a country, except for short-term political reasons, would want to implement this,” said Hochstenbach. “It’s such a terrible scheme and it’s difficult to get rid of it once it’s in place.”
Dutton’s version of the deduction plan is narrower in scope - applying only to new builds, with strict income caps and residency requirements. Singles earning up to $175,000 and couples up to $250,000 would be eligible.
“This is about restoring the great Australian dream,” Dutton declared at the campaign launch in Western Sydney. “I will be a prime minister who puts home ownership back within reach of working families.”
But while the promise of tax relief may appeal to voters grappling with eye-watering mortgages, many economists argue the Coalition’s scheme will do little to fix the root causes of Australia’s housing affordability crisis. And international examples suggest it may do more harm than good.
According to Michael Fotheringham of the Australian Housing and Urban Research Institute, “What happens is people borrow more because they factor in the tax deduction. It is absolutely inflationary. It will push prices up.”
Indeed, the Coalition's plan risks replicating the very dynamics that have plagued the Dutch market: rising property values, deeper household debt and a political system that struggles to unwind an increasingly expensive policy.
In the Netherlands, political leaders have repeatedly tried - and failed - to rein in the mortgage deduction. Despite growing consensus on its flaws, the measure remains entrenched due to its popularity with homeowners and the political cost of rolling it back. Even partial reforms have met with public backlash.
In Australia, there are already signs the Coalition’s proposal may be losing momentum. Dutton gave it only a passing mention during the second leaders’ debate, and it has largely been folded into broader cost-of-living rhetoric on the campaign trail.
Labor, meanwhile, is pursuing a different course, pledging to expand access to its first-home buyer deposit scheme and build 100,000 new dwellings under a $10 billion fund.
Housing Minister Clare O’Neil dismissed Dutton’s deduction plan as a “pretty small segment of the market,” arguing that deposit barriers - not mortgage servicing costs - are the main hurdle for young Australians trying to buy.
While the Coalition insists its proposal is fiscally responsible - projecting a cost of $1.25 billion over the forward estimates - independent analysts suggest the real figure could be far higher, particularly if future governments yield to pressure to expand the scheme.
Even in the United States, where mortgage interest deductions have long been embedded in the tax code, recent reforms have moved to limit their scope. A 2017 cap on eligible debt was introduced amid mounting evidence the policy did little to improve access to housing, while enriching wealthier households.
As the federal election looms, the battle for housing votes has become a defining feature of the campaign. Yet as parties trade barbs and promises, experts warn that without bold structural reform - rather than quick-fix tax breaks - the dream of affordable home ownership may continue to slip out of reach for a growing share of the population.
