By
Australia’s expanded Home Guarantee Scheme (HGS) has delivered more than $3.5 billion in savings to first-home buyers at a reported government cost of less than $100,000, prompting further questions about why high-cost lenders mortgage insurance (LMI) remains standard in the lending system.
As both major parties promote new incentives, analysts point to the HGS as a rare example of a low-cost policy that has produced high-impact results with minimal risk exposure.
Introduced in 2020, the scheme replaces LMI – typically a $25,000 cost for buyers with a 5% deposit – with a government-backed guarantee.
While LMI protects lenders rather than buyers, the cost is borne entirely by borrowers and often repaid over decades. The HGS has supported approximately 140,000 buyers since launch, with only three reported defaults.
The Labor government plans to further expand access to the HGS, a measure the Housing Industry Association (HIA) estimates could support the construction of 10,000 new homes.
Despite its scale, the program’s cost to revenue remains minimal, with additional tax collections via GST, stamp duty and income tax likely to offset any direct expenditure.
By contrast, a range of regulations over the past 15 years have made lending to first home buyers more expensive, with the intent to lower default risk for banks. These measures have contributed to higher effective interest rates and reduced access to credit, according to analysts.
The Coalition’s election proposal to allow mortgage interest deductibility of up to $12,500 per year for five years, applicable only to new homes, was estimated to support the construction of 30,000 additional dwellings annually.
This policy, had it been implemented, would have provided up to $62,500 per household and applied from home completion.
Despite efforts to increase housing supply, new home commencements remained at 166,000 in both 2023 and 2024 – the lowest figures since 2012.
The industry has previously delivered between 200,000 and 220,000 homes annually, with 250,000 needed each year to meet housing targets. Material shortages have eased, but labour constraints and land supply remain key challenges.
Policy incentives alone, industry bodies argue, will not achieve long-term supply targets without structural reform in planning, infrastructure funding and land release timelines. While HGS expansion supports new home buyers, analysts maintain broader systemic changes are required to meet sustained housing demand.
