Anthony Albanese’s plan to subsidize home purchases for low- and middle-income people will only drive prices up with new figures showing immigration hitting an all-time high, a leading economist says.
The prime minister unveiled a plan at the Labor Party’s national conference in Brisbane on Thursday, under which the government would pay 40% equity for new homes and 30% for existing homes to eligible candidates.
The purchase assistance scheme, capped at 40,000 places, was announced as new official data revealed that 353,670 migrants moved to Australia in 2022-23.
This was slightly below the Treasury’s May budget forecast of a record 400,000 new arrivals for the same period, but it was the highest on record for a financial year.
Figures from the Australian Bureau of Statistics showed 1,003,590 permanent and long-stay arrivals in the year to June 2023, which included skilled migrants, family reunions and international students.
This was offset by 649,920 permanent and long-term departures.
Economist Saul Eslake, director of Corinna Economic Advisory, said the buying aid package, promised by Labor ahead of the 2022 election, risked driving up prices at a time of high immigration.
“The risk with programs like this, unless they are limited in number and have strict eligibility criteria, is that they drive up the price of housing,” he said. told Daily Mail Australia.
Anthony Albanese’s plan to subsidize home purchases for low and middle income people will only drive prices up with new figures showing immigration hitting an all time high (the Prime Minister is pictured at the party’s national conference Labor in Brisbane)
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An Aussie now needs to earn more than $95,581 a year to earn an above-average income – with men now typically earning six-figure salaries for the very first time.
The average full-time salary, before bonuses and overtime, rose 3.9% in the year to May, from $92,030 before taxes.
“We have almost 60 years of history telling us that anything that allows Australians to buy more expensive homes results in more expensive homes rather than more people owning homes or apartments.”
Mr Eslake said Labor’s plan to subsidize new homes with a 40 per cent stake would drive prices up as supply did not keep pace with strong population growth.
“If housing supply is not responsive enough, it is likely that in a market where prices are no longer falling and there is excess demand for housing due to high population growth, houses at 500 $000 become $600,000 homes,” he said.
“That’s one of the costs of a high immigration intake, along with the congestion of the roads and the extra demand for places in schools and hospitals etc. I wouldn’t deny that, but I think that immigration also solves skills shortages and is a key driver of economic growth.’
Without the Labor program, a middle income earner with a salary of $65,000 would be in mortgage trouble buying a $500,000 house with a 20% mortgage deposit of $100,000.
Indeed, the $400,000 loan would be 6.2 times what that person earned before tax, which is above the Australian Prudential Regulation Authority’s threshold of “six” for mortgage stress.
Under the purchase assistance program, the government would contribute 40%, or $200,000.
This middle-income earner with a mortgage deposit of $100,000 would then only owe $200,000 to the bank, resulting in a low debt-to-income ratio of 3.1.
“The amount you need to borrow is significantly lower,” Mr. Eslake said.
“Hence the ease of maintenance of a mortgage, it’s like a much larger deposit.”
When this house was sold, if the government contributed 40%, it would recover 40% of the sale price if its value increased.
“The catch is that you have to pay it back when you sell the property, including any share of capital gain you realize.”
An eligible homebuyer under this scheme could buy a house in Salisbury, North Adelaide, where the median property price is $501,808, or a flat in St Kilda, Bay of Melbourne, where the median price is $537,922.
Economist Saul Eslake, director of Corinna Economic Advisory, said the buying aid package, promised by Labor ahead of the 2022 election, risked driving up prices at a time of high immigration (pictured , Sydney Wynyard Station)
Both sides of politics went to the last election with plans to subsidize housing.
Former Liberal Prime Minister Scott Morrison promised a first home guarantee program in which a newcomer could buy a home with a 5% mortgage deposit, with taxpayers guaranteeing the rest of the usual 20% deposit.
Labor agreed with this policy and it continued with a change of government.
Mr Albanese pledged on Wednesday to build 1.2 million homes over five years, starting July 1, 2024, after meeting with state premiers and territorial chief ministers in Canberra.
READ MORE: How high immigration is making Australia less productive and preventing homeownership
PURCHASING HELP: 40,000 new places for low and middle income people where the government would contribute 40% for new housing and 30% for existing housing
FIRST HOME WARRANTY: 35,000 new places from July 1, 2022 allowing purchase with a 5% deposit
REGIONAL HOUSING GUARANTEE: 10,000 spaces from October 1, 2022 to June 30, 2025 to buy or build in the region with a program open to non-buyers
FAMILY HOME WARRANTY: 5,000 places from July 1, 2022 to June 30, 2025 allowing single parents to buy with a 2% deposit