🏢 IMF releases a report on the Australian economy; warns Labor government about its 5% deposit scheme
Change 5pc deposit scheme, IMF warns Labor
In a recent report, the International Monetary Fund warned the Labor government of the effects of their 5% deposit on housing loans scheme in that it could drive up already high house prices.
The Labor government implemented the policy to enable first-home buyers to purchase property with only a 5% deposit, without having to pay lenders’ mortgage insurance. Notably, the scheme was substantially broadened last year, with the removal of limits on both the number of government-guaranteed loans and the income eligibility thresholds for applicants. As well as increasing the price threshold for properties to be eligible.
In the IMF’s recent assessment of the Australian economy, the fund said that “a holistic strategy is essential to tackle the structural barriers that impede new housing supply and improve housing affordability,” calling out Labor’s 5% deposit for instead contributing to price pressures. This is largely because the policy’s main impact is on demand (rather than needed supply), increasing demand for property, hence pushing already high prices. Noting that “the 5 per cent deposit scheme to improve affordability for first home buyers may contribute to price pressures in the near-term by pulling forward home purchases while financial conditions ease.”
A spokesperson for Housing Minister Clare O’Neil said in response to the IMF report that “the expansion of the scheme will have a very minor impact on prices, with modelling from Treasury pointing to a 0.6 per cent price impact over 6 years.” However, according to Cotality, a data analytics firm, the price of eligible homes below the scheme’s price caps grew 3.6% in the last three months of 2025, greater than the 2.4% price growth in houses not covered by the scheme; pointing towards the scheme being unhelpful for house prices, and thus CPI (inflation).
This is a reminder of the political constraints tied to fiscal policy, which limit its effectiveness. Because the main goal of any political party is to get (re)elected, policies like this, which seem to help voters and gain positive views from users, actually end up causing more harm than good for the broader economy. Illustrative of the limitations of fiscal policy.
