Young & Invested: Home Guarantee Scheme won’t help housing crisis

Welcome to my column, Young & Invested, where I discuss personal finance and investing for Gen Z and Millennials.

This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try to build wealth. Tune in every Thursday for the latest edition.

Edition 34

If you ask affluent Aussies how they built their wealth, most will point to the extraordinary rise of property. Advantageous tax structures have turned real estate into a wealth-generating machine.

There are plenty of discussions about historic policies and how we got here; but for now, let’s just accept that it’s the way the cookie has crumbled.

Property is our national sport. Given this backdrop, it’s no surprise that young people want to move from being spectators to players in their own right.

The government’s recent expansion of the Home Guarantee Scheme (HGS) is the latest attempt to make that dream more attainable. Many of whom face a near-impossible task of saving for a deposit.

Like financial markets, when we observe the sudden price growth of an asset, it can induce a fear of missing out. But are you just being incentivised to join the herd as it gallops off the cliff?

The purpose of this article isn’t to discourage homeownership or diminish its value. It is to encourage first home buyers to examine the forces that shape our decisions.

The situation at hand

As we know, market conditions have made it challenging for next gen Aussies to achieve homeownership.

Driven by several structural factors, the average age of a first home buyer has risen to 34 from around 25 years old in 2000. Wages simply haven’t kept up with house price growth.

On top of this, recent population growth and a stagnating supply has also intensified competition. Consequently, the median income to house price ratio has ballooned to eyewatering levels.

Source: Demographia Global Housing Affordability 2025.

Before even considering mortgage serviceability, the main hurdle most first home buyers face is the difficulty of accumulating a deposit. It now takes an average two-person household almost six years to save. This timeline stretches even further for individuals trying to buy on their own.

Source: PropTrack, ABS. Assumes households saves 20 per cent of average household income, buying a median priced home.

What is the Home Guarantee Scheme?

The Home Guarantee Scheme (HGS) was introduced by the federal government to help select first home buyers fast-track their entry into the property market.

Eligible buyers have been able to purchase a home with as little as a 5% deposit and avoid the cost of Lenders Mortgage Insurance (LMI). The government scheme steps in to guarantee the remaining portion of the deposit, essentially acting as a safety net for the lender.

The scheme was originally launched in 2020, but is set to undergo major changes from 1 October 2025:

• No place limits: Previously capped, the scheme will now be open to any eligible first home buyer with a 5% deposit.
• Removal of income caps: Buyers will no longer be excluded based on income, making the scheme accessible to all income ranges.
• Higher property price caps: These have been increased to reflect changing market conditions.

To a first home buyer who has been struggling to save a deposit, I understand how these changes might feel like a lifeline. But it’s worth pausing to consider the broader factors at play here.

The most obvious criticism

Most of us have taken some semblance of an economics class in school. Logically, an uptick in demand and a stagnant supply will lead to increased prices for the product or service.

Treasury modelling has suggested the expansion of the HGS will only contribute to a 0.5% total rise in home prices over six years. I’m no quant; however, I think it’s worth questioning this figure.

In recent years, a perpetual supply crunch and increasing population has seen house prices ascend beyond what many would consider rational. Of course, the expansion of the HGS doesn’t stand in isolation. The federal government have also been working on supply-side measures to increase affordability. The treasury figure of 0.5% likely assumes a responsive housing supply to try and match demand. But history tells us that new approvals and completions tend to lag policy changes significantly.

I’m not here to speculate on the exact price growth this expansion in demand will cause. But it’s clear that the broader industry consensus is concerned with short-term price pressure.

Namely, the Insurance Council of Australia models that this expansion of the HGS would result in national property prices rising between 3.5% to 6.6% in 2026 and several subsequent years. This is a far cry from the rather modest 0.5% projected by the Treasury.

The risk for young investors is getting swept up in FOMO. The temptation is to buy a home simply because it feels like a smart investment that has contributed to the wealth Boomers and Gen X have enjoyed. Despite this notion, we may not see the same rapid price growth that’s defined recent years.

That’s why it’s important to think about why you want to buy a home beyond just the hope of future capital gains and sudden accessibility.

I think there’s also a question of fairness here. Expanding eligibility and lifting price caps water down the scheme’s focus and likely benefits those who are already close to qualifying rather than those who need the most help.

As I’ve said in previous articles, if the true goal of the government is real housing affordability, focusing on supply-side solutions is paramount, rather than just pulling the same demand levers over and over.

First home buyers might feel encouraged to jump in, but it’s worth asking: when the market is nudged upward, who truly benefits?

Conflicts of interest

I direct your attention to a Firstlinks article, the hidden property empire of Australia’s politicianswhich shares an interesting chart from the AFR, detailing the number of real estate assets owned by members of parliament.

To be clear, politicians are well within their rights to own property, however, the figure does raise some questions. Specifically, it highlights a potential conflict of interest between our elected representatives and their constituents. Wealth inequality in Australia is at its highest level in decades, and it’s not irrational to suggest the increased concentration of wealth at the top is being fuelled by surging house prices.

It’s hard to believe legislators haven’t recognised that pumping money into a market bubble (such as an expansion to the HGS) framed as support for first home buyers, also inflates asset values for existing property investors – many of whom sit in parliament.

I recently watched an interview of former New Zealand PM Jacinda Ardern, who I think sums up the situation well.

“Whatever political capital that you might have, you’re going to need to spend it – and the best we can hope for is that politicians spend it on the right thing, even if it’s hard, even if it’s something that might not be popular.”

The beauty of Labor’s plan is in the short-term optics. There is a double-edged sword at play here.

The government’s push for housing affordability has effectively staged a takeover of the mortgage insurance market for these buyers. Call me a pessimist but I think ultimately, the government’s financial interest hinges on house prices continuing to rise.

Under the 5% deposit, buyers are borrowing at a 95% loan-to-value ratio (LVR). If someone defaults, the government is on the hook for the shortfall. To avoid paying out, they need the property to sell for at least the remaining mortgage value, ideally more. In other words, rising house prices protect the government’s balance sheet.

Given Australia’s default rate is quite low, the scheme appears almost cost-free. Hypothetically, it’s a win-win situation. The government wins over a generation of first home buyers without spending a cent.

The irony is clear, the HGS, aimed at improving affordability quietly replies on continued price growth to remain viable. Without adequate supply-side improvement, we aren’t solving the problem at all, simply shifting it forward to the next generation.

Dammed if we do, dammed if we don’t

In a recent Future Focus article, my colleague Shani asked if young Australians are making the right call by saving for a home. In this country, it’s practically sacrilegious to admit you’re not interested in property, so it’s no surprise that many of us approach this momentous financial decision with deeply ingrained assumptions.

With the government now removing the biggest initial hurdle of saving a 20% deposit, it’s easy to feel the pull of FOMO and rush into the market. But buying a home isn’t like dabbling in crypto or jumping on a thematic ETF because it’s suddenly accessible or trending. It’s a long-term financial commitment that will shape your lifestyle, investment capacity, and broader financial goals for decades to come.

Implications for young investors

Accelerated entry into a seemingly ever-growing property market sounds like a solid proposition at first glance. Homeownership suddenly feels within reach and young buyers can start building equity earlier than expected.

Still, this isn’t a free lunch. Research from Cotality indicates that buyers using the scheme with a 5% deposit end up paying significantly more in interest over the life of a 30-year loan. And whilst entering the market earlier might save on rent in the short term, these benefits will likely erode as increased demand is capitalised into higher home prices.

Source: Cotality, Housing Australia.

Additionally, a small deposit also means taking on higher debt. This leaves you with a minimal equity buffer. If property values fall or interest rates rise, you could find yourself in negative equity (owing more than what your home is worth) or struggling to keep up with repayments.

While this prospect might feel unlikely, it’s worth noting that both New Zealand and Canada have recently seen declines of over 15% from their market peaks. And we certainly aren’t immune.

Concluding thoughts

I consider myself quite a decisive person, although I’m not allergic to nuance.

As partial as this article might read, if I’m being honest, the expansion of the Home Guarantee Scheme has left me in two minds. On one hand, it marks a significant shift for many young people who felt hopelessly locked out of the market. But like everything in life, there are significant trade-offs.

Whilst barriers to entry are undoubtedly lower, it doesn’t appear to assist those who truly need a leg up, and the increased demand further fuels the rising cost of homeownership. Those purchasing with hopes of unlocking the capital appreciation we’ve seen over previous decades might be disappointed.

In a market shaped by policy, sentiment, and supply constraints, it’s easy to mistake accessibility for affordability. First home buyers should approach this opportunity with clarity on their financial their goals, rather than blind optimism in the property market.

The expansion of the HGS opens doors. It’s up to each individual to decide if stepping through is the right move, and whether they’re prepared for what’s on the other side.

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My colleagues Mark LaMonica and Shani Jayamanne have co-authored their own - Invest Your Way, which serves as a guide to successful investing with actionable insights and practical applications.

You can pre-order a copy on Amazon or at Booktopia today.