The NSW government looks set “to trial a $780m shared equity scheme”:

“The scheme – one of the most significant elements of a $2.8bn housing package to be unveiled in the state budget on Tuesday – will enable ­buyers to enter the market with a deposit of as little as 2 per cent.

At the same time, the ­government will contribute an equity share of up to 40 per cent of the property price for a new home, or 30 per cent for an existing one.

Households eligible for the shared equity scheme – which will also include older singles aged 50 years and over – must have a maximum gross income of $90,000 for singles and $120,000 for couples.”

If it sounds familiar, it’s because it is: the new federal government promised a similar ‘Help to Buy’ scheme during its election campaign, under which the government would contribute up to 40% of the price of a house for those with taxable incomes up to $90,000 for individuals and $120,000 for couples. As with the NSW scheme, buyers would only need a 2% deposit.

Both schemes, of course, are a bad idea. Australian house prices were pumped up over 20% in the past year thanks to the reckless fiscal and monetary policies implemented during the coronavirus panic that were maintained well beyond their use by dates.

But that impulse is now reversing: the new Labor government is promising spending cuts in its October budget and the Reserve Bank of Australia (RBA) has belatedly started tightening policy rates, which the market now expects to breach 4.0% by February 2023 (an increase of ~388% over the next 8 months). All else equal that reversal will sap demand out of the property market, causing potentially destabilising price declines that will put recent buyers with minimal equity – exactly the type of buyer targeted by the NSW government – most at risk of default and bankruptcy.

However, even ignoring the risks that these borrowers, and ultimately the taxpayers, will end up underwater on their mortgages for many years to come, the scheme doesn’t stack up. The UK has had its own version for a number of years and concluded that if home ownership is really the goal, there are much better ways of achieving it:

“We find that the Government’s Help to Buy scheme, which will have cost around £29bn in cash terms by 2023, inflates prices by more than its subsidy value in areas where it is needed the most… This funding would be better spent on increasing housing supply.”

Australia has a housing supply problem but successive governments (both Liberal and Labor) have responded only with demand-side ‘solutions’, then scratch their heads as to why we’re seemingly stuck in a permanent housing crisis that requires, you guessed it, even more demand subsidies!