Property Market Dynamics: Government Scheme Impact and Cooling Trends

Lower-priced properties have outpaced higher-priced homes in price growth since the expansion of Australia's Home Guarantee Scheme, even as the broader housing market shows signs of a slowdown.

Government Scheme and Market Impact

The Home Guarantee Scheme, expanded on October 1, 2023, removed limits on borrower numbers and allowed eligible first home buyers to purchase with a 5% deposit, with the government guaranteeing a portion of the loan to replace lenders' mortgage insurance (LMI).

Uptake and Price Effects

In the four months following the scheme's expansion, 22,921 guarantees were issued—a 75% increase compared to the 13,105 issued in the previous four-month period (June-September).

• In the December quarter of 2025, $19.310 billion was lent to first home buyers, a 16% increase from the prior quarter and the highest since March 2021.
• In the March quarter of 2026, the number of mortgages issued to first home buyers fell by 4.3% to 30,241, and the value declined by 6.7% to $17.9 billion.

Cotality analysis found that in the first six months after the scheme's expansion, the value of homes priced below government price caps rose 6.7%, compared to a 3.6% increase for higher-priced properties.

In Sydney, properties below the cap rose 4.1% over six months, while higher-priced properties fell 1.1%.

Analyst Perspectives

Cotality research director Tim Lawless stated that the expanded scheme likely temporarily lifted home ownership rates but warned it may work against improving housing affordability by boosting demand without addressing supply.

"If they're looking to achieve higher levels of home ownership then yes, they'd probably achieve that temporarily. But if they're looking to address housing affordability then this scheme works the opposite—it actually pushes prices higher and doesn't do anything for affordability."

A spokesperson for Housing Minister Clare O'Neil said the government makes no apologies for "helping hundreds of thousands of first home buyers while we fix a supply problem generations in the making." The spokesperson added: "Without this scheme, many first home buyers wouldn't be able to enter the market at all."

AMP deputy chief economist Diana Mousina stated that incentives play a role in the housing market, leading to increased uptake when grants or discounts are introduced.

She expressed concern that the scheme may be primarily benefiting individuals who can still access familial financial support to acquire larger properties, rather than those most in need.

Mousina identified supply issues as the primary driver of housing unaffordability, stating that demand-side policies like this scheme could increase prices long-term without a corresponding increase in supply.

Government modeling in October suggested the changes would raise property values by only 0.5 percent over six years. The Insurance Council of Australia projected a potential 10 percent increase in values within the first year.

Market Slowdown and Key Indicators

Multiple sources indicate a broad cooling in the Australian housing market.

National and Capital City Trends

• Cotality's national Home Value Index for combined capitals rose just 0.2% in April, with the pace of growth fading.
• Sydney dwelling values fell 0.6% in April and are 1.0% below their November 2025 peak.
• Melbourne values declined 0.6% in April and sit 2.3% below their March 2022 high.
• In Perth, values rose 26.0% over the past year. Brisbane and Adelaide recorded growth of 80-90% over five years.
• Asking prices have begun to fall in Perth, Brisbane, Adelaide, and Canberra, each down around 1% over the past month.

Supply and Demand Dynamics

• New listings reached 39,319 properties in the four weeks to early May, 4.7% above the five-year average. Total listings nationally were 127,821, down 2.6% from a year ago.
• Auction clearance rates have fallen below 60% for six of the past eight weeks across combined capital cities, down from over 80% during the March 2021 peak.
• Open home attendance averaged just 2.1 attendees per property nationally, down from 3.5 a year earlier.

Borrower and Investor Activity

• Investors comprised 40% of mortgage demand in the fourth quarter.
• The Reserve Bank of Australia's interest rate hikes have reduced borrowing capacity for average income earners.
• Cotality reported that recent buyers with smaller deposits, including participants of the government's 5% Deposit Scheme, may be exposed to negative equity as values fall.

Outlook and Forecasts

Expert Views

Cotality research director Tim Lawless noted that tight supply conditions are beginning to ease while demand softens, creating conditions for a downturn.

He stated that the market was already slowing before the recent rate hikes, citing waning confidence, rising inflation, and worsening affordability.

Independent economist Saul Eslake said the combination of higher interest rates and greater caution among prospective buyers could lead to a downturn. He noted that short-term price movements depend on effective demand (what people are willing and able to pay) interacting with supply, not underlying demand.

Professor Nicole Gurran from Sydney University said that a downturn does not necessarily improve affordability, as those most in need of home ownership are least able to get loans during economic shocks.

Specific Forecasts

• Economist Louis Christopher of SQM Research predicts Sydney prices could fall by up to 9% and Melbourne by up to 7% in 2026.
• AMP chief economist Shane Oliver expects national home price growth to slow to around 3% this year and could turn negative.
• Analysts generally do not forecast a crash due to ongoing housing supply shortages and strong net migration.

Structural Context

• Reserve Bank Governor Michele Bullock stated that chronic housing undersupply will continue for at least the next two years.
• The federal government projects net overseas migration of nearly 1 million people over four years, requiring approximately 220,000 additional homes.
• Building approvals rose 17% in the March quarter 2025 compared to the June quarter 2024.
• Vacancy rates remain near record lows, indicating a structural housing shortage.
• Property market confidence has cooled in early 2026, with an Australian Property Institute index falling to 6.1 from 7.1 last quarter.