The federal government’s 5% deposit scheme has now supported 250,000 home purchases since launch, saving those buyers a combined $2.3 billion in lenders mortgage insurance costs. That’s real money, an average $9,200 per household not paid to insurers, and for many first-timers it cut 18 to 24 months off the savings timeline.
Yet the policy announcement sidesteps a harder question: did the scheme create net new homeowners, or did it accelerate buyers who would have entered the market anyway while simultaneously removing properties from the rental pool?
The mechanics and who qualified
The 5% deposit scheme guarantees the gap between a buyer’s 5% deposit and the usual 20% threshold lenders require to waive LMI. Eligible buyers need income under $125,000 for singles or $200,000 for couples, and the property price must sit below regional caps (currently $800,000 in Sydney and Melbourne, lower elsewhere).
More than 172,000 of the 250,000 buyers were in metro areas; 81,000 were regional or remote. The program has been extended and expanded multiple times, most recently in this year’s budget alongside negative gearing reforms targeting properties purchased after 1 July 2025.
The $2.3 billion LMI saving is straightforward arithmetic: insurers typically charge 2–4% of the loan amount when deposits fall below 20%, so removing that clip saves each buyer thousands upfront and compresses the deposit-accumulation period.
Where the properties came from
What the scheme doesn’t track, and the announcement doesn’t address, is the composition of stock those 250,000 buyers purchased. Specifically:
- How many were new builds versus established homes?
- How many displaced an investor bid, removing a property that would have stayed in the rental market?
- How many displaced another owner-occupier who was already planning to buy?
If the majority were established homes previously investor-owned or investor-targeted, the scheme delivered a wealth transfer (buyers saved on LMI, investors missed out on the purchase) but no net addition to housing stock. It reshuffled ownership without changing supply.
This matters because rental supply is already running 7,500 homes a week short of demand, and vacancy rates in capital cities remain near record lows. Policies that convert rental stock to owner-occupied without adding new dwellings tighten rental markets further, even as they help individual buyers.
The catch
- The scheme subsidises buyer entry but doesn’t directly increase the number of homes.
- If most purchases were established properties, the rental pool contracts while the ownership pool expands, a zero-sum trade in supply terms.
- New builds do add stock, but no breakdown of the 250,000 by property type has been released.
The second wave: negative gearing and CGT changes
The budget pairs the deposit scheme extension with reforms to negative gearing (new purchases after 1 July 2025 can only negatively gear new builds) and a capital gains tax adjustment (discount drops from 50% to 30% for investment properties bought after that date, unless they’re new builds).
The intended effect: steer investor capital toward new construction, reducing competition for established stock and leaving more for first-home buyers.
The risks:
- Investors may simply exit the market rather than pivot to new builds, which carry higher construction and settlement risk, lower initial yields, and longer holding periods before strong capital growth.
- If investor activity drops without commensurate new supply coming online, rental markets tighten further and rents rise faster, offsetting some of the homeownership gain for those still renting.
- Construction workforce shortages mean the pipeline of new builds can’t expand quickly even if investor appetite shifts, trades are 50,000 workers short, and migration settings haven’t closed that gap.
Base case and alternate scenarios
Base case: the 5% scheme continues to move 50,000–75,000 buyers per year into homeownership, but without a step-change in new dwelling completions (currently tracking 165,000–175,000 annually, well below the 240,000 target), the net effect on housing affordability remains modest. Rental markets stay tight, and price growth in the sub-$800,000 metro segment stays elevated due to concentrated first-buyer demand.
Upside scenario: negative gearing reforms redirect $10–15 billion in investor capital toward new builds over 24 months, lifting completions toward 200,000 annually by late 2026. Rental supply stabilises, price growth moderates as new stock absorbs demand, and the scheme genuinely expands the homeownership cohort rather than just reshuffling it.
Downside scenario: investor activity drops 20–30%, new build starts stall due to workforce and financing constraints, and rental vacancy stays below 1.5% in major capitals. First-home buyers face less competition for established stock but pay higher entry prices due to supply scarcity, while renters see 8–10% annual rent increases persist.
Who benefits and who doesn’t
The 250,000 households who used the scheme saved real money and entered homeownership sooner, no ambiguity there. The question is whether that gain came at the expense of renters who now face tighter supply and higher rents because those properties left the rental pool.
If the policy settings tilt too far toward ownership without solving the construction pipeline and migration-driven demand timing gap, the trade-off becomes: more homeowners today, fewer rental options and higher rents for everyone still waiting to buy.
For first-home buyers still in the queue, the scheme remains valuable if you meet the income and price caps and can carry a 5% deposit plus stamp duty and costs. The window narrows as prices rise, $800,000 caps in Sydney and Melbourne exclude much of the established stock in middle-ring suburbs, pushing eligible buyers toward outer areas or newer developments.
For investors, the calculus shifts materially after 1 July 2025. New builds become the only tax-advantaged play, but feasibility depends on location, yield, and your risk tolerance for construction and settlement delays.
Red flags over the next 12 months
- Dwelling approval and completion numbers: if approvals don’t lift materially by Q3 2025, the new build pipeline won’t support both first-buyer and reformed-investor demand.
- Rental vacancy and rent growth: if vacancy stays sub-1.5% and rents keep rising 7%+ annually, the supply displacement effect is outweighing any stock additions.
- Investor loan flow: if investor lending drops 25%+ from current levels without a clear pivot to new builds, rental supply contracts further.
- Regional price dispersion: if regional markets with lower caps see sharp price rises, it signals first-buyer demand concentrating where the scheme still works, potentially overheating those segments.
Start here: if you’re eligible for the scheme and can afford repayments on a 95% LVR loan at current rates, run the numbers on new builds versus established stock in your target area, factoring in rent you’d pay if you waited another 18 months versus interest and holding costs if you buy now. For investors, wait for clearer guidance on the negative gearing transition rules before committing to anything after mid-2025. For renters priced out of buying, watch rental supply trends in your city: if vacancy doesn’t improve by late 2025, budget for rent increases to continue and consider longer lease terms to lock in current rates where possible.
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General info, not financial advice.
