(AAP Image/Stefan Postles)

The government’s successful HomeBuilder program helped drive housing investment to a record high, with loan commitments topping $30 billion in March, data released yesterday from the Australian Bureau of Statistics shows.

But the end of the program and surging house prices are setting the stage for a surge in housing inequity.

In May last year housing lending was down to $16 billion. In June the government announced its HomeBuilder package for the construction sector, and it has been wildly successful: housing finance first returned to pre-pandemic levels and by the final quarter of 2020 was hitting all-time record highs.

The package, along with record-low interest rates and a brief fall in house prices in 2020, encouraged a wave of first-home buyers into the market. In July, lending to first-home buyers reached more than $10 billion for the first time since the Rudd government’s stimulus program, and steadily rose to more than $16 billion in February. That means nearly 40,000 extra households purchased their first home than would otherwise have been the case.

But that began to turn this year. The HomeBuilder grant was cut back to $15,000 from the start of the year, and applications closed in April. The value of loans to first-home buyers fell in March for the second month in a row. Now investors are piling into the market. Loans to investors rose by more than 12% in one month; they exceeded loans to first-home buyers for the second month in a row and reached the highest level since 2017.

While HomeBuilder is going to cut out, the taxpayer subsidy to investors via negative gearing will continue to tilt the playing field towards wealthy asset owners.

HomeBuilder was good policy. Not merely did it work in supporting the construction industry which was facing a serious crisis, and help first-home buyers take advantage of comparatively benign market conditions, but much of it went into new residential construction, which has risen more than 120% over the past 12 months, increasing the supply of housing stock.

But now investment in new construction is falling — albeit from a high level — and investment in existing housing is surging.

With interest rates unlikely to fall further and investors entering the market in force, the squeeze on younger and low-income buyers is likely to return, exacerbating inequality and further rewarding asset owners — supported, naturally, by the taxpayer. That in turn will place pressure on the Bank of Mum and Dad, the country’s ninth largest residential mortgage lender, and further entrench inequality as the children of asset owners find it easier to become asset owners themselves.

Will the government declare mission accomplished on construction industry support in next week’s budget, or look for a way to support first-home buyers — given reducing support for investors seems off the political agenda.

What should the government do to support first-home buyers? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication in Crikey’s Your Say section.