The fundamental question is: at what point does good intent collide with arithmetic and produce the opposite of what was promised?
Consider the collision course Australia's housing market has entered. On 17 March, the Reserve Bank raised interest rates to 4.10 per cent, the second consecutive hike. Governor Michele Bullock was blunt about the reason: inflation sits at 3.8 per cent because demand is outstripping supply, particularly in housing. A $600,000 mortgage now costs $91 more each month. For the average loan of $736,259, that is an additional $118 monthly.
Yet in the same housing market, the government's First Home Guarantee Scheme continues pulling buyers forward. The scheme allows first-home buyers to purchase with as little as 5 per cent down, sparing them mortgage insurance that once protected lenders when equity fell below 20 per cent. Economists model that up to 20,000 additional buyers will enter the market in the first year alone. The scheme is expected to inflate prices by 3.5 to 6.6 per cent.
Here is what is really happening: the government is using demand-side subsidies to solve what is fundamentally a supply-side problem. It is pulling buyers into an overheated market with government help, while the central bank is simultaneously making those buyers poorer by raising the cost of borrowing. Mortgage stress is climbing. If the RBA raises again in May as some expect, mortgage stress would hit 30.3 per cent of all borrowers.
The counter-argument deserves serious consideration. First home buyers have been locked out of the market by rising prices. The government scheme aims to restore opportunity, not inflate demand further. That reasoning has merit. But it rests on a fatal assumption: that subsidising buyers changes the fundamental arithmetic of a market where too many people chase too few homes.
Strip away the talking points and what remains is this: auction clearance rates have fallen to 62.7 per cent across capital cities, the lowest since mid-December. Buyer caution is spreading. Sydney sits at 63 per cent; Melbourne at 57 per cent. Sellers are adjusting. This is what happens when policy pushes in opposite directions.
The solution was never complicated, though it has always been politically difficult. Australia needs more homes built. Not subsidies that temporarily boost a buyer's deposit. Not rate rises that crush their repayments. Construction. Supply. Zoning reform. Removing the regulations that make it take seven years and seven months to save a deposit in Sydney and cost more than the eventual house itself. Voters deserve housing policy that addresses the shortage, not policies that compete against each other while the shortage persists.
History will judge this moment by whether Australia addressed its housing crisis or subsidised its way around it, only to discover subsidies cannot change the laws of supply and demand.