By Rich Harvey, CEO & Founder, propertybuyer.com.au
As the 2025 federal election nears, housing affordability has surged to the top of the political agenda. Both Prime Minister Anthony Albanese and Opposition Leader Peter Dutton have unveiled competing billion-dollar housing and tax measures, hoping to win over voters facing cost-of-living pressures. But behind the headlines and generous promises lies a deeper issue: both parties are focused on stimulating demand, not solving the fundamental supply crisis in Australia’s housing market.
While the initiatives may generate short-term political wins, their long-term effectiveness in addressing affordability and housing access remains highly questionable.
The Coalition's Housing Pitch: Mortgage Deductions and One-Off Tax Cuts
Peter Dutton’s housing strategy breaks with traditional policy orthodoxy. Under a Coalition government, first home buyers purchasing new homes would be able to deduct interest payments on up to $650,000 of their mortgage from taxable income for five years. Targeted at singles earning up to $175,000 and couples up to $250,000, this would cost the budget $1.25 billion over four years.
In tandem, Dutton has pledged a one-off $10 billion income tax offset, providing up to $1200 for workers earning under $144,000, alongside a temporary halving of the fuel excise and continued energy bill subsidies. While these measures are positioned as cost-of-living relief, they also serve to free up more disposable income—likely fuelling additional housing demand.
The mortgage tax deductibility plan is particularly controversial. Traditionally, interest on owner-occupied homes is not tax deductible in Australia, unlike investment properties. Critics argue this proposal risks embedding poorly designed tax policies into the system, distorting market incentives and encouraging over-borrowing.
Labor’s Offering: Expanded Guarantee Scheme and Supply Pledges
Anthony Albanese has countered with policies that also cater to first home buyers. The cornerstone is an expansion of the First Home Guarantee Scheme, allowing any first home buyer to enter the market with just a 5% deposit. The federal government guarantees another 15%, removing the need for lenders mortgage insurance (LMI) —saving buyers an average of $23,000.
Crucially, Labor is scrapping eligibility caps and property price thresholds, making the scheme available to an unlimited number of applicants from next year.
To complement this, Labor has promised $10 billion in loans and grants to build 100,000 new homes over eight years, exclusively for first home buyers. On the surface, this is a welcome nod toward the supply side. However, the timeline and scale of delivery—just 12,500 homes per year—falls well short of what’s required to meet Australia’s growing housing demand.
Demand vs. Supply: A Persistent Imbalance
While both parties tout their plans as solutions to the housing crisis, they share a fundamental flaw: they overwhelmingly focus on the demand side of the equation. Whether through tax offsets, mortgage deductions, or reduced deposit barriers, the primary effect of these policies is to increase purchasing power—without adequately addressing the limited supply of housing stock.
The result? Prices are likely to rise further as more buyers chase too few homes.
Economist Chris Richardson bluntly called both plans “dumb,” warning they risk inflating housing demand while doing little to increase actual supply. Property developers like Tim Gurner and Nigel Satterley have echoed this, citing labour shortages, surging construction costs, and inefficient planning systems as the real culprits behind Australia’s housing shortfall.
The Albanese government’s target of 1.2 million new homes by 2029 is already in doubt, with industry forecasts pointing to a shortfall of nearly 400,000 dwellings. Unless those constraints are tackled head-on—with faster planning approvals, incentives for build-to-rent developments, and investment in construction workforce training—the market will remain undersupplied.
Implications for the Property Market
In the short term, these demand-side initiatives could buoy buyer sentiment, particularly among first-time purchasers. This may lead to a modest uptick in transaction volumes and upward pressure on property prices, particularly in affordable outer-suburban and regional markets where price caps in government schemes are more realistic.
However, for investors and developers, the lack of meaningful supply-side reform signals continued volatility. Development activity remains hampered by tight margins, labour bottlenecks, and regulatory inertia.
Ultimately, the likely outcome is further entrenchment of the status quo: rising property prices, worsening affordability, and growing intergenerational inequality. As younger Australians stretch further to enter the market, older generations benefit from ongoing capital gains, widening the wealth divide.
What’s Missing: Long-Term Structural Reform
Australia’s housing crisis cannot be resolved through short-term sugar hits or politically expedient gestures. What’s needed is a bold, coordinated supply-side strategy that includes:
· Planning reform to streamline approvals and unlock developable land.
· Incentives for institutional build-to-rent to expand housing options and stabilise rental markets.
· Workforce development to address skilled labour shortages in construction.
· Rebalancing infrastructure investment to free up resources for private housing delivery.
· Tax reform that simplifies the system and removes distortionary concessions and incentivises private individuals to invest in new housing.
Both major parties have so far failed to embrace this vision. Instead, they have doubled down on vote-winning policies that may deliver headlines—but not homes.
Band-Aids on a Broken System
The 2025 election campaign has made one thing abundantly clear: neither Labor nor the Coalition is prepared to make the difficult policy choices needed to fix Australia’s housing crisis.
By focusing on demand-side measures, both Albanese and Dutton risk pushing up prices even further while leaving the structural drivers of unaffordability untouched. Without serious action on the supply side, we are likely to see a continuation of the very dynamics that have locked so many Australians out of home ownership. However, it is not entirely up the Federal Government to unlock housing solutions as the can only control taxation incentives – it also requires coordinated efforts of State Governments to reform land zoning and state taxes that negatively impact housing supply.
Voters deserve more than quick fixes and slogans. They deserve a long-term plan that addresses both the causes and consequences of a dysfunctional housing market.
It is also another reason to stay heavily invested in the property market and make a move sooner than later as most economists are now predicting the property market will surge again, not just from these peripheral policies, but more fundamentally from coming interest rate reductions. Using a Buyers Advocate to help you navigate the changing market can put you in the box seat for new opportunities.
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