First home buyer incentives fuel affordable housing boom as cheaper properties outpace market averages

Australia’s affordable housing is outperforming typical properties with government incentives driving first home buyer demand, creating intense competition for entry-level homes nationwide.

Australia’s most affordable housing is experiencing significantly stronger price growth than typical properties, with the bottom quartile of the market outperforming across most capital cities as government incentives and affordability constraints drive intense competition for entry-level homes.

Nationally, affordable houses (25th percentile pricing) are growing at 8.3 per cent annually compared to 8.0 per cent for typical properties, whilst affordable units are surging at 7.1 per cent versus 6.3 per cent for the broader unit market. However, the story varies dramatically across cities, with some markets showing substantial affordable premiums whilst others display no discernible difference.

Sydney leads the affordable house outperformance with cheap properties at $1.13 million growing 7.2 per cent annually, nearly a full percentage point ahead of typical Sydney houses at 6.3 per cent. This reflects the intense competition among cashed-up buyers seeking the most affordable entry point into Australia’s most expensive housing market.

The regional markets are demonstrating even more pronounced affordable premiums, with Regional Queensland affordable houses surging 13.8 per cent annually compared to 11.6 per cent for typical properties – a remarkable 2.2 percentage point differential. Regional South Australia and Regional Western Australia show similar patterns with affordable houses growing 2.0 and 1.6 percentage points faster respectively than typical properties.

Government incentives drive first home buyer activity

The outperformance of affordable housing coincides with an unprecedented expansion of first home buyer support schemes. The federal government’s decision to bring forward and significantly expand the First Home Buyer Guarantee scheme to October 2025 – three months ahead of schedule – has removed key barriers for entry-level buyers.

The expanded scheme eliminates income caps entirely and dramatically raises property price thresholds to $1.5 million in Sydney (from $900,000), $950,000 in Melbourne (from $800,000), and $1 million in Brisbane (from $700,000). This allows first home buyers to purchase with just a 5 per cent deposit without paying lenders mortgage insurance, potentially saving tens of thousands of dollars in upfront costs.

Treasury estimates suggest the uncapped scheme will issue an additional 20,000 guarantees in its first year, directly targeting the affordable segment where competition is most intense. The department’s modelling indicates this will add approximately 0.5 per cent to house prices over six years, though the immediate impact appears concentrated in the entry-level market.

Beyond federal schemes, first home buyers benefit from various state-based incentives including stamp duty exemptions, grants, and shared equity programs. These layered incentives create powerful demand drivers specifically targeting properties in the affordable tier.

Melbourne and Canberra buck the trend

Notably, Melbourne and Canberra stand out as exceptions to the affordable outperformance story. Melbourne affordable houses are growing at 4.2 per cent annually, actually lagging behind typical Melbourne properties at 4.3 per cent – the only major city where this occurs. Similarly, Canberra affordable houses trail typical properties by 0.2 percentage points.

For units, both cities show identical growth rates between affordable and typical properties, with no discernible premium for cheaper stock. This divergence likely reflects superior supply responses in both markets, with Canberra’s apartment construction pipeline and Melbourne’s established development industry better positioned to respond to entry-level demand.

Melbourne’s extensive land supply and established infrastructure for medium-density housing has historically enabled more responsive construction of affordable homes. Meanwhile, Canberra’s compact urban form and active government land release program supports consistent apartment development at various price points.

Supply constraints amplify competition

The limited stock of affordable housing in most markets is intensifying competition among entry-level buyers. With median house prices now approaching $1 million nationally, the pool of sub-$800,000 properties has shrunk dramatically, concentrating demand among remaining affordable options.

Unit markets are showing even stronger affordable outperformance, with Perth leading at 16.5 per cent annual growth for affordable units compared to 14.5 per cent for typical apartments. Regional Queensland and Regional South Australia units both show 3.1 percentage point premiums for affordable stock, highlighting the acute shortage of entry-level apartments outside major cities.

The combination of government incentives, constrained supply, and demographic pressures from millennials entering peak home-buying years is creating a structural shift in how different price segments perform. This trend appears likely to persist while government support remains targeted at first home buyers and affordable housing supply constraints continue.

The data suggests that while overall market conditions drive broad price movements, policy interventions and supply dynamics are creating increasingly divergent performance across price tiers, with significant implications for housing affordability and market structure going forward.