More buyers, fewer homes: the affordability trap of the five per cent deposit scheme

Finding a home under the five per cent deposit scheme is set to be a very different experience depending on where you live in Australia. The expansion of the scheme, with higher price caps and no income limits, has opened the door for far more first-home buyers. But eligibility only matters if enough homes sit below the threshold.

New Ray White analysis shows Melbourne has emerged as the capital with the greatest number of homes under its $950,000 cap. More than 33,000 houses and 26,700 units sold below the limit in the past year, meaning around 60 per cent of Melbourne’s house sales and 86 per cent of unit sales are eligible. Sydney, with its higher cap of $1.5 million, is close behind, supported by a large apartment sector where 85 per cent of sales fall under the threshold.

At the other end of the scale sits the Gold Coast, the most challenging market in Australia for buyers using the scheme. Only 1,734 houses sold under the $1 million cap over the past year, representing just 26.9 per cent of all detached house sales. Even though units remain more attainable, with 70 per cent under the threshold, the small number of eligible apartments still trails every other city surveyed.

This stark contrast highlights a fundamental flaw in the current approach: government policy has overwhelmingly stimulated demand, without providing matching support for supply. Helping buyers enter the market sooner is a worthy objective, but it does not increase the number of homes available for them to buy.

The scheme itself is now one of the strongest drivers of demand in the affordable segment. More first-home buyers can compete, earlier, and with smaller deposits. Investors are also returning and although they are too often unfairly portrayed as the cause of affordability problems, they provide essential rental supply in a market where renters are struggling to secure a home. The problem is not that too many people want to buy property. The problem is that we have failed to build enough of it.

Melbourne and Sydney have benefited from more balanced policy settings. Medium-density development, new masterplanned communities and stronger supply pipelines mean a larger share of affordable stock remains available, even as demand rises.

But on the Gold Coast, construction costs, planning delays and a heavy shift toward premium product have pushed vast numbers of homes above $1 million, shrinking the pool of options for those the scheme is designed to support. More demand without more supply doesn’t improve affordability. It makes the challenge more acute.

The five per cent deposit scheme has removed a major barrier to home ownership. But without a significant acceleration in supply, especially well-located townhouses, smaller family homes and quality mid-rise apartments, first-home buyers will continue competing for a rapidly diminishing set of opportunities.