Last week we looked at the Government’s Home Guarantee Scheme and what it means for properties priced under $1.5m. Given the hype in recent days, it is worth exploring the impact of Government incentives in the market place.
Government incentives are designed to help people buy homes, especially first-home buyers, but they do not always deliver cheaper outcomes. In fact, under certain conditions, they can push property prices higher.
In Sydney’s tightly held, supply-constrained market, particularly in the Inner West, these incentives usually increase competition more than they increase housing stock. The result? Short-term price pressure in popular segments, even if national modelling shows modest affects overall.
The Bottom Line
Incentives give more buyers the ability to enter the market, often with lower deposits or upfront costs. This can bring forward demand. When this increased demand runs into limited supply, especially in tightly held suburbs or price bands with little new stock, prices lift.
So while the average long-term price impact might be small overall, the local, short-term effects can be meaningful — especially in Sydney’s Inner West.
How Incentives Work in Practice
Let’s take a look at the most common schemes and how they influence buyer behaviour and property prices.
Deposit Guarantees (e.g. First Home Guarantee)
Allowing eligible buyers to purchase with just a 5% deposit — and avoid lenders mortgage insurance — helps many enter the market sooner. That extra purchasing power can increase competition for entry-level stock, particularly where supply is tight.
First Home Owner Grant & HomeBuilder
Lump-sum grants improve borrowing capacity or reduce the cash needed upfront. These often coincide with construction incentives, but when new housing is not being delivered quickly enough, this added demand can inflate prices.
Shared Equity Schemes
By boosting buyer equity, these programs help more people compete in specific price brackets. Their impact on prices depends on the size of the scheme and how much stock is available in the eligible segments.
Stamp Duty Concessions
Lowering transaction costs helps buyers close the “deposit gap,” making it easier to enter the market. But these savings can translate into higher offers, particularly just below the concession thresholds.
The Evidence So Far
Modest Average Effects
Government modelling has stated that incentives like the 5% deposit guarantee might lift prices by only 0.5% over six years. At a national level, that is not much. However, this does not does tell the full story about what happens in hot local markets.
Sydney Is Different
The Reserve Bank and independent analysts have consistently warned: when supply cannot keep up, incentives can inflate prices, especially in sought-after suburbs.
Entry-Level Buyers Most Affected
Incentives targeted at first-home buyers tend to impact lower price brackets first. But as those buyers move up the ladder, price pressure can ripple through to family homes and more established areas. Take the Home Guarantee Scheme. The initial impact will be felt in the segment below $1.5m but the next wave will be the sellers of those properties then looking to upgrade to the next bracket, say up to $2m – $2.5m.
Why It’s Hard to Measure
Sydney’s property market is complex with dozens of micro-markets, different supply pipelines, and changing demand factors. Isolating the effect of a single policy is nearly impossible.
Key challenges include:
- Multiple other factors at once: Interest rates, migration, investor activity, and construction delays all affect prices.
- Short policy windows: Time-limited grants can pull demand forward, distorting short-term data.
- Neighbourhood dynamics: The Inner West market does not behave like outer-ring house-and-land packages. What works in one market doesn’t apply to another.
What This Means for Buyers
1. Understand Supply in Your Target Suburbs
If you are buying where there is little new development such as in the Inner West, incentives can drive more competition. Monitor stock levels and how quickly listings turn over.
2. Stay Disciplined with Bidding
It is easy to stretch the budget when everyone seems to be chasing the same properties. Stick to data-driven pricing based on comparable sales and asset quality, not the availability of a grant or guarantee.
3. Look One Step Ahead
Consider adjacent suburbs with better supply pipelines or lower competition. Evaluate how a property might perform after the policy window closes which is when true value becomes clear.
A Smarter Policy Approach
At Buyer’s Domain, we believe demand-side support is only half the solution. Without better supply, particularly medium-density housing in well-connected suburbs, incentives risk pushing prices higher rather than improving affordability.
Policy that aligns demand with timely, targeted supply will always deliver better outcomes.
Final Word
Yes, government incentives do push up property prices, especially in the short term and in high-demand, low-supply markets like Sydney’s Inner West.
But the affect across the whole country is not uniform, and smart buyers can still get ahead.
By understanding how incentives shape competition, tracking local supply trends, and bidding with discipline, you can secure the right home at the right price, even in a shifting policy environment.
Do you want help navigating your next move in a volatile market? Speak with the team at Buyer’s Domain. We know how to read the signals, avoid inflated competition, and secure long-term value in any cycle.
