The Government Is Making It Harder To Buy Your Own Home
By: Niro Thambipillay
August 4, 2026
Australian home prices may be softening in some cities, yet buying a home keeps getting harder. In this article, I trace the lending and housing-policy changes introduced since 2014, explain how they reduced borrowing capacity and increased competition, and examine why limited construction and rising rents continue to push first-home buyers further behind.
TL;DR
Since 2014, stricter serviceability buffers, detailed expense verification, and higher assessment rates have reduced how much Australians can borrow. Deposit schemes help some buyers enter sooner but also add demand to an undersupplied market. Meanwhile, investor tax changes can reduce rental supply, lift rents, and make saving a deposit harder. Australia is building well below the government’s 1.2 million-home target, while the HIA says about 1.9 million homes are needed. Without fixing supply and construction costs, affordability policies can keep pushing buyers into greater debt and competition.
Key Takeaways
- Serviceability rules tightened: The mortgage buffer rose from 2% in 2014 to 2.5% in 2019 and 3% in 2021.
- Each 0.5% buffer increase matters: APRA modelling suggests it cuts borrowing capacity by roughly 5%.
- Expense verification became stricter: Banks now verify spending and apply minimum household-expense benchmarks.
- Small-deposit schemes increase demand: Buyers need less cash upfront but must borrow more in a supply-constrained market.
- Rental pressure can delay ownership: Fewer investors and limited rental construction can raise rents and reduce deposit savings.
- Supply remains the central problem: Construction is below the 1.2 million-home target, while the HIA estimates 1.9 million are needed.
Why Is Buying a Home Still Getting Harder?
Falling prices do not automatically improve access. Buyers still need a deposit and a loan, and government policy has progressively tightened both the amount banks will lend and the markets where buyers can compete.
1. Serviceability Buffers Reduced Borrowing Capacity
In 2014, APRA required lenders to test borrowers at an interest rate 2 percentage points above the actual rate, with a minimum assessment rate of 7%. The buffer increased to 2.5% in 2019 and 3% in 2021.
APRA’s modelling indicates every half-percentage-point increase can reduce borrowing capacity by about 5%. At a 6% mortgage rate, a borrower may therefore need to qualify as though rates were 9%. The buffer strengthens financial stability, but it also excludes buyers even when their income has not changed.
2. Expense Verification Tightened After the Royal Commission
After the 2018 banking royal commission, lenders began verifying expenses in far greater detail. Even disciplined households spending below the Household Expenditure Measure can be assessed using the higher benchmark.
These safeguards helped Australia withstand 13 rate rises during 2022 and 2023 without a broad mortgage collapse, but they also make loan approval harder for first-home buyers.
3. The 5% Deposit Scheme Does Not Fix Supply
A smaller deposit helps eligible buyers enter sooner, but it also means borrowing more. When extra buyers enter a market with limited housing, demand rises while supply stays fixed, placing upward pressure on prices.
Some buyers then lose eligibility because prices move above scheme thresholds or their borrowing capacity cannot keep pace.
4. Investor Changes Can Make Renting More Expensive
Changes to negative gearing, capital gains treatment, and superannuation borrowing were intended to improve access for owner-occupiers. However, fewer investors can also mean fewer rental properties.
Higher rents reduce a tenant’s ability to save a deposit. They also make rentvesting harder as a stepping-stone strategy, while investors with stronger cash flow can continue buying and benefit as rents rise.
5. Australia Is Still Not Building Enough Homes
Australia is building below the government’s target of 1.2 million homes over five years. The Housing Industry Association argues that population growth requires about 1.9 million homes instead.
Taxes, levies, and construction costs make new homes expensive relative to established properties. Until building becomes faster and more economical, policies that increase purchasing power will continue funnelling more buyers toward the same limited supply. This is one reason Australia’s housing shortage continues to support established prices.
Who Benefits From the Current Rules?
Investors able to sustain initial cash-flow losses can benefit as rents rise and holding costs improve. Many are moving below $1.2 million, and often below $1 million, where rental yields are stronger. That places them in direct competition with first-home buyers and downsizers.
What Buyers Should Do Now
- Check borrowing capacity early: Understand the 3% buffer and expense benchmarks before setting a budget.
- Compare schemes carefully: A smaller deposit can increase debt and competition.
- Protect deposit savings: Model rent increases and avoid depending on optimistic timelines.
- Research supply: Focus on areas where construction is constrained but demand is sustainable.
- Buy selectively: Use suburb-level evidence and choose the right areas to invest in.
Niro’s conclusion is that affordability will not improve through demand incentives alone. The lasting solution requires more homes and lower barriers to construction.
Summary
- The mortgage serviceability buffer increased from 2% in 2014 to 3% in 2021
- Each 0.5% increase can reduce borrowing capacity by roughly 5%
- Post-royal-commission expense verification further tightened loan approval
- The 5% deposit scheme adds demand without adding housing supply
- Reduced investor participation can increase rents and slow deposit savings
- Australia is falling short of its 1.2 million-home target, while the HIA says 1.9 million are needed
- Construction costs, taxes, and limited supply keep affordable established homes highly competitive
Frequently Asked Questions
Australia needs more housing supply and lower barriers to construction. Building is below the government target of 1.2 million homes over five years, while the HIA says approximately 1.9 million homes are needed.
If fewer investors provide rental housing, rental competition and rents can rise. Higher rent makes it harder for tenants to save a deposit, while investors with stronger cash flow may compete with first-home buyers for lower-priced properties.
It reduces the cash deposit required for eligible buyers, but it does not add housing supply. By bringing more buyers into an undersupplied market and requiring them to borrow more, it can increase competition and prices.
Banks generally assess whether a borrower could afford repayments at an interest rate 3 percentage points above the actual loan rate. This protects financial stability but reduces borrowing capacity.
APRA introduced mortgage serviceability buffers and progressively increased them from 2% to 3%. Banks also began verifying expenses more strictly after the royal commission, reducing the loan size many households can qualify for.
About the Author
Niro Thambipillay
Niro is the founder of Investment Rise, one of Australia’s most trusted property buyers agencies. He has helped hundreds of first-time investors build property portfolios and was voted one of the most trusted Real Estate entrepreneurs in the Asia Pacific region (APAC 2022). Niro is also the author of “How to Build a Property Portfolio That Pays You an Income Every Month.”
