Netherlands a ‘cautionary tale' for Coalition's mortgage deduction scheme, expert warns

The Guardian

21-04-2025

At the Coalition's campaign launch, weeks out from polling day, Peter Dutton announced the centrepiece of his affordable housing plan – making mortgages tax deductible for some first home buyers.
Unlike other housing measures announced during the campaign by the major parties, the deduction scheme had the potential to be an eye-catching policy that could sway voters towards the Coalition on a central election issue.
But those who have seen the deduction scheme in operation in comparable economies overseas, such as the Netherlands, say that while such measures can be popular with voters, it makes housing even more unaffordable.
Cody Hochstenbach, an associate professor in urban geography at the University of Amsterdam, says the scheme has driven up home prices in the Netherlands, and weighs heavily on taxpayers, given it is a subsidy representing forgone revenue to the national budget.
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'I can't really envisage why a country, except for short-term political reasons, would want to implement this because it's such a terrible scheme and it's difficult to get rid of it once it's in place,' Hochstenbach says.
'The Netherlands should serve as a cautionary tale: it's not a good scheme.'
The Coalition's mortgage deduction scheme is designed to allow first home buyers deduct a portion of the repayments from their taxable income if they buy a newly built home.
It resembles the way investment properties operate, with owners allowed to deduct interest payments, but without capital gains tax.
The Coalition expects it to apply to about 30,000 households annually, and has estimated it will cost about $1.25bn over the forward estimates, referring to the three-year cycle beyond the current budgeted 12 months.
But industry estimates put the figure closer to 60,000 households, creating a much bigger drag on the budget.
'I recognise this tendency around the world of wanting to help first home buyers, and they typically come up with financial instruments to help,' Hochstenbach says.
'That might help a select number of first home buyers but for the market overall it will push up prices, raise barriers of entry and doesn't solve the problem given it only deepens mortgage debts.'
The Coalition proposal is more targeted than some similar overseas schemes, given it is directed at first home buyers buying new homes, with deduction limits and salary restraints on who qualifies to use the scheme.
Hochstenbach says that while the restrictions would help Australia avoid some of the excess fallout experienced in countries like the Netherlands, 'you would expect the same mechanisms to apply, leading to house price increases'.
Once implemented, there may be a strong political temptation to expand access to the scheme at a later date.
Among the nations that have some form of home mortgage interest deduction, including Denmark, there is an accompanying debate on whether it should be reduced.
While many of the schemes have been pared back over the years, they are almost always too politically unpalatable to remove altogether.
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In the US, Republicans scaled back the program by capping the maximum value of new mortgage debt eligible for deduction in 2017. There has been talk the new Trump administration could get rid of the deduction altogether, saving $1tn more than 10 years, although such a measure remains politically dangerous.
Michael Fotheringham, the managing director at the Australian Housing and Urban Research Institute, says Australians should take note of the US experience.
'The most pertinent example is the US, where this has been used. What happens is people borrow more because they factor in the tax deduction,' Fotheringham says.
'It is absolutely inflationary. It will push prices up.'
In the week after the Coalition announcement took centre stage at the campaign launch, election watchers noted it had already been relegated from show stopper to peripheral policy.
Dutton only made a passing reference to it at the second leaders' debate, and it is regularly swept into a broad list of cost-of-living measures on the campaign trail.
While economists have blasted the housing policies of both major parties, the Coalition's has received even more attention because it has less supply measures built into it than Labor's.
The University of Sydney media and politics senior lecturer Peter Chen says that as neither of the major parties have tackled the issue of housing affordability head on, they are unable to campaign effectively on their policies.
'They have consistently nibbled around the edges of a major structural problem, and the concern is, everything you're doing is simply inflationary,' Chen says.
'The Coalition has ended up having a weak policy, and because housing is such [a topic of] conversation, it's hard to kind of fake it.'