Three hundred thousand first-home buyers have leaned on the federal government’s 5 per cent deposit scheme. On Property Buzz Live this week, Phil Tarrant and Liam Garman worked through what that number actually means for the market. The answer is less comfortable than the headline suggests.

The scheme’s original design made sense. Tarrant acknowledged it on air: “6,000 single women with dependents have used the scheme. That’s absolutely brilliant. That’s why schemes like this should exist.”

The problem is what happened when the caps came off. Since October last year, income limits were loosened and permanent residents became eligible. Forty-eight thousand of them have used the scheme so far. What was targeted became universal, and the market responded accordingly.

Tom Panos, in a clip played on the show, cut to the mechanism: “The one part of the market that’s strong is the lower price point. And the reason why is that Albanese and Chalmers have given everyone a paddle to be bidding, maybe two or three years before they should have been given a paddle. The unintended consequence? Prices have gone up the most in the lowest price point.”

Tarrant backed this with specific market behaviour. “In Brisbane, for example, people are bidding rapidly up to a million bucks and then it stops. Above the caps, right? So you’re inflating that price point in those areas where you’ve got property at that level.”

The scheme hasn’t created affordability. It has created a ceiling that functions as a floor. Every first-home buyer with a 5 per cent deposit is competing for the same stock at the same cap, pushing prices to the limit of what the scheme allows.

Treasury modelling when the scheme was introduced projected a 0.6 per cent impact on prices. Tarrant’s read: that number might end up being right, but only over the full cycle. “When the scheme was ratcheted up and expanded, it lifted prices in those areas rapidly. I’ve seen numbers like 10, 15, 20 per cent growth in these areas. If this reverts down to what the correct price would be, maybe after six years, there will only be a 0.6 per cent increase in prices. As in, it’s gone up and it’s come right back down.”

Which means the people who bought at the top of the cap-inflated market could be looking at years of flat or negative equity.

Garman ran the systemic risk. “300,000 people buying $500,000 houses, that’s a very big liability for the Australian taxpayer if they go into negative equity. Now imagine what would happen to the fundamentals of the Australian economy if CBA’s loan book is now worth less than the assets they’ve lent to.”

Tarrant didn’t flinch: “That would make the GFC look like nothing.”

The scheme isn’t going to cause a crash. But it has created a cohort of buyers, disproportionately young, disproportionately leveraged, holding assets at prices that were set by government subsidy rather than market fundamentals. If rates rise further, if compliance costs increase, if the cap doesn’t move, those buyers are the ones left holding the bill.

The 5 per cent deposit scheme was built for single mothers and essential workers who couldn’t save a 20 per cent deposit in a market running away from them. It’s now a demand accelerant being used by 300,000 households, inflating the very price points it was designed to make accessible. That’s not a policy failure in the dramatic sense. It’s just a policy that outgrew its design, and nobody pulled the handbrake.