More borrowing power does not build a single extra house

The policy that fixes the wrong problem

National has announced it will scrap the current First Home Loan income limits and replace them with a single $300,000 cap for every applicant, whether single, coupled or buying in a group. The existing thresholds, $95,000 for a single person and $150,000 for a couple, have not moved since 2022.

The scheme lets eligible buyers in with a 5% deposit rather than the 10-20% most lenders demand, with Kāinga Ora underwriting the loan. Crucially, these loans sit outside the Reserve Bank’s high-LVR restrictions, the macro-prudential guardrails applied to everyone else. Housing Minister Chris Bishop has framed it around real people: “Right now, a junior doctor on $100,000 can’t access the scheme,” he said, nor an electrician-and-teacher couple. National insists the policy “lowers the deposit hurdle, not the income servicing test”, with lenders still stress-testing every applicant.

The fiscal cost is modest, $4 million to $6 million on top of a scheme that already cost $14.5 million to run in FY2024/25. The goal is to nudge the home ownership rate from 66% back toward its 74% peak.

National is now arguing with itself

The problem is that this is a demand-side lever, and demand-side levers are exactly what National spent 2024 disowning. When it abolished the First Home Grant, Bishop’s justification was that “the answer to New Zealand’s housing crisis is not demand-side measures like the First Home Grant, but supply-side solutions”. Now it is dramatically expanding the remaining demand-side scheme, having also retreated from planned Auckland intensification, a supply-side measure.

Former minister Peter Dunne put it plainly, writing that “unless the supply side is properly addressed, promised new incentives for first-time buyers will not work, potentially leaving them feeling more frustrated than ever”. This is the oldest trap in housing policy. When you inject borrowing capacity into a supply-constrained market, the extra money capitalises into prices, not into buyer welfare. The vendor pockets it.

Australia already ran the experiment

The most useful evidence is not theoretical. Australia removed income caps from its own 5% deposit guarantee scheme in October 2025 but kept house price caps. Within six months, homes below the price cap rose 6.7% while those above it rose only 3.6%, two segments that had previously tracked together. That is not proof, but the timing and magnitude are hard to wave away. National’s version does not retain price caps at all.

Why the flat-market defence only goes so far

Supporters argue prices are going nowhere, so who cares. National house price inflation was just 0.2% in the year to March 2026, with Auckland and Wellington falling, and active listings hitting a decade high of 37,500. Cotality’s Kelvin Davidson reckons the policy is “probably just reflecting reality without transforming the housing market or putting up prices”.

But first-home buyers already made up 29% of all purchases in July 2026, the highest monthly share in more than 20 years. This segment is already historically hot without the expanded scheme. Removing caps has form here too: Kāinga Ora’s own report attributes a sharp jump in approvals from July 2022 directly to the removal of price caps. Expanding eligibility could be the marginal factor that tips flat prices upward in tight sub-markets.

The deposit was never the real constraint

For many buyers the binding limit is servicing, not the deposit. Advisory firm Luminate points out that on an $800,000 home, a 5% deposit still leaves a $760,000 mortgage that has to clear stress-tests at higher rates, and mortgage rates have been rising since November 2025. Shared-equity models, which cut the mortgage rather than the deposit, would do more for the buyers most stretched.

For business, the stakes are concrete. Employers hiring into Auckland and Wellington already compete against housing costs to attract staff, and anything that bids up entry-level prices raises that friction. Lenders and brokers get more origination volume, but with LVR risk concentrated in the Crown-underwritten pool. The scheme has genuinely helped over 33,000 households since 2003, and a loan you must repay is a defensible instrument. The question National has not answered is why it thinks a bigger demand lever will end differently in a country that still is not building enough houses.

Sources

• First Home Loan: Why National’s $300,000 income cap could push up house prices – Nadine Higgins (2026-09-12)
• National promises wider access to low-deposit home loans if re-elected (2026-09-06)
• National’s Chris Bishop announces policy to extend income cap to $300,000 for Kāinga Ora low deposit First Home Loan Scheme (2026-09-06)
• Nats’ housing offer is well and good but it needs houses (2026-09-10)
• Political attention on first home buyers ramps up (2026-09-08)
• Housing market update – March Quarter 2026 (2026-03-31)
• Home Ownership Products Report as at 31 March 2026 (2026-03-31)