One Nation’s plan to take on the big four banks with cheap taxpayer-funded mortgages could require the federal government to find hundreds of billions of dollars, expose taxpayers to significant losses during downturns and drive up house prices.

Economists have warned about the financial costs of One Nation’s push for a “people’s bank” offering 30-year fixed-rate mortgages at 5 per cent through Australia Post and funded by abolishing the Albanese government’s $11.5 billion Housing Australia Future Fund.

One Nation leader Pauline Hanson and senator Malcolm Roberts are proposing taxpayer-funded mortgages. Alex Ellinghausen

The proposal for taxpayer-funded mortgages, spearheaded by One Nation senator Malcolm Roberts, would require a 5 per cent deposit, which could come from a borrower’s superannuation savings or a first home buyers grant. The 5 per cent interest rate would undercut commercial lenders, with the average rate on new owner-occupier loans sitting at 6.2 per cent in May, according to data from the Reserve Bank of Australia.

UNSW economics professor Richard Holden said One Nation’s taxpayer-funded bank policy could require anywhere from 10 to 50 times its proposed $11.5 billion funding envelope, as Australians would likely flood the institution with loan applications.

“In the current environment right now, a 5 per cent 30-year fixed mortgage, I can’t imagine why any single person who’s on a standard variable rate paying more than 100 basis points more than that, would not refinance,” Holden said.

“You could see easily demand for half or more of all mortgage lending go to the government.”

The proposal comes amid growing scrutiny of how One Nation would pay for its expanding suite of policies, after an analysis by The Australian Financial Review found its signature cost-of-living measures alone could cost the federal budget more than $90 billion over four years.

‘Very, very bad’ idea

One Nation’s Treasury spokesman Barnaby Joyce on Sunday would not guarantee that all the party’s policies would be submitted to the Parliamentary Budget Office for an official costing before the next federal election, citing One Nation’s comparatively limited internal resources.

Hanson first proposed a “people’s bank” ahead of the June 1998 Queensland election, offering farmers and small businesses loans at a fixed interest rate of 2 per cent.

Holden said the policy was a “very, very bad” idea. “If you’re charging below-market terms, then you worry about the selection of people who you get in your mortgage pool,” he said.

“And of course, governments just aren’t very good at running commercial enterprises. There’s a reason why the big four banks have been around for a really long time – they’re actually really good at doing their core business of assessing credit and matching borrowers and lenders together.”

Challenger chief economist Jonathan Kearns questioned whether the policy had accounted for potential taxpayer losses during housing downturns, warning that even a 5 per cent deposit could leave the government out of pocket if borrowers defaulted and foreclosed properties were sold at a discount.

“In Australia, it’s not unusual to have declines in housing practice in the order of 5 to 10 per cent that we’re likely to experience now,” Kearns said.

“It’s an exceptionally risky policy, and you’d be transferring all of that risk onto the government’s balance sheet, and not just for borrowers that you’ve deemed to be needy, but for all borrowers.”

Kearns said the policy might also inflate demand and result in a further rise in house prices.

To boost housing supply, One Nation has also promised to review government charges and abolish the 10 per cent GST on building materials used in new homes up to a value of $1 million for five years. The PBO last year estimated the policy would cost about $8.2 billion in lost revenue in its first four years.

Australia’s state-owned banks were largely privatised or absorbed by commercial rivals in the 1990s after the collapse of the State Bank of Victoria and State Bank of South Australia, whose failures left taxpayers facing billions of dollars in losses.

But Roberts told the Financial Review that the concept of the people’s bank had been proven in theory and in practice, pointing to Labor prime minister Andrew Fisher’s move to legislate the Commonwealth Bank in 1911 to the strong opposition of major private banks.

“It brought accountability to banking and enormous benefits to the Australian people. That’s why it was successful and why private banks feared it,” Roberts said.

Roberts also said there were successful examples of state-run banks in Japan, New Zealand and North Dakota in the US.

But Holden said Australia did not have a great history of state-run banks and the argument against one was the same reason you would not start a government-funded supermarket to take on Coles and Woolworths.

“There’s a reason why it costs the big four banks a certain amount of money to make home loans. It’s because of the commercial reality of it,” Holden said.

“Government can pretend not to be subject to commercial reality, but they’re subject to taxpayer reality, and the money has to come from somewhere.”

Kearns said there was also no evidence Australians were in any way credit constrained and unable to get a home loan.

“We have one of the highest levels of housing debt relative to income around the world, and the constraint to getting a loan these days is really just having enough deposit to be able to afford it,” he said.

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