Excuse me while I let out a long sigh of frustration.

Australia’s housing policy has for so very long been about making the problem worse by juicing up demand. This is undeniable. The evidence is long and clear.

Whether it be the 50% capital gains tax discount John Howard introduced in 1999, the continuation of negative gearing, or the use of first home buyer grants, government policies have overwhelmingly ensured more people are bidding for houses at auctions.

But, as everyone knows, the more people bidding for a property, the higher the price goes.

The government’s latest housing brain flub was the 5% deposit guarantee for first home buyers. Last year, I suggested it was set to be yet another miserable policy failure.

And now the evidence is in.

The lending figures released on Tuesday for the December quarter of last year cover the first three months of the deposit guarantee. In that quarter the number of people taking out first home buyer home loans rose 6.8% – the biggest one-quarter jump for two years.

But it wasn’t a record, and certainly nothing like what we saw during the global financial crisis or pandemic years when the government went all out to encourage housing:

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And while there was a nice increase in first home buyers, the overall number remains pretty weak, especially when you take into account population growth. There are much fewer first home buyers relative to the size of the labour force than in the past.

A big reason for this is that the cost of buying a home is so much greater now than it was 20 years ago.

And this problem has been made worse due to the government’s 5% deposit scheme.

Because while the number of first home buyers might have gone up, the amount of money they have borrowed went up much more. In the December quarter the value of all those first home buyer home loans went up 15.5% – more than double the increase in the number of loans.

That means the average size of those home loans went up 8.3% in three months – a record one-quarter jump. It was also well above the 2.8% increase in the average size of home loans for non-first home buyers:

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It meant that, in the December quarter, the average home loan for first home buyers hit a record $607,545:

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The average value of a first home buyer home loan is now 12% higher than it was a year ago. Given wage growth in the past year has been about 3.4%, that means the cost of buying a first home has deteriorated at a terrible pace.

And the impact is on everyone’s housing affordability.

As I also noted last year, the announcement of the 5% deposit guarantee sent investors storming into the market trying to get in before the first home buyers.

Those investors remain in the market. The growth of the value of investor home loans rose 32% in the past year – faster than the 22% increase for first home buyers and well above the 17% increase for non-first home buyers:

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And it all adds to the amount of money being bid on for houses.

First home buyer loans usually make up about 17% of the total value of all loans, but in the December quarter they accounted for 27% of the increase in home loans.

And we know that when the amount of money being loaned rises, so too does the price of property:

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The good news is there are rumours that the government might finally be looking at a housing policy that takes some of the heat out of the market, rather than adding to it.

Rumours that the government will reduce or eliminate the 50% capital gains tax discount are growing.

This would be a great policy move.

As I have long argued, the introduction of the capital gain tax discount helped turn the housing market into a speculators’ dream, and sent house prices soaring:

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Data this week from the Parliamentary Budget Office also showed just how unequal the benefits of the tax discount are.

The PBO estimates that in this current financial year the discount will cost $21.8bn in revenue forgone. The richest 1% will get 59% or $12.9bn of it:

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The 5% deposit guarantee did what everyone expected – it made housing affordability worse. But if the government fixes the capital gains tax discount in the May budget, it will at least be able to say it is a government that finally delivered a housing policy that stops making the bad situation even worse.

• Greg Jericho is a Guardian columnist and chief economist at the Australia Institute