The story of Australia’s housing policy over the past 25 years is one of governments doing all they can to juice demand for housing while steadily reducing the supply of public housing.

This trend continues as the latest housing finance figures suggest house prices are set to rise off the back of investors rushing into the market to beat the introduction of the 5% deposit scheme for first home buyers.

Whether it be the 50% capital gains tax discount and negative gearing that gives investors a leg up, or first home buyer grants that try to balance that bias, the big emphasis is always on the demand side of the equation.

And so the story continues with the 5% deposit guarantee for first home buyers that began on 1 October.

It’s a policy that notionally makes it easier for first home buyers to get a home loan. Mostly what it does is bring forward the number of first home buyers now bidding for properties. That increase in numbers has unsurprisingly led to many stories of surging loans and house prices.

You can understand the temptation for the government. First home buyer loans are not growing. And given population growth, the number of people taking out first home buyer loans is clearly falling on a per capita basis.

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So the government came up with the solution of essentially giving people the mother of all first home buyer grants.

The government’s own glossy pamphlet on the 5% scheme gives an example of a hypothetical buyer who would have needed to save $160,000 for a deposit on an $800,000 home. Under the scheme they will only need to save $40,000.

That is effectively a $120,000 first home buyer grant. They’re not “given” the money but they are given that capacity to borrow – and thus bid for properties.

Anyone thinking that will not juice property prices has not been paying attention for the past 25 years.

Property investors certainly have, because there is a massive surge of investor housing loans in the three months before the 5% scheme came into effect:

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The 18% increase in investor lending in the September quarter was the third-biggest quarterly jump in the past 20 years.

It meant that, for the first time since 2017, investor property loans accounted for more than 40% of all new home loans:

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The increase was across the nation but especially in New South Wales and Victoria, where the value of such loans has increased 18% and 27% respectively over the past year:

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The reason why this matters is that there is a strong link between the growth of housing finance and property prices.

In the first half of this year there was a slight slowing of housing loan growth but the surge in investor loans turned that around. While it was looking like house prices growth was set to slow over the end of this year and the start of 2026, now prices look set to rise and rise quickly:

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Importantly the housing finance figures out yesterday do not include the loans in October, and yet we know the reports from banks that loan applications are increasing fast.

We thus have a situation where the government’s policy not only will increase prices after it begins but did so beforehand by causing investors to try to get in first!

That’s a pretty special kind of policy failure.

These finance numbers come just after the most recent building approvals data was released on Monday. In the past year the number of approvals is higher than a year ago, and public-sector approvals have also nicely increased from the recent low of 2023 and well above the pre-pandemic nadir:

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But looking further back and taking into account population growth, the past 25 years of juicing demand and trusting the private sector to fix things has led us to a point where public housing plays a very minor role:

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It would, however, be wrong to say the government is not interested in public housing. In August, the government amended the Defence Housing Australia Act to allow it to provide public housing for visiting American sailors coming here as part of the Aukus submarine deal.

It is the perfect culmination of 25 years of housing policy failure – juicing demand to make houses more expensive for Australians while providing good public housing for … Americans.

• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work