The federal government's new First Home Loan Deposit Scheme allows buyers to secure a loan with a deposit of just five per cent.

Lenders generally insist on 20 per cent and charge lender's mortgage insurance.

From January, up to 10,000 eligible first home buyers each year will benefit from the scheme.

Under the scheme, the federal government will guarantee the difference of a standard down-payment and remove the costs of lender's mortgage insurance.

However, some economists believe the scheme is a "drop in the ocean" in terms of properly addressing housing affordability.

Alex Frino, Professor of Economics at the University of Wollongong noted that only 10,000 grants were being provided nationally.

He said to put that into perspective, in the Illawarra region alone there was 10,000 real estate transactions every year.

"We've got 1.2 per cent of the national housing stock in the Illawarra," he said.

"If we get our 'fair share', we're talking about 120 of these loans for the local region, which is very small.

"The problem I have with the scheme fundamentally is... The reason house prices are so high is because of a supply issue. There's an inadequate supply of housing.

"And all this program does is it gives more money to individuals to buy or chase a limited supply, and that will just push up prices."

Prof Frino said it doesn't solve the fundamental ownership problem, "which is lots of demand and a shortage of supply".

"We need measures that will increase supply... This doesn't attack the supply problem."

Housing Minister Michael Sukkar this week announced price caps for the scheme, based on median house prices per state as well as existing stamp duty exemptions.

For instance, the property price caps in NSW will be: city or large regional centre ($700,000), and other areas ($450,000).

Prof Frino said the median house price for the Illawarra was approximately $750,000, compared to more than $1 million in Sydney.

"So the cap of $700,000 will make more first home buyers in the Illawarra eligible than Sydney for the program, which is a good thing for the region," he said.

The grants will work on a "first in, best dressed" basis.

Applicants will be subject to eligibility criteria, including having taxable incomes up to $125,000 per annum for singles and up to $200,000 per annum for couples.