Here’s a recently published article from the Grattan Institute putting forward an idea to help
solve the worsening housing crisis in Australia. It was written by the Grattan Institute’s Economic
Policy Program Director Brendan Coates. He states, “Home ownership is slipping out of reach
for many younger, poorer Australians. Many older Australians who rent are also being left behind.
A national shared equity scheme would help level the playing field.
Whichever party wins the 2022 federal election should introduce a national shared equity
scheme to help arrest declining rates of home ownership among poorer Australians of all ages.”
Here’s the chart that shows the crisis unfolding. Since 1981, in all age-groups, home ownership has
been falling. In the 25-34 year-old age group, home ownership has plummeted from 1981 (shown as
circles) to 2016 (shown as crosses), noting that 2016 is the latest data available as the data from
the most recent census conducted in 2021 is not yet available, due to be released in June 2022.
We can see that in the lowest income quintile (so, the lowest 20% of earners),
home ownership has plummeted from about 63% in 1981 to about 23% in 2016. I can only assume
that this has gotten worse over the last five years. We can see that in all age categories,
there have been significant falls in the lowest 20% of earners. It is certainly becoming hard
to afford a house. Even among the richest Australians, those in the top 20% of earners,
there has been measurable falls in home ownership. This can only mean that people’s
incomes are simply not keeping up with the cost of housing. Car ownership has been going up on
average. TV ownership rates are going up. But housing ownership is going backwards. Is this
not a national disgrace? And with interest rates set to rise, the problem is only going
to get worse unless governments step in to help citizens secure access to the Australian Dream.
According to the article, the main reason home ownership is falling is because it takes
much longer today to save for a deposit. In 1995, for example, it would take the
average Australian about seven years to save a 20% deposit for a typical dwelling. Now it
takes almost 11½ to 12 years. People have less income in relation to housing prices.
If the house prices were lower, obviously it would be easier for people to save for a deposit,
but even if house prices were to fall by 20% from current levels, it would still take the
average Australian about nine years to save a 20% deposit on the average home.
Many pensioners who rent live in poverty. For senior citizens who own their home outright,
it should come as no surprise that less than 10% of them live in poverty. Those who are
still paying off a mortgage are slightly worse off, especially those who live alone, but the
poverty rate is still 15% or below. For those who rent, though, this data is very telling. More than
60% of pensioners who live alone and have to rent their accommodation are living in poverty. That’s
awful, isn’t it? So many older Australians living in poverty. For some, it might be their own poor
choices in life, but for many, it’s probably not. They’re just unlucky that their living in a modern
democratic country that continues to allow house prices and rents to skyrocket unabated.
As mentioned in the article, “Home ownership shouldn’t be the aim for everybody.
But older Australians who don’t own their home by the time they retire are often punished by
the assets test for the Age Pension, which ignores housing equity but captures other savings in full.
And Rent Assistance – paid to pensioners that rent – remains woefully inadequate.”
A shared equity scheme would help level the playing field for homebuyers. “A national
shared equity scheme would help level the playing field for first homebuyers and arrest the decline
in home ownership among poorer Australians of all ages. Under the scheme I propose,
the National Housing Finance and Investment Corporation would co-purchase up to 30%
of the home value, taking a proportionate share of any profits when the home is sold.
Purchasers would borrow the remaining funds from a private lender, provided they have at least a
5% deposit. Homeowners would also be able to buy out the government’s equity stake – in 5%
increments – at the prevailing market price”. The NHFIC would not charge rent or interest
to participants. Purchasers would be required to cover all costs associated with buying or selling
a home, conveyancing, stamp duty, and ongoing costs such as council rates and maintenance.
There’d be some restrictions such as it must be your principal place of residence,
singles must have incomes below $60,000, couple must be below $90,000, and participants can only
buy below-median priced homes in their city or region. The scheme should start with a trial
of 5,000 places a year for the first three years. Although several states already have such schemes,
the federal government has lower borrowing costs than state governments, and is much
better placed than private providers to secure the long-term financing required to manage the scheme.
It should be noted, the goal of this scheme is NOT to reduce house prices. I guess even the Grattan
Institute see that as politically unpopular. As noted in their 2018 report, Housing Affordability:
Re-imagining the Australian Dream, they state, “Fixing housing affordability is politically
difficult. Improving housing affordability is a major policy challenge for Australian governments.
Historically, governments have avoided the hard choices, preferring policies that merely appear to
address the problem. The politics are difficult because many more people are home-owners than
aspiring home-owners. In a typical year, roughly 100,000 people in Australia will become
home-owners for the first time. They would benefit from any policy that leads to lower house prices.
But at the same time, 5.4 million households already own at least one property. Policies
that might result in lower house prices are not in their interests. Former prime minister John Howard
famously remarked that people did not complain to him about the price of their house going up.
But older generations do worry about whether their children and grandchildren will be able
to buy a house”. But basically, “a sharp fall in house prices would not only be politically
very unpopular, it would probably cause economic upheaval and do more harm than good.”
Anyway, back to the article. “Shared equity schemes can result in higher house prices,
by adding to housing demand. But targeting schemes tightly at lower-income Australians and
lower-priced homes would reduce the impact. The scheme would add at most $40 billion to housing
demand in a $9 trillion housing market, and probably a lot less”. So as I said, this scheme
is not designed to make housing more affordable (it may even result in higher prices), but its
goal isn’t that. It’s goal is to help people get into an already expensive housing market.
Continuing, with regard to the effect on the government budget, “A national scheme is likely
to be budget positive in the long term, should nominal house prices rise faster than the interest
rate on government debt to finance the purchases – as they have in the past. Existing state schemes,
such as Western Australia’s Keystart scheme, have typically turned a profit for state governments.
But even if the federal and state governments make the hard choices to improve housing affordability
by lifting supply and reducing demand, house prices are likely to remain much higher,
relative to incomes, than they have been over most of Australia’s history.
Falling home ownership is a big problem for Australia. A national shared equity
scheme would help keep the dream of home ownership alive for many Australians.”
What do you think? Would this idea work? Would making it easier for people to get into an
already expensive housing market be beneficial to Australia? I don’t know, I have my doubts.
Should we be focusing on getting people into an already inflated market, no matter what the cost?
Or should we be focusing on making housing more affordable? I tend to think the latter.