ELECTION 2022: Labor’s shared ownership proposal for housing is not a radical new idea; most Australian states and territories have similar programs in place. Here’s what the experts think of it.
Among the many housing policies Leader Anthony Albanese released at the ALP’s campaign launch in Perth on Sunday, the one that has grabbed the lion’s share of the attention was its shared equity policy.
The policy is not scary, mirroring a number of similar shared equity programs already in place in most states and territories.
Under Labor’s proposal, the federal government will take up an equity stake of up to 30 per cent of the purchase price for existing homes or 40 per cent for new homes, with eligible first home buyers needing a minimum deposit of 2 per cent.
To be eligible for the program, first home buyers will need to earn less than $90,000 for individuals, or $120,000 for couples. People earning more than these thresholds for two consecutive years will need to repay the federal government’s contribution.
Unfortunately for people who are looking for a home, the program will be limited to just 10,000 places per year.
The least bad option
Karl Fitzgerald, director of advocacy at Prosper Australia thinks the scheme is the least bad policy option to try to get people into the market, compared to previous first home buyers grants and other handouts.
“What we’re basically seeing is a move away from housing affordability policy and towards housing accessibility. The size of deposits has gotten so large now that people need $200,000 minimum to be able to get their foot in the door.
“Shared equity is only going to maintain prices as is ,and I get a bit alarmed when I see Labor’s estimates saying you could cut the cost of housing by $380,000. It’s not going to cut the cost of housing at all.
“It’s just going to maintain current prices as they are now, and allow another 10,000 people to access the most extraordinary land and housing prices in the nation’s history.”
Nicole Gurran, professor of urban and regional planning at The University of Sydney, says that while shared equity schemes are a good idea, the limited number of places means Labor’s plan is a missed opportunity.
“I think that’s an unfortunate missed opportunity. It’s relatively small scale. It’s only going to benefit 10,000 aspiring first home buyers or people who’ve been out of the market for a while.
“The majority of first home buyers who aren’t able to access the market at the moment will still find that even a scheme like this won’t be accessible to them, because it still requires them to take on very hefty mortgages.
Older renters likely to benefit the most
The Grattan Institute’s program director for economic policy, Brendan Coates, said Labor’s proposal is similar to a scheme The Grattan Institute proposed earlier this year.
While the political focus of the policy will be on first home buyers, the policy is most likely to help older Australians to access home ownership.
“Among the poorest 40 per cent of 45-54 year-olds, just 55 per cent own their homes today, down from 71 per cent four decades ago. Senior Australians who rent in the private market are much more likely to suffer financial stress than homeowners, or renters in public housing,” Mr Coates said.
“Nearly half of all retired renters are in poverty – with incomes below half the median. Their numbers will only grow as fewer retirees in future own their homes. Older women are especially vulnerable: women aged over 55 are already the fastest growing group to suffer homelessness in Australia.
“Shared equity helps older renters with a deposit won’t be in the workforce long enough to pay off a home by the time they retire, even at today’s record-low interest rates.”
Missed opportunities in the policy design
While the full details of the policy are yet to be revealed, the policy is a missed opportunity to fund the construction of more affordable homes.
“When you allow a shared equity scheme to be used on the existing housing stock, really all you’re doing is pumping money into the established housing market without actually generating new housing supply,” Professor Gurran said.
“It’s a bit of a waste of money really, because $300,000 that might be coughed up in an equity share arrangement will be sufficient to fund the construction of a new dwelling unit.”
With the opportunity of the Commonwealth taking a lead to underwrite this kind of scheme, it should be able to leverage new housing supply through the states, through state and territory planning powers, Professor Gurran says.
A number of the states already have shared equity schemes in place but they’re modest, she says and these could be expanded with Commonwealth support.
Professor Gurran also points out that Labor’s shared equity proposal is less ambitious than the one put forward by the Greens, which plans to offer 125,000 homes as part of its 1 million property Federal Housing Trust policy.
“The Greens are really cranky that no one’s talking about their plan. They’re proposing a million new homes over 20 years, which is in line with the forecast requirements, and they include a shared equity scheme for 125,000 units, which would be new dwellings.
“Of course, the costing of the Green’s scheme depends on pretty heroic tax reform, which the major parties don’t want to address.”
Little inflationary pressure on house prices
The good news is that, unlike existing federal housing grants, the shared equity proposal isn’t likely to push up housing costs significantly as interest rates rise.
“With interest rates increasing, we’re going to see some sort of moderation in the market, as is already coming through. So I don’t think it’s going to pump prices up extraordinarily,” Mr Fitzgerald said.
“But it will put a floor under prices and will help maintain these current record high valuations. One of the great tragedies, whenever a housing correction appears imminent, is that politicians come out and do all they can to keep that property bubble going.
Property Council chief executive Ken Morrison agrees the scheme is “unlikely to distort housing markets or prices” because it is capped at 10,000 places a year.
Better alternatives to improve affordability
Mr Fitzgerald says there are better ideas around for promoting affordability. These include restricting the maximum length of mortgages to 30 years.
“On current housing price trajectories, it is not too far away that 40 and 50 year mortgages are going to be required to afford somewhere to live. So we can’t allow multi generational mortgages to become part of the Great Australian Dream.
Another policy option for improving affordability would be to tighten capital gains tax exemptions on properties (claimed as principal place of residence) that are bought and sold within 24 months.
“Investors use a strategy called postcode hopping, where they change an electoral address and a mobile phone bill to their first investment property, effectively claiming it as their home so they can sell it in the 13th month CGT free. The ATO needs more resources to oversee workarounds like this.
“There is increasing evidence of properties being flipped within 12 months in this low interest rate environment for great profits. It’s going to be very interesting to see, as when prices start to moderate and margin calls come in, how much hidden supply gets thrown on the property market.”
A few years ago, the Morrison government held an inquiry that resulted in closing the loophole for individuals claiming interest rate deductions for vacant land.
Mr Fitzgerald urges the measure be extended to corporate tax entities managed investment trusts, public unit trusts and unit trusts.
There is also scope for policies to promote alternative models of home ownership, such as community land trusts, he says.
“Certainly one of the problems we have in Australia is there is no dedicated federal legislation for community land trusts. The growth of community land trust in the northern hemisphere has been extraordinary following the GFC, and Australia still doesn’t have one single CLT up and running.
“We obviously need a third market alternative between public housing and private housing.”
This is crucial at a time “we’re about to see Wall Street and big foreign investors come in to corporatise [the rental market],” Mr Fitzgerald said.
At the end of the day, more people will have a home
Despite these shortcomings, The Grattan Institute’s Brendan Coates believes the policy will help more people achieve “the great Australian dream” of home ownership.
“Shared equity is no substitute for governments taking the tough decisions needed to make housing more affordable, such as loosening planning laws and winding back housing tax breaks such as negative gearing and the capital gains tax discount.
“But the scheme we are proposing would keep the dream of home ownership alive for many older Australians.”
UPDATED Wednesday 4 May to clarify Karl Fitzgerald’s quote.