A national scheme that would allow the government to co-purchase a property with a first-home buyer could be a solution to the declining rates of homeownership in Australia.
In a recent think piece, Grattan Institute economic policy director Brendan Coates proposed that a national shared equity scheme would help many younger buyers get into the housing market faster.
“A national shared equity scheme would help level the playing field for first home buyers and arrest the decline in home ownership among poorer Australians of all ages,” Mr Coates said.
How would a national shared equity scheme work?
Under Mr Coates’ proposal, first-home buyers would apply for the scheme that would essentially let the National Housing Finance and Investment Corporation (NHFIC) co-purchase up to 30% of the homes value.
First-home buyers would need to borrow the remaining funds from a private lender, provided that they have at least 5% deposit.
If the buyer eventually sells the house, the government would then take the same share of any profits from the sale.
Meanwhile, the buyer would also be able to buy out the stake of the government in 5% increments at the prevailing market price.
“Consistent with longstanding state schemes, the NHFIC would not charge rent or interest to participants,” Mr Coates said.
“However, purchasers would be required to cover all costs associated with buying or selling a home, such as conveyancing and stamp duty, as well as ongoing costs such as council rates and maintenance.”
What would be the ideal requirements for a national shared equity scheme?
Mr Coates said the scheme should kickstart with trial slots of not more than 5,000 per year for the first three years.
“Existing state schemes are typically small, and often limited to public housing tenants or to purchasing homes solely from government-run developers,” he said.
The proposed scheme would be restricted to people purchasing their principal place of residence.
An income threshold should also be set — below $60,000 for single homebuyers and a combined income of below $90,000 for couples.
Furthermore, regional price caps would be implemented, so that participants could only buy below-median priced homes in their city or region.
Late last year, Victoria unveiled the Victorian Homebuyer Fund (VHF), which allows the state government to shoulder up to 25% of the purchase price of the home loan in exchange for equivalent equity.
Could a national shared equity scheme fuel house price gains?
Mr Coates said there is potential for the proposed scheme to result in higher house prices by boosting demand.
However, given that the scheme targets lower-income Australians and lower-priced homes, the impact would not be that significant.
“Capping the scheme at 5,000 places a year in the early years would limit any short-term impacts,” Mr Coates said.
“But even if the scheme were to eventually offer 10,000 shared equity loans a year, with each buyer purchasing a $500,000 home on average, the scheme would add at most $40bn to housing demand in a $9tn housing market, and probably a lot less.”
Why is this proposed scheme good for the federal government?
The scheme would cost the federal government in the short term as it pays interest on extra government debt.
However, Mr Coates believes that a national shared equity scheme would likely be “budget positive” in the long run, especially if nominal house prices rise faster than the interest rate on government debt to finance the purchases.
An example of this is Western Australia’s Keystart scheme, which has churned in profits for the state.
“Helping lower-income borrowers to enter the housing market, with as little as a 5 per cent deposit, could result in more bad debts in future — but existing shared equity schemes report low rates of non-performing loans, even when house prices have fallen,” Mr Coates said.
“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.”
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