Within living memory, Australia was a place where people of all ages and incomes had a reasonable chance to own a home. But the Great Australian Dream of home-ownership is rapidly turning into a nightmare for many. Home-ownership rates are falling fast, especially among the young and poor.
Between 1981 and 2016, home-ownership rates among 25 to 34-year-olds fell from more than 60 per cent to 45 per cent. Among the poorest 40 per cent of people aged 45 to 54, just 55 per cent own their homes today, down from 71 per cent four decades ago.
Few Australians own today because it takes much longer to save a deposit. In the 1990s, it would take the average Australian about seven years to save a 20 per cent deposit for a typical dwelling. Today it takes closer to 12 years.
Today’s renting workers are tomorrow’s renting retirees. And sadly, many of them will retire in poverty. Almost half of retired renters today live in poverty, and women older than 55 are the fastest growing group of homeless Australians.
Whoever wins the imminent federal election should introduce a national shared equity scheme to help arrest declining rates of home-ownership among poorer Australians of all ages. The federal government would co-purchase up to 30 per cent of the home value, taking up to 30 per cent of any capital gain on the home when it is eventually sold. The scheme should start with a trial of 5000 places a year and be reviewed before being expanded.
In the 1990s, it would take about seven years to save a 20 per cent deposit for a typical dwelling. Today it takes closer to 12 years.
Only singles with incomes below $60,000, and couples with combined incomes below $90,000, could use the scheme. Regional price caps would mean participants could only buy below-median priced homes in their city or region. And it would be limited to people purchasing their principal place of residence.
The NSW government has flagged a shared-equity scheme. While it should be commended for doing so, a national scheme would be better. 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. And the federal government will be on the hook for a larger bill for Commonwealth Rent Assistance payments should homeownership fall among retirees.
A national shared equity scheme would help younger Australians get into the housing market faster, especially those without access to the “bank of mum and dad”. Buyers would not have to borrow as much for their first home, reducing the level of risk they take on.
But shared equity would also help many older Australians, especially many older single women, to buy a home.
Older Australians often have the deposit but won’t be in the workforce long enough to pay off a home by the time they retire. A shared equity scheme could help many of them into home-ownership, and eventually use their super to pay off any remaining loan at retirement.
Couples who are separating could especially benefit. The home is typically a family’s largest asset. If they split, couples typically lack the equity to each buy a new home. Just 34 per cent of women who separate from their partner and lose the house manage to purchase another home within five years, and only 44 per cent do so within 10 years. Older women who have separated or divorced are more than three times as likely to rent at age 65 than married women.
It’s tempting to dismiss shared equity as another in a long line of schemes that boosts house prices even further. But a well-targeted scheme, such as we propose, would have only a modest impact on Australia’s housing market. 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, would only add at most $5 billion in housing demand each year to a $9 trillion housing market, and probably a lot less.
The direct financial cost to the federal government would also be small – just $220 million over the first four years. In fact, a national scheme is likely to be a net positive for the budget in the long term, if house prices rise faster than the interest rate on government debt to finance the purchases – as they have in the past.
Shared equity is no substitute for governments to take the difficult decisions needed to make housing more affordable. Governments should still loosen planning laws and wind back housing tax breaks such as negative gearing and the capital gains tax discount, to reduce demand for housing.
But even if the federal and state governments make these hard choices, 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. A national shared equity scheme would revive the “great Australian dream” for many Australians.
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