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National scheme needed to bolster falling home ownership rates

An economic policy expert has called on the Federal Government to introduce a national shared equity scheme to help halt Australia’s falling home ownership rates.

Grattan Institute Economic Policy Program Director Brendan Coates said whichever party won the Federal Election this year needed to tackle housing affordability and turn the nation’s rapidly declining home ownership rates around.

“Within living memory, all Australians had a reasonable chance to own a home,” Mr Coates said in a recent blog.

“But now, for many Australians, the Great Australian Dream of home ownership is becoming a nightmare.

“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 and among the poorest 40 per cent of that age group, it has more than halved, from 57 per cent to 28 per cent.”

Mr Coates said home ownership was also falling among older Australians in lower income brackets with just 55 per cent of the poorest 40 per cent of 45 to 54-year-olds owning their own homes.

Four decades ago 71 per cent of this group owned their own home.

Source: Grattan Institute

He said it was also taking Australians much longer to save a deposit for a home. 

In the early 1990s, the average Australian would save a 20 per cent deposit in about seven years, but this has now blown out to almost 12 years.

Mr Coates said Grattan Institute research estimated that by 2056, just two-thirds of retirees would own their own home, down from 80 per cent today.

Source: Grattan Institute

“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.

Under his proposal, Mr Coates said the National Housing Finance and Investment Corporation (NHFIC) would co-buy up to 30 per cent of a home’s value and reclaim a proportionate share of profits when the home resold.

Homeowners would need to have at least a 5 per cent deposit and borrow the remaining funds, as well as cover costs such as conveyancing and stamp duty, as well as council rates and maintenance.

Mr Coates said the NHFIC would not charge rent or interest to the participants and eligibility would be restricted to single people earning less than $60,000 and couples with a combined income under $90,000.

“Regional price caps would mean participants could only buy below-median priced homes in their city or region,” Mr Coates said.

“The scheme would start with a trial of 5000 places a year for the first three years. At that point the scheme should be reviewed, and if deemed successful, expanded.”

Mr Coates said the scheme would help younger people buy their own home without access to the “Bank of Mum and Dad”, while also providing an opportunity for some to buy a larger home they can live in longer as it accommodates a growing family.

He said others to benefit from a national equity scheme would include older women and others who have enough money for a deposit but are unable to buy because they won’t be working long enough to pay off the mortgage.

“A share equity scheme could help many of this group into home ownership, allowing them to pay off any remaining loan with their super at retirement,” he said.

Mr Coates also said such a scheme could assist couples who separate to stay in home ownership, while retired downsizers could also benefit as they’d unlock home equity and boost their living standards.

He said shared equity schemes can push house prices up through increased demand, but targeting it at lower income buyers and cheaper homes would reduce the impact. 

“A well targeted scheme, such as the one we are proposing, would have only a modest impact on house prices,” he said.

“Capping the scheme at 5000 places a year in the early years would limit any short-term impacts.

“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 $40 billion to housing demand in a $9 trillion housing market, and probably a lot less.”

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Kylie Dulhunty

Kylie Dulhunty is the Deputy Editor at Elite Agent.