Shared equity schemes and rental investment trusts, funded with private capital, offer the best chance to rectify the national housing crisis, according to new analysis released today.
The third instalment of LongView and PEXA’s housing affordability Whitepaper series – Mobilising Private Capital for New Housing Solutions – concludes “governments alone will not be able to make a meaningful difference to bridge the widening purchase and rental affordability gap for Australians, nor the rental experience”.
“Australia’s housing affordability crises has been decades in the making and despite well-meaning attempts to solve it, it is only getting worse,” PEXA Chief Executive Glenn King said.
“These crises fundamentally threaten the Australian way of life, and underpin some of our most pernicious challenges, from homelessness to health and wellbeing, and employment and economic growth.
“Yet the simple truth is that our housing crises have just grown too big for governments to handle alone.
“For example, the average total change in property prices each year amounts to a third of Australia’s GDP, more than the Australian Federal Government’s entire budget.
“Even if the government spent every dollar they have giving grants to homebuyers, the purchase affordability problem would still worsen.”
Instead, the whitepaper said the answer to saving Australia’s $10 trillion residential market is mobilising private capital from sources such as superannuation funds, family offices, banks and high net worth individuals.
LongView Executive Chair Evan Thornley said the $2 trillion Australia’s 2.2 million landlords already have invested in the asset class was also “ripe for better application”.
“While there is a lot of discussion lately about the role of government and especially superannuation funds, the single biggest source of capital, by far, is the $2 trillion already invested by Australia’s private landlords – much of it poorly,” Mr Thorney said.
“By creating an environment where landlords are attracted to moving out of direct ownership of individual properties and into owning shares of large funds, we can enable these transformations.”
Mr Thonley said of the four private investment models the research analysed – shared equity schemes, rental investment trusts, build-to-rent and rent-to-buy – shared equity schemes and trusts presented the best opportunity to rectify the housing crisis by improving affordability and the rental experience.
He said shared equity schemes – where an investor puts up some of the purchase price – improved purchase affordability by reducing the mortgage deposit barrier buyers face while offering good exposure to capital growth, which provides the core return in Australia’s residential property investment market.
Mr Thornley said rental investment trusts, which hold a large number of rental properties, could offer a better renting experience through more professional ownership, with institutions usually holding property longer.
This would significantly reduce the possibility of renters getting evicted for a sale.
To make this more attractive for investors would require reform of some land tax regimes, which penalise large landholders unless they invest directly in affordable housing.
“These solutions need enabling infrastructure like a liquid secondary market for shares in the fund, which will improve the liquidity of these models and make it easier for investors of all stripes to meet their financial needs while supporting housing models which improve the lives of Australians,” Mr Thornley said.
“And ultimately, that’s the game. We need to recycle the private capital and housing stock that is already in the system in more effective ways to solve the problems we are facing.”
When it comes to build-to-rent developments, the whitepaper revealed they offer better tenure security for renters but had, so far, not demonstrated an ability to improve affordability as they usually target premium markets.
The third whitepaper comes after LongView and PEXA released the first two instalments earlier this year.
The first whitepaper – What Drives Australian House Prices Over the Long Term? – examined the house purchase affordability crisis and explained the real drivers of increasing prices, including population patterns.
The second – Private Renting in Australia: A Broken System – argued delivering long-term solutions for the 2.9 million households that rent and 2.2 million property investors relies on addressing the incompatibility of renters’ needs for security and landlords’ needs for flexibility.
Mr King said PEXA’s collaboration with LongView was an example of its commitment to partnering with the private sector to accelerate practical, national solutions to the housing crisis that can be immediately and independently deployed.
“It is clear there is more work to be done. On top of the private capital solutions analysed in the Whitepaper we know that another barrier to efficiently solving Australian housing crises is the shortage of accurate, timely, granular data,” Mr King said.
“Private-sector data and information can help speed up the response to increasing demand by local governments, planners, developers and builders.
“With the right data they can supply the right type of housing in the right locations, more quickly.
“In addition, a centralised, national social housing register to support the provision of social and affordable housing could help increase transparency and provide security to vulnerable Australians who remain on long waiting lists.
“By bringing together a coalition of the willing, across all sectors, we can help facilitate a broader national response to find new, practical solutions to tackle this current crisis.”