Chapter 1: What is the main topic discussed in this episode?
It's The Real Estate Podcast, brought to you by Ray White, the largest real estate and property group in Australasia. And welcome to another episode of The Real Estate Podcast, available on iHeartRadio, also on Google and Apple Podcasts or wherever you get your podcasts from. And let's have a look at the main centre forecast with propertybuyer.com.au for this Tuesday the 22nd of March.
And in Sydney expecting a high today of 27 degrees, mostly fine. Melbourne expecting a shower or two with 23. Brisbane expecting a mainly fine day with 30 degrees. And in Perth today expecting a high of 28 with clear sunshine. Home ownership, as we know, is getting beyond the reach of a lot of Australian first home buyers.
Chapter 2: What is the national shared equity scheme and why is it important?
There's no great secret in that statement. However, a national shared equity scheme would help level the playing field for first home buyers and also help slow down the decline in home ownership among poorer Australians of all ages. Well, to break this all down for us, we've invited back to the podcast Brendan Coates. You might remember Brendan.
He is the Economic Policy Program Director at Grattan Institute. Good morning, Brendan.
Chapter 3: How does the Grattan Institute maintain its independence in policy recommendations?
Welcome back to the Real Estate Podcast.
Thank you very much. It's good to be with you.
Yeah, great to have you back. A national shared equity scheme. Now, you wrote the paper, but tell our listeners, how does all of that work for you guys being completely autonomous to politics?
Grattan Institute is an independent public policy think tank.
Chapter 4: What are the main challenges facing first home buyers in Australia?
Now, most think tanks will say they're independent, but we do take it more seriously than most because our funding isn't tied to either political party, to the government of the day, or really to particular interest groups. So Grattan's funded by an endowment. It was put together by the then federal government and the Victorian state government.
That money is run by or managed by a board that's made up of people from both sides of politics. And it means that we are steadfastly independent because there's no consequences if we offend one side of politics or another.
And we try to use data and we try to use evidence to sort of try to solve some of Australia's most pressing public policy problems, of which housing is, you know, one of the most urgent.
Yeah, I mean, it's so good that you don't have to appease any politician. I mean, that really, it just cuts to the chase so much quicker.
Yeah, look, it's very liberating and it does allow you to take, I suppose, have a more open mind about what the solutions are to a problem. In my experience, no one side of politics has a monopoly on what are good ideas. And so some of our policies will tend to be more politically palatable to the Labor Party. Some of our policies will be more politically palatable to the coalition.
And the idea is to do what is going to work that would be in the best interest of the Australian people and try to communicate that forcefully. and then hopefully persuade whoever's in power at the time to take those up.
Yeah, yeah, that's so great. And under this paper that you propose, the National Housing Finance and Investment Corporation would co-purchase up to 30% of the home value. And I'll get you to talk a little bit about that with your paper, as well as the deposit of 5%.
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Chapter 5: How does the proposed shared equity scheme work for buyers?
Yeah, so home ownership is falling pretty sharply in Australia, particularly amongst younger, poorer Australians. It's also falling amongst older Australians on low incomes. So you've got these falling rates of home ownership and the drivers of that are the fact that young people struggle to put together a deposit unless they've got support from the bank of mum and dad.
And older Australians aren't in the workforce for long enough if they've got some savings to pay off a mortgage. So that's where the idea of a shared equity scheme came from. And the proposal is basically that the federal government would be a partner in investing in a property. It would take up to a 30% equity stake, as you suggest.
And that means that it collects any capital gains on that 30% equity stake when the property is eventually sold or any capital losses. So it's a silent partner in the home. And what that does is it reduces the deposit hurdle for first-time buyers on low incomes.
And it also means that older Australians, say, if you've been separated or divorced, you've lost your home, you're not in the workforce for long enough to buy another one, you can reduce the amount that you've got to borrow and eventually pay back by the time you retire.
Chapter 6: What income thresholds are set for participants in the shared equity scheme?
Now, the government would own 30%. It would not charge rent or interest on that 30% stake. So it would be giving that to the borrower or the purchaser. at no cost, but it would collect any capital gain or loss. The purchaser would need to have at least a 5% deposit. So they would have to have at least 5% of the purchase price.
What that means is instead of having to borrow, you know, 80, 90, 95% of the purchase price, the borrower only has to purchase or borrow, you know, 65% of the purchase price. The person who buys the house would then be able to, over time, if they want to, buy out the government's equity stake, you know, at whatever the prevailing market price is at the time. You could...
chip away at it 5% at a time until eventually the person owns their own home outright.
And the scheme would be restricted to people purchasing for their principal place of residence, so no surprise there. And participation would be restricted to singles with incomes below $60,000 and couples with combined incomes below $90,000, which kind of covers a lot of people, doesn't it?
Chapter 7: How will the shared equity scheme be implemented and evaluated?
Yeah, so look, half of all Australians aged 25 to 64, so working age Australians that are single, earn less than $60,000 a year. And about 25% of couples earn less than $90,000. Now, the reason we chose those levels is you're providing support, you're adding to housing demand. The risk with anything that you do that adds to housing demand is that you end up just pushing up prices.
That's the issue with first home buyers grants. That's the issue with lots of these other policies. We think it's justified here because those income, people earning less than those incomes are precisely the people that are struggling to buy a home and are otherwise at risk of potentially being in poverty when they retire in 40 years' time. And so we restrict it to those cohorts
So that you're making sure that for this scheme that you're putting on the table, the majority of the people that are going to take up the scheme are probably going to be people that would not have purchased a house otherwise. It's not just people who would have bought anyway, but this just brings forward when they buy by a couple of years.
It means that you're targeting the benefit to those that really do need it.
Chapter 8: What are the advantages of a federal versus state-run shared equity scheme?
Yeah, and the regional price caps would mean participants could only buy below medium-priced homes in their city or region. And the scheme would start with a trial, I think, of 5,000 places a year for the first three years. And at that point, the scheme would be reviewed and, if deemed successful, then expanded out.
That's right. So again, like the income thresholds, you're wanting to target this scheme at those that wouldn't buy otherwise. So the income thresholds are one way you do that. The other way you do that is you say, well, look, this is really only for a scheme for people that are going to buy relatively cheap houses. Sydney, there aren't many houses that are particularly cheap.
So we've proposed a threshold there of, say, $800,000. Now, that would cover more than half of apartments in Sydney, but only 25% of houses. And what that means is that if you are buying one of those homes, it's going to be for people who really, they'll only use this scheme if they have to. It won't be for people who could buy more and decide to use this scheme to get some cheaper finance.
We would have different price caps, say, in Melbourne, in regional Australia, to reflect the fact that prices vary so much across Australia. And this is one of the ways, again, of just making sure the scheme is actually targeted at those that need it. We would start with 5,000 places a year because if you're setting up something like this, the government's going to have to be in a position
where it can do the paperwork, it can make sure and assess people are eligible, work with private banks, because a private bank would provide the loan for 65% of the purchase price. That is how some of the existing state schemes work. So there's a new Victorian scheme that private banks provide the rest of the finance.
But if you tried to open it up too quickly, one, you'd probably hit demand more. But two, it's probably too difficult for the federal government to roll something out at full scale. So therefore, you put that $5,000 a year cap on it, see how it goes. And then if it looks like it's working, then you can expand it further.
And existing state schemes are typically small and often limited to public housing tenants or to purchasing homes solely from government-run developers. I guess this is the good news. The federal government has lower borrowing costs now. than state governments do and is much better placed than private providers to provide the long-term financing required to manage the scheme.
So that really is the upside benefit for the scheme, isn't it?
That's right. So there are existing state schemes. The most well-known is Western Australia has a scheme called Keystart that's been in operation for 20-odd years and has worked pretty well. That's a scheme that has a similar model to ours. You can have up to 30% shared equity stake from the government.
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