Home ownership has long been the preferred tenure type of a majority of Australians.
However, as the committee heard from a broad range of witnesses throughout the
inquiry, with home prices growing well above the rate of incomes, the
'Australian dream' is drifting out of reach for a growing number of people.
This is particularly the case for low-to-moderate income earners and younger
people generally, with many struggling to build a deposit sufficient to secure
a home in a rising market.
For the most part, witnesses told the committee that governments should
set policies that encourage or even facilitate home ownership, not least
because it has numerous financial and social benefits relative to other tenure
types. However, the committee was cautioned by a number of housing policy
experts and industry bodies that even well intentioned policies to encourage
home ownership could be of limited use or counterproductive if they are poorly
designed and directed. Many witnesses argued that demand-side measures, and in
particular direct subsidies to homebuyers, often did nothing more than bring
forward purchases that would have occurred anyway, rather than increase home
ownership levels. Worse still, if direct subsidies are not adequately targeted,
they may end up being capitalised into home prices, compounding the housing
affordability problems they were ostensibly designed to address.
Despite the challenges of implementing policies to directly facilitate
home ownership, the committee received promising evidence regarding the
potential of several schemes, including shared equity and credit support
schemes, currently in place in several Australian and foreign jurisdictions.
In this chapter, the committee considers the benefits of home ownership
and the effect of housing affordability on home ownership trends in recent
years. This chapter also analyses the merits or otherwise of various government
policies and programs, both existing and potential, to help people who want to
become home owners enter and remain in the market.
The benefits of home ownership
Australian governments have long recognised and indeed sought to
encourage the general Australian preference for home ownership over other
tenure types. The resulting policy approaches have varied, and indeed since the
1970s the Commonwealth has shifted away from directly providing housing supply
to encourage home ownership.
Still, as Mr Eslake wrote:
Australian Governments of all political persuasions have long
purported to attach a great deal of significance to goals such as promoting
home ownership, improving housing affordability, and increasing housing supply.
According to many witnesses, the Australian preference for home
ownership over other tenure types is understandable, given the substantial
financial and social benefits that can accrue from home ownership. For example,
HomeStart Finance told the committee that promoting home ownership was sound
policy for government given that ownership:
...provides security of tenure and helps a family to build
roots and connections within their community. Research shows that home
ownership contributes to wellbeing, feelings of financial security, community
pride and better educational and health outcomes for families.
UDIA echoed these points in its submission, arguing that the Australian
preference for home ownership, and the popular acceptance of access to
affordable home ownership as a fundamental and desirable facet of modern
Australian society, was well based. Home ownership, the UDIA argued:
...offers greater security, financial self-sufficiency,
enhanced social capital and a greater sense of connection to the community.
Affordable housing and home ownership is essential to the health, wellbeing and
ongoing sustainability of Australian communities.
AHURI suggested that although it is becoming progressively harder for
low-to-moderate income earners to purchase a home, home ownership still
provides financial benefits to people on low incomes and those living in outer
suburbs. It pointed to research suggesting that:
...low–moderate purchasers buying in outer urban areas will
have financial advantages compared to continuing to rent, which can be realised
in some cases within four years of purchase.
Noting that home ownership rates in Australia are among the highest in
the world at 67.5 per cent in 2012 (although this is only slightly
above the OECD average), the ABA explained that it believed:
...home ownership is an important part of achieving financial
and social wellbeing and economic and social participation. Home ownership is
an important financial goal and lifestyle aspiration for many Australians and
an important mechanism for wealth accumulation.
In light of the apparent benefits of home ownership, the ABA argued that
'policies which facilitate affordable and sustainable home ownership must
remain at the centre of Australia's housing policy agenda.'
However, the ABA also noted that 'home ownership may not be suitable for all
and housing policy should take account of alternative and complementary
policies designed and implemented to ensure appropriate housing solutions for
While not taking a position on whether an objective of government policy
should be to achieve home ownership for all who seek it, the Australia
Institute noted the multiple benefits of home ownership relative to renting:
Home ownership provides many benefits, both social and
economic. In contrast to the rental market where leases may be terminated or
not renewed, home ownership provides people with more secure tenure. This
security has the associated benefits of creating a stable base for
participation in work and education.
Home ownership also has large economic benefits and reduces
housing costs in the long term. Unlike renting which has constant ongoing
costs, housing costs are very low for home owners once mortgages have been paid
off. This is a desirable situation for those who are entering retirement and
have less earning potential. Homes are also an investment and provide people
with an asset against which they can borrow. Home ownership gives people more
purchasing power and many people re-mortgage their homes for upgrades,
restorations or other purchases.
Some submitters also noted that, for better or worse, the aged pension
system in Australia was largely predicated on the assumption that people would
own their own home by retirement (an issue addressed in chapter twelve).
As National Shelter explained to the committee, this meant the decline in home
ownership was cause for concern, at least to the extent that corresponding
reforms to the rental sector were not implemented:
We have a long-term intergenerational headache that is really
starting to grow and grow. Australia's pension system is predicated on the
basis that people retire owning a property; therefore, the pension is adequate
to live if you have achieved home ownership. If you have not achieved home
ownership, and this is increasingly the experience of many low-income
households, then the private rental market is a brutal place if you are on a
fixed income or even a pension, and a pension is probably the best of those
income support payments that you can be on.
While by no means suggesting the government should focus on home
ownership at the expense of other tenure types, Uniting Communities noted that
when ownership was accessible this relieved demand on the rental sector. Thus,
while home ownership might not be within reach for everyone, policy measures
that helped move people into ownership would nonetheless ease the pressure on
the private rental market and thereby assist some of the most vulnerable
households in rental accommodation.
Similarly, Professor Yates advised that declining home ownership would
likely translate into added pressures in other parts of the housing system:
While a declining rate of home ownership might not be
perceived as a negative in its own right, it will almost certainly place
additional demand pressure on the private rental market, increase rents
substantially and place additional pressure on the already overwhelmed social
While most witnesses noted the advantages of home ownership, some
suggested that the focus on home ownership by governments often occurred at the
expense of attention to other tenure types, particularly rental housing. As Dr Emma Baker
from the University of Adelaide's Centre for Housing, Urban and Regional
Planning told the committee:
I think in the past we have been myopic in just looking at
home ownership, and I think renters of all variations are really important in
terms of housing affordability.
The CFRC took this point further, suggesting that declining rates of
home ownership (as discussed in the next part of this chapter) were unlikely to
be reversed by government policy. Rather than attempting to expand the size and
significance of the first home buyer market, the CFRC argued, the government
should instead focus on the policy and regulatory issues in the rental sector
that were emerging due to declining home ownership rates.
Home ownership trends in Australia
Overwhelmingly, the evidence received during this inquiry suggested that
fewer Australians are becoming home owners, with the trend most evident in
declining rates of first home buyers and younger age cohorts generally as a
proportion of the home ownership market.
Appearing before the committee, the REIA referred to an 'exodus' of first
home buyers from the housing market. It pointed to a number of indicators that
fewer and fewer people were making the decision to purchase their first home:
In May  the number of first homebuyers as a proportion
of the owner-occupied finance commitments was 12.6 per cent. This is actually a
slight rise from the figure of 12.3 per cent for November 2013 and April 2014,
where the level was at its lowest since the ABS started collecting data in July
1991. Among the many factors behind this appalling statistic is economic
sentiment amongst potential first homebuyers. Market confidence among first
homebuyers has fallen, with the General Homebuyer Confidence Index slipping to
82.3 in March 2014, driven by fears around unemployment. The figure is at its lowest
since 2007 and is significantly lower than the March 2004 figure of 99.
In its submission, the REIA observed that while financing approvals had
increased as interest rates had declined, the proportion of first home buyers
receiving housing finance was declining, with the increase largely due to
investors and changeover buyers.
The REIA further noted that the decline in first home buyers was,
unsurprisingly, translating into lower home ownership levels overall:
Over the five years to 2011, home ownership declined by 1.1
percentage points to 67.0% of occupied private dwellings. The drop was evident
across all states and territories and was most pronounced in the 35 to 54 age
group. In the decade to 2011, home ownership dropped by 4.5 percentage points for
the 35 to 44 age group and by 5.5 percentage points for the 45 to 54 age group.
The National Housing Supply Council, in its 2012-13 report, showed that it
seemed certain that the rate of home ownership would drop further.
Mr Eslake noted that the decline in home ownership rates had occurred in
recent decades despite on-average lower mortgage interest rates:
What is also noticeable about the last twenty years is that—despite
mortgage interest rates having been substantially lower, on average, over this
period (7.59% pa over the past 20 years, compared with 11.95% over the
preceding 20), and despite unprecedented expenditure on grants to first home
buyers—the overall home ownership rate has actually declined by 5 percentage
points, to 67% at the 2011 Census, its lowest figure since the 1954 Census...
Declining home ownership rates, AHURI noted, were most pronounced for
younger people. Whereas 61 per cent of 25 to 34 year
olds and 75 per cent of 35 to 44 year olds were home owners
in 1981, by 2011 these figures had fallen to 47 per cent and
64 per cent respectively.
Professor Yates also told the committee that the declining trend in home
ownership could only be properly understood by assessing ownership trends by
age group. She explained:
Although the aggregate home ownership rate in Australia has
remained relatively stable at around 70% for the past 50 or so years,
this can be attributed primarily to the effect of the ageing of a population
that gained access to home ownership before the structural factors outlined
above [in Professor Yates' submission] limited first time home purchase to
moderate to high income households (often two-earner households) or those
willing or able to live in less accessible locations. Between 1981 and 2006,
home ownership rates for households aged between 25 and 34 years old declined
by 10 percentage points and by seven percentage points for those between
35 and 44 years old. ABS survey data from 2009–10 suggest this trend has
continued with age-specific home ownership rates falling a further
5 percentage points for each of these key age groups since 2006.
Referring to Professor Yates' research on the issue, Mr Eslake suggested
that the decline in home ownership rates for younger people was due in part to
changing preferences. These changing preferences included 'partnering and
having children at older ages, and greater importance attached to proximity to
employment or entertainment venues'. Nonetheless, Mr Eslake maintained that
declining housing affordability was 'undoubtedly' a more important driver of
the trend away from home ownership for younger age groups.
Similarly, Uniting Voice suggested that the main reason the rate of
young home owners had declined was declining affordability:
Taking as an example a qualified childcare worker who earns
the modern award rate of pay, Census data from the past decade...reveals that the
cost of an average first home mortgage repayment has increased from
approximately 44% to 61% of the workers' wage. It is no surprise that
15 per cent fewer 25 to 44 year olds are purchasing houses today
compared to twenty years ago.
First Home Owner Grants (FHOGs)
First home owner grants (FHOGs) are a demand-side direct subsidy
intended to encourage home ownership. FHOGs, in one form or another, are a long
established mechanism by which governments provide direct assistance to first
Currently, each state and territory in Australia provides FHOGs, although the
terms and conditions attached to the grants vary from jurisdiction to
jurisdiction (see Figure 11.1). In most jurisdictions, FHOGs now include
value caps (that is, they cannot be used for homes over a certain value) and
are generally restricted to new housing, although in Western Australia a
reduced grant is still available for established homes ($3000, instead of the
$10,000 for new housing). The efficacy of FHOGs in improving housing
affordability was a key concern for many witnesses in this inquiry.
The CFRC contended that demand-side subsidies to facilitate home
ownership, if poorly designed, were inequitable, ineffective and inefficient:
inequitable, to the extent they were utilised by higher income
earners rather than lower income earners who remained in the rental market;
ineffective, inasmuch as they only brought forward purchases that
probably would have occurred anyway; and
inefficient, in the sense they compounded price pressures,
exposing vulnerable households to repayment stress and heightening
Mr Eslake was also highly critical of FHOGs. He suggested that despite
some $22.5 billion (in 2011-12 dollars) being provided under various first
home buyer schemes between 1964 and 2011, such grants had failed to improve
housing affordability for first home buyers. In fact, Mr Eslake noted, home
ownership rates had never increased above 70 per cent since peaking
at 72 per cent in 1961. He argued that it was:
...hard to think of any government policy that has been pursued
for so long, in the face of such incontrovertible evidence that it doesn't
work, than the policy of giving cash to first home buyers in the belief that
doing so will promote home ownership.
Indeed, Mr Eslake argued, rather than improving affordability for first
home buyers, first home owner cash grants actually served to:
...exacerbate the already substantial imbalance between the
underlying demand for housing and the supply of it.
In those circumstances, cash handouts for first home buyers
have simply added to upward pressure on housing prices, enriching vendors (and
making those who already [own] housing feel richer) whilst doing precisely
nothing to assist young people (or anybody else) into home ownership. For that
reason, I often think that these grants should be called 'Existing Home
Vendors' Grants'—because that's where the money ends up—rather than First Home
Despite this criticism, Mr Eslake welcomed the fact that in recent years
every state and territory had either abolished or substantially reduced grants
to first home buyers purchasing existing dwellings. He added:
I have no doubt that some of the increased grants to first
time buyers of new homes will end up boosting developers' or builders' profits:
but I accept that at least some of it will induce a supply side response to any
resulting increase in demand for new homes, while considerably fewer taxpayers'
dollars will be wasted inflating the prices of existing homes.
Other submitters also provided evidence suggesting that FHOGs should not
be available for existing housing stock. Noting that FHOGs had been introduced
in 2001 to offset the impact of GST on new houses for first home buyers,
JELD-WEN argued that the 'chronic' mismatch between housing demand and supply
...demand-side grants and subsidies for the purchase of
existing housing, such as the First Home Owners Grant (FHOG) should be
JELD-WEN continued that because the FHOG (as introduced in 2001) had
been made available for established as well as new homes—despite established
homes not incurring GST—more purchase activity had shifted from new housing to
established housing. This, according to JELD-WEN, demonstrated that:
...demand-side subsidies to reduce deposit gaps can be
self-defeating if subsidies become capitalised into house prices, particularly
in supply-constrained markets.
From 1 July 2014, the value cap for the $15,000
FHOG for new homes was lifted to
$750,000. The grant reduces
to $10,000 from 1 January
2016. The grant is available to Australian citizens and permanent residents and is subject
to a six month principal place of residence
1 July 2013, first home buyers of new homes have
been entitled to a $10,000
grant on purchases valued up to $750,000.
Since 12 September 2012,
a $15,000 grant
has been available for the purchase of eligible new homes
valued up to $750,000.
25 September 2013, a $10,000 grant has
been available for the purchase or construction of a new home. A grant of $3,000
is available for the purchase
of an established home.
The grant is capped
up to the value of $750,000 for homes below
the 26th parallel or $1,000,000 above
the 26th parallel.
On 15 October
2012, the FHOG was increased to $15,000
for purchases of eligible new homes.
At that point the FHOG for eligible established homes was reduced
to $5,000, and abolished on 1 July 2014. From 17 September 2010, a property value cap of $575,000 applies for
properties otherwise eligible for the FHOG.
In addition to the $7,000 FHOG, a First Home Builder Boost of up to $8,000
was available to eligible first home buyers who entered
into a contract to purchase or build a new dwelling
in the period 1 January 2013 to 30
June 2014. A further
boost of $23,000
was available to first home buyers who built
or bought a new home in the period
1 July 2014 to 31 December 2014. From 1 January
2015 to 30 June 2015, the total assistance available to eligible first home buyers
is $20,000 and from 1 July 2015 onwards, eligible first home buyers will receive total assistance of $10,000. The FHOG for first home
buyers of established homes ceased
on 30 June 2014.
From 13 May 2014, the FHOG was increased to $26,000
for new homes,
and the value cap was
removed for new homes. The first
home owner grant
for established homes
ceased on 1 January
1 September 2013,
FHOGs are only available on the purchase of a new or substantially renovated property. A grant
of $12,500 per eligible application is available, with a property cap of
Table 11.1: Summary of First Home Owner Grants by jurisdiction
Source: The Treasury (NSW), Interstate Comparison of
Taxes 2014-15, Research and Information Paper (November 2014), pp. 17-18.
According to AHURI, the fact that FHOGs are not subject to means testing
means that in effect they tend to be utilised by first homebuyers who would
have entered the market eventually anyway.
The Equality Rights Alliance also argued that FHOGs would be more effective if
they were better targeted through means testing, rather than through value
caps. It noted that the 2004 Productivity Commission report on first home
owners had found that the lack of targeting of FHOGs resulted in the bulk of
assistance going to 'families who might otherwise have purchased a house before
too long, even without assistance'.
NT Shelter also recommended means testing FHOGs for the same reason.
A number of submitters recommending abolishing FHOGs and redirecting the
funding to more effective and efficient housing affordability measures. The
Victorian Public Tenants Union suggested FHOGs should be abolished and replaced
with 'significant stamp duty discounts and/or other incentives to attract first
time new home purchasers'.
Tamworth City Council, meanwhile, suggested that direct subsidies to first home
buyers should be reconsidered, with the funding perhaps better spent by being
reinvested 'back into affordable housing schemes'.
In a joint submission, a group of housing researchers from Swinburne University
of Technology argued that FHOGs should be scrapped, with the savings rolled
into the NAHA and used to expand home equity programs such as Western
Australia's Keystart Home Loan program (which is discussed further below).
Not all witnesses were critical of FHOGs, and some questioned whether it
was appropriate or necessary to limit the availability of such grants to new
housing. Asked for its view on how FHOGs impacted on the housing market,
HomeStart Finance (a South Australian Government-created financial institution
that, as noted later in this chapter, provides finance for affordable home
ownership) conceded that such grants probably did inflate house prices.
However, HomeStart also considered FHOGs a useful contribution to the equity
first homebuyers could use to move into home ownership. HomeStart further noted
that it had not seen any evidence that the recent removal of the $5000 first
home buyer's grant for established houses in South Australia had led to a
commensurate fall in home prices.
The REIA argued in support of FHOGs generally and their availability for
established homes specifically. That availability, REIA argued, was an
important short term means of encouraging first homebuyers into the market
until longer term supply side issues were addressed.
In addition to noting that only a small proportion of first home buyers
purchased new homes (18.6 per cent in 2011-12), the REIA also
suggested that even when first home buyers purchased established dwellings,
there was a positive supply effect:
Another dynamic of the housing market is that sales of
established homes to first home buyers in many cases lead to purchases of new
housing by the sellers. In these cases the multiplier and employment effects
are probably greater than where a first home buyer purchases a new house.
Furthermore first home buyers of established homes usually embark on a program
of home improvement and renovation providing a stimulus to the building sector.
The REIA conceded that econometric work showed that at times
FHOGs could lead to price increases. However, it noted that this effect
depended on 'the sort of elasticity of the supply curves and the response of
the supply to increased demand from these schemes.' It suggested that by and
large FHOGs had helped first home buyers rather than inflating prices. It
further observed that prices had continued to rise in Sydney since the
withdrawal of FHOGs for existing housing.
Home Loan Experts also argued in favour of first home owner grants,
suggesting they were effective in helping new buyers, and in particular young
buyers, into home ownership as well as driving new construction.
First Home Saver Accounts
The now-defunct First Home Saver Account (FHSA) scheme was introduced in
2008 to help prospective home owners save for a deposit. FHSAs were provided by
ordinary financial institutions, and account holders received a
17 per cent contribution from the government on the first $5,000 they
deposited in each year that contributions were made. Certain conditions needed
to be met before the money could be accessed, including that the account needed
to be open for at least four years. If a FHSA account holder built or
bought a home before four years had passed, the account would become inactive,
and the funds could be paid against the account holder's mortgage after the
four year qualifying period was reached. Account monies could also be rolled
into superannuation at any time. As of June 2014, there were 49,400 FHSAs,
containing $616.8 million.
In the 2014–15 Budget, the government announced the abolition of the
In a submission made prior to the abolition of the FHSA scheme, the ABA
explained that the complexity of FHSAs, and the restrictions placed on them,
meant that many banks had decided not to offer them and would-be home buyers
had not taken them up in great numbers. As such, the ABA had recommended
removing the four-year qualifying rule to 'make these products simpler and more
Speaking after the abolition was announced, the REIA made a similar
point, telling the committee that the FHSA scheme had been 'unnecessarily
complex', and the four-year qualifying rule had meant take-up rates were
relatively low. Nonetheless, the REIA suggested that the 'concept was good but
some of the details needed revisiting'.
The Customer Owned Banking Association, in a submission made prior to
the abolition of the scheme, informed the committee that its members viewed
FHSAs as 'vital in encouraging and supporting' first home buyers. It suggested,
however, that the restrictions that applied to the scheme should be
Access to superannuation for a home deposit
Several witnesses argued that there might be merit in allowing first
home buyers to access their superannuation to build a home deposit.
HomeStart Finance, for instance, suggested that most people would aspire
to have two assets by the time they retired: superannuation, sufficient to
finance a comfortable retirement; and a home that they owned.
On the basis that a home constitutes a form of retirement wealth, HomeStart
Finance argued that it might be worth considering a scheme that allowed
would-be homebuyers to access part of their superannuation to enter the home
ownership market. Specifically, HomeStart referred to a Canadian scheme which
allows first-home buyers to access up to $25,000 of their superannuation, which
in turn they would need to repay to their superannuation account over a period
of no more than 15 years.
[I]n looking wider than Australia and endeavouring to find a
solution to the key issue of raising a deposit, we do believe there is merit in
considering the Canadian Home Buyers' Plan, which allows Canadian first-home
buyers to have access to a capped portion of their retirement plan or
superannuation to assist [in the] purchase [of] a house.
The REIA was supportive of the idea of allowing first homebuyers to
access their superannuation to purchase a home, and argued that such schemes
have 'proven to be successful in Canada, New Zealand and Singapore'.
Like HomeStart Finance, the REIA argued that superannuation and home ownership:
...are both components of a retiree's 'nest egg' and not
competing products. By buying earlier in life retirees have every prospect of
having a higher equity on retirement and a larger 'nest egg' on downsizing.
Furthermore, access to superannuation for the purchase of a
first home by helping reverse the trend of falling home ownership, addresses
the looming large policy problem of large numbers of long-term renters aged 45
years and over remaining in the rental sector and possibly requiring rental
support in later years.
Asked about the possibility of allowing people to access their
superannuation to purchase a home, Mr Simon Schrapel from Uniting
Communities told the committee that any moves that brought 'additional capital
into the market would help, and superannuation is certainly one form [of
If it can be freed up—with certain controls, obviously, so
that people still have a retirement income upon their retirement—and it can be
used more productively during their working years, when they need housing, then
I think it is worthwhile pursuing.
The Victorian Public Tenants Association argued that one of the main
barriers to home ownership for many people was their inability to build a
deposit. It argued:
Allowing access to one's own superannuation investment would
help address this particularly where the ongoing mortgage repayment is
affordable and replaces the rent being paid. The other benefits of such an
arrangement include freeing up some additional rental stock—lessening the
competition for affordable rental properties and providing a greater stimulus
to the economy via increased building and related services.
In contrast, ASFA argued against allowing an early release of
superannuation savings for the purpose of acquiring property, suggesting that
for the superannuation system to be effective 'any payments made from it should
be in the form of income in retirement' (except in the event of death,
disability or extreme financial hardship). In addition to suggesting the early
release of superannuation would undermine the compounding effect on the value
of savings, it could also be argued that any early release 'would only serve to
further inflate house prices and make housing less affordable than it is at
Shared equity schemes
Shared equity schemes were raised by numerous witnesses as a promising
means of helping people on low and moderate incomes purchase a home. In shared
equity arrangements, 'the consumer shares the capital cost of purchasing a home
with an equity partner in return for a share of any home price appreciation
Shared equity schemes are often government-administered or supported, although
in Australia a number of unsubsidised, private sector-led shared equity
products also exist. As an AHURI research paper explained,
shared equity arrangements can have certain advantages over conventional
mortgage arrangements for low to moderate homebuyers, including enhancing
affordability by reducing both deposit requirements and ongoing housing costs.
Western Australia's Keystart Shared Ownership Home Loan Scheme was one
existing shared equity scheme commended by several witnesses. Keystart is
designed to assist low to moderate income earners purchase a share in a home.
The Western Australian Department of Housing co-owns the property up to a
40 per cent share depending on the buyer's income and household size.
Later, when the buyer can afford it, they may be able to purchase all or part
of the Department of Housing's share in the property and become an outright
As the Department of Housing explained to the committee, Keystart began in
1989, and is funded through state debt, with its profits returned to the
Department. (Keystart has been profitable for 24 of its 25 years of operation,
having only made a loss in 1999.) Keystart operates as a low-deposit scheme,
and is only available to people under a certain income threshold. It is not,
however, a low-interest scheme, and rates are set to an average of the rates of
the big four banks.
The Department of Housing told the committee that Keystart had proven 'a
wonderful success story'. In addition to helping more than 85,000 Western
Australians become home owners over a period of 25 years,
Keystart borrowers had lower than average rates of arrears. The Department
explained the likely reasons for this:
Keystart has got really robust and solid processes coming in
for education of mortgagors, understanding their personal debt limits;
understanding their saving programs; working really hard to support those
tenants so that as they transitioned into homeownership they knew what they
were getting themselves in for; and then a rigorous follow-up program as soon
as people looked like they were in trouble to make sure they respond appropriately.
We think some of this is because these people know this is their only chance.
This is the one chance they are going to get and, if they do not grab this with
both hands and make the most of it, they are not going to get a second chance.
We think that is reflected in their mortgage repayments.
The Department of Housing explained that its SharedStart loans—one of
the loans offered under Keystart—was in part directed toward helping would-be
home owners provide a deposit:
One of the big market problems—not at the bottom quartile,
but it will get a lot of people out of rental—is the issue of deposits. The
difference between rent and mortgage payments is not huge. It is relatively
small. But the problem is, with a median house price at $450,000, who can save
$45,000 for a deposit? Even on good incomes, who can save that money in a short
period of time? One of the really interesting things to come out of our review
of Shared Start by PricewaterhouseCoopers and AHURI was their estimate that it
got people into home ownership 11 years earlier. That is a huge period of time.
The ACT Government noted that its own shared equity scheme for public
housing tenants was helping facilitate 'successful transitions into home
ownership' while releasing 'valuable public housing resources for allocation to
people in greatest need'.
The ACT Government also referred to its Land Rent Scheme as a 'prime example'
of its innovative housing affordability programs:
The scheme, which has proven extremely popular, reduces the
entry costs for moderate income households to enter the home buyer market by
allowing purchasers to initially rent a block of land from the Government,
rather than purchasing it outright when building their home.
Housing Tasmania explained to the committee that most states and
territories already offered shared equity schemes in one form or another,
especially for public housing tenants. It noted:
Housing Tasmania has two homeownership assistance programs,
HomeShare and Streets Ahead. HomeShare was introduced by the Tasmanian
Government in December 2008 to assist Tasmanians on low to moderate incomes
with home ownership. It supports first home ownership and stimulates new
housing constructions. The program allows a home buyer to purchase an existing
home owned by the Director of Housing or newly constructed homes. Under
HomeShare, the Director retains approximately 25 per cent equity share in the purchase
property or a maximum contribution of up to $50,000 towards the purchase price.
By sharing the costs of purchase, households are able to buy properties which
otherwise would be unaffordable.
Streets Ahead provides financial assistance up to $7,000 and
other support to households on low and moderate incomes to become homeowners.
The additional support includes independent financial council, free independent
building report and advice on property valuation information. An Essential
Maintenance Package is also available to Streets Ahead purchasers to provide
financial assistance worth up to $2,000 for major maintenance items such as hot
A number of witnesses spoke in support of shared equity schemes such as
Keystart. For instance, Mr Eslake called for:
...expanding or replicating programs like Western Australia's
'Keystart' scheme which assist eligible people to become home owners on a
'shared equity' basis, with eligibility being subject to a means test, and
which creates a 'revolving fund' as the 'shared equity' is returned to the
State Government upon sale.
More broadly, AHURI told the committee that state government-operated
shared equity schemes had been effective in facilitating home ownership for
people on low incomes. AHURI pointed to research demonstrating that shared
equity schemes were more effective than FHOGs at helping low-income earners to
become home owners. AHURI noted that the success of shared schemes was likely
contingent on certain design features, including allowing shared equity owners
to 'step up' their equity over time to become outright owners:
Such schemes are predicted to increase (in the short run) the
share of home ownership taken up by lower income households by 8.8 percentage
points. However, capping the proportion of equity taken by the limited partner
significantly reduces the number of tenant income units predicted to enter
shared equity home ownership arrangements. Reluctance by financial institutions
to purchase high equity shares would severely limit the short-term
effectiveness of a shared equity scheme.
AHURI also noted that while most government housing policies are not
tied to new supply, shared equity schemes could be designed to promote new
housing stock. For instance, SharedStart loans in Western Australia are
'explicitly linked to new build thereby promoting increased supply'.
Some witnesses suggested that shared equity schemes were a potentially useful
means by which vulnerable groups with particular housing needs might be
assisted into home ownership. For instance, Carers Victoria recommended that
the Commonwealth government give careful consideration to:
...the scaling up of mixed equity schemes. Planning and
analysis...is likely to show that there is a significant population of people
with a disability (and their families) who have a small source of capital. This
may be sufficient to exclude them from access to social housing but be
insufficient to allow them to purchase a home, given that incomes of people
with a disability are often low. There may be significant cost-benefits for the
government in providing assistance in the form of equity to allow home purchase.
The committee also heard that some commercial banks and financial
institutions were offering shared equity products in cooperation with social
housing providers and government agencies. The ABA informed the committee that
shared equity loans offered by the some banks 'allow borrowers to secure higher
finance for a purchase, but share the increase in value when the property is
sold or refinanced.'
Rismark told the committee that in 2007, in conjunction with Bendigo and
Adelaide Bank, it had launched the Equity Finance Mortgage (EFM). EFMs, Rismark
...provide households a means of financing homeownership
without regular interest and debt servicing payments in return for sharing a
minority portion of the capital gains in their home. The EFM provides finance
for 20% of the value of a home. When it is repaid at maturity, or any earlier
time at the borrower's election without penalty, the borrower must repay the
initial principal borrowed plus 40% of the appreciation in the property during the
term of the EFM.
From the home owner's perspective, they obtain 100% of the
benefit of living in the home (otherwise known as imputed rental income) and
60% of the appreciation in the home, while the EFM funder receives zero rent,
but, 40% of the appreciation.
Some witnesses noted that shared equity schemes had also proven
successful overseas. In its submission, the REIA referred to a shared equity
scheme in the United Kingdom for first home buyers:
The UK also has an equity scheme for first time buyers,
although directed at new dwellings valued to £600,000. Buyers need a 5%
deposit. The government then contributes 20% interest free for five years with
the remaining 75% being a conventional mortgage. After five years the 'equity
loan' attracts a fee of 1.75% of the loans value, which is adjusted each year
to the CPI. The 20% loan has to be paid back when you sell.
Financing support, including HomeStart Finance
The committee also considered financing support options for low to
moderate income home buyers, including support provided by South Australia's
HomeStart Finance. HomeStart is a South Australian statutory corporation which
provides home loans to low and moderate income earners, including finance on
concessional or special terms. Approximately half of HomeStart's loans are made
to first home buyers, many of whom are not in full-time work or receive
While HomeStart issues loans to customers who would not typically meet the
income or deposit requirements of mainstream lenders, it maintains that its
loans are not 'low doc' or 'subprime'; rather, it has strict credit and
documentation criteria. Importantly, while the arrears rate for HomeStart
mortgages sits above that of mainstream prime mortgages, HomeStart noted that
this rate is 'materially better' than that experienced by subprime lenders.
Mr John Oliver, HomeStart's Chief Executive Officer, told the
We provide finance to people who can afford the loan, have
good credit history and have shown over the years they are willing to make
sacrifices to ensure they attain homeownership rather than rely on private,
public or social rental housing. To emphasise this point, over our 25 years we
have lent more than $6 billion for housing. Our loan losses are less than $30
million—quite an outstanding achievement if you reflect on the fact that our
customer base was initially not good enough for a bank loan.
HomeStart advised the committee that since its creation in 1989 by the
South Australian Government, it has helped 64,000 households become home owners,
and HomeStart estimates that 80 per cent of those households would
not have been able to access finance from a mainstream lender. HomeStart has a
current loan portfolio of $1.9 billion (as of 2014), and has returned a
profit in every year of its operation.
HomeStart Finance explained to the committee that it helped homebuyers
overcome up-front costs and enhance their borrowing power, with the ultimate
aim of transitioning customers to mainstream financial institutions once they
had sufficient equity in their home. It further explained that it did not
compete with the private sector, which would not provide housing finance for
the niche market it operated in. HomeStart told the committee:
There is little discussion about the actual financing options
available that contribute to homeownership because of an apparent belief that
the private sector—that is, mainstream financial institutions—provide the
answer to that issue. We do not believe that is always the case. There exists a
group of people who do not fit the bank criteria but who are creditworthy,
capable of homeownership and deserve a hand up rather than just a handout—and there
exists our niche.
Asked why there was not a niche private market for the product that
HomeStart provided, given the low default rates and the fact that HomeStart
avoided taking on too high a risk profile, HomeStart explained that it offered
high LVR loans without charging mortgage insurance, something private lenders
would not do:
We play at the pointy end of the lending margins. A lot of
the lending we do is at the upper end of the loan-to-valuation scale. We are
here for people who have low deposits but who are creditworthy. With most banks
and other financial institutions if you need to borrow more than 80 per cent
you have to pay lenders mortgage insurance. That is a significant cost. ... If
you go through a bank, on a $300,000 loan the lenders mortgage insurance is
something like $8,000 to $10,000. We self-insure. We have a loan protection
charge and that caps out for us at $2,500. So on that particular transaction
the cost to the borrower, depending on their loan to valuation ratio, is
probably around $1,500.
HomeStart explained that whereas most banks will allow borrowers to only
go to a 95 per cent LVR (with mortgage insurance), HomeStart would
lend up to 97 per cent LVR for some borrowers—for instance, graduates
and people with certain trade qualifications.
HomeStart Finance argued that it would be relatively simple and
inexpensive to replicate HomeStart in other jurisdictions. Mr Oliver told the
You simply need some capital and then you obviously have to
have the systems, the processes and the infrastructure behind that. We
basically run HomeStart as a stand-alone financial institution. I liken us to
the credit union type philosophy, if you like. We have 95 people. We
self-insure. We run our own technology. Our loan products are quite different
from the way banks normally look at loan products—for example, the way they
calculate repayments and the way they work through interest rate cycles. It is
eminently replicable, and we have 25 years that say and show that it can be
done. It does not take hundreds and hundreds of millions of dollars, and you
are not necessarily putting the state to any degree of unsustainable financial
HomeStart conceded that the difficult history of state-owned financial
institutions perhaps made other states reluctant to set up HomeStart-type
schemes. However, Mr Oliver argued that this reluctance was not well grounded:
I was in New South Wales when HomeFund failed and cost the
state government there something like $800 million. We do tend to run under a
little bit of the shadow here of the failure of the State Bank of South
Australia. That said, the state bank here did not lose one single, solitary
cent on home mortgages; it lost it all on commercial lending. We only lend for
mortgages. There certainly seems to be a view within bureaucrat world, for want
of another way of saying it, that governments should not own financial
institutions. I think we prove that they can and that they can be very, very
The HomeStart model received support from a number of witnesses. These
included researchers from the University of Adelaide's Centre for Housing,
Urban and Regional Planning, who told the committee that research they had
undertaken had found that 'HomeStart has a very positive impact on the
wellbeing of the recipients of their mortgages'.
The Victorian Public Tenants Association suggested that other state governments
should replicate the HomeStart scheme.
Some witnesses also referred to international approaches to credit
support that might be worth considering in Australia. For example, WALGA
referred to the 'Local Lend a Hand' mortgage scheme launched in the UK by one
the main banks, Lloyds TSB:
Local Governments work in partnership with the bank to help 'first
buyers' borrow with a lower deposit than is usually needed. In summary, the
Local Government acts as a guarantor whilst earning interest on their
investment, an arrangement benefiting both parties. To date 53 schemes have
been launched with 47 Local Governments helping more than 1,100 first-time
buyers get on the property ladder, kick starting local property chains. Three
quarters of councils say the scheme has a demonstrable impact on local areas.
Indigenous home ownership
Indigenous home ownership participation is currently 37.4 per cent, well
below the average for other Australian households of 69.6 per cent. Indigenous
Business Australia (IBA)
detailed systemic barriers to home ownership faced by Aboriginal and Torres
Strait Islander people in its submission. These barriers are both financial and
non-financial, general (that is, experienced by non-Indigenous people) and
unique to Aboriginal and Torres Strait Island people.
Barriers to Indigenous home ownership also differ substantially from
region to region, and community to community. As the ABA pointed out in its
For Indigenous peoples living in very remote and remote
locations, home ownership will necessarily require greater support through
Indigenous-targeted strategies and public housing programs. For Indigenous
peoples living in regional areas, home ownership will likely involve support
promoting the engaged and informed participation of Indigenous peoples in the
mainstream property market as well as promoting the capacity of Indigenous
peoples to develop a real property market on Indigenous lands. For Indigenous
peoples in urban areas and major cities, home ownership will likely involve
support through Indigenous-targeted and non-targeted strategies and initiatives
aimed at housing affordability.
There are currently a range of government and government-supported
programs aimed at addressing the barriers to affordability for Aboriginal and
Torres Strait Islander home buyers. In addition to the Commonwealth's
Indigenous Home Ownership Program, which is administered by the IBA and
provides concessional loans and case management support to clients who do not
qualify for bank finance,
there are also:
...a range of State and Territory government targeted programs
that assist Aboriginal and Torres Strait Islander home buyers, such as stamp
duty exemptions or discounts, shared equity schemes, concessional interest
loans, and public housing tenant sales schemes. Additionally, there are
specific strategies in place in some jurisdictions to address the particularly
complex barriers to home ownership on Indigenous land and discrete Indigenous
IBA noted that FHOGs and stamp duty concessions have been particularly
important in helping a large number of Indigenous Australians move into home
ownership. IBA expressed concern that:
...decisions by some jurisdictions since 2011 to change their
First Home Owners Grants and stamp duty concession schemes, especially by
reducing or abolishing the grant for the purchase of existing homes, has had a
significant adverse impact on the ability of Indigenous Australian to obtain
finance from commercial lenders and/or IBA.
With regard to recent moves by some jurisdictions to restrict the use of
FHOGs to the construction of new dwellings, IBA expressed its concern that this
...impacting on home ownership opportunities for a significant
segment of potential Indigenous home owners by excluding the option of
purchasing existing properties with a minimal deposit. There will be a
particular disadvantage to potential Indigenous home owners seeking to purchase
a home in rural and remote areas that have high construction costs and limited
access to suitable land.
Given Indigenous people make up a relatively small proportion of the
overall population (3 per cent), with potential homebuyers in this
segment smaller still, IBA suggested that this direct assistance 'would not
have the inflationary and other distortionary effects on the housing market as
has been argued in relation to the general application of concessions and
subsidies'. Conversely, to the extent fewer Aboriginal and Torres Strait
Islander people are able to access finance from the IBA or the banks, IBA
argued, this would impose:
...a significant opportunity cost in terms of the economic and
social benefits that would have accrued through increased rates of Indigenous
home ownership. In the long term, this cost is compounded by the
intergenerational effect—including retarding wealth accumulation and retirement
IBA recommended that all jurisdictions:
...target application of the First Home Owners Grants and stamp
duty relief to low to medium income Indigenous Australians regardless of
whether they are purchasing an existing or new home. This will facilitate more
Indigenous Australians being able to access home loans from mainstream
financial institutions, in addition to those who may qualify for IBA
IBA also addressed the need to improve pathways from social housing to
home ownership for Aboriginal and Torres Strait Islander people, recommending
that states and territories:
...strengthen the focus on support mechanisms that facilitate
transfer of social housing into private ownership. Moreover, IBA encourages
closer collaboration between state and territory government programs and loan
providers, including IBA, to strengthen the pathway between social housing
rental and home ownership.
For its part, the ABA outlined a wide range of measures that the
Australian Government might implement to assist Indigenous people who wish to
become home owners. Such measures, ABA wrote, might include financial supports,
such as subsidies, security guarantees, concessional loans and loan support
schemes, shared equity schemes, and so on. The ABA noted that the government
could also assist Indigenous home buyers with financial literacy, counselling
and mentoring services, and the like.
The ABA also suggested that banks themselves should review their product
offerings with a view to providing products that both meet Indigenous peoples'
needs and the banks' commercial interests and legal responsibilities. It
...given the complexity of the factors surrounding Indigenous
home ownership and social and financial inclusion, the Federal Government
should task the Indigenous Advisory Council to develop policies on home
ownership and housing options for Indigenous Australians, and more broadly
strategies to address rental and housing affordability for Indigenous
Australians across regions.
While governments should devote their attention to improving
affordability outcomes for all types of housing tenure, the committee considers
that it is appropriate for governments to promote home ownership. The committee
agrees with the point made by a number of submitters that home ownership can be
an important means for people to achieve financial and social wellbeing, and
that high rates of home ownership also provide broader economic and social
benefits to the community.
The committee notes recommendations from some witnesses that first home
buyers should be allowed to draw on or borrow from their superannuation
balances to contribute to a home deposit. While recognising the positive intent
underlying such proposals, the committee believes providing first home buyers
with access to their superannuation would significantly add to demand-side
pressures, with the extra money available to first home buyers ultimately
capitalised into higher housing prices. Moreover, such moves would leave Australian
workers with less money at retirement, and more broadly compromise the
integrity of Australia's retirement savings system.
The committee believes that the government should, however, give
consideration to other schemes that may help would-be first home buyers build a
deposit or otherwise access finance (with the important caveat that such
schemes should not facilitate access to debt that home buyers cannot service).
In particular, the committee believes that shared equity schemes are a
particularly promising mechanism for helping low to moderate income earners
purchase their first home, and notes the success of government-backed schemes
such as HomeStart in South Australia and Keystart in Western Australia in
responding to purchase affordability constraints. The committee also welcomes
the emergence of private-sector shared equity products, and believes such
products have the potential to become an important means in helping more
Australians own their home. The committee also notes that specialised shared
equity schemes may help specific groups of people, such as Indigenous
Australians, become home owners.
The committee is less convinced that first home buyer grants are an
equitable, efficient or effective means of assisting first home buyers. To the
extent that states continue with such schemes, the committee believes they
should be subject to value caps and limited to new housing stock (as many now
are). Exceptions to the new housing stock requirement might be appropriately
applied for certain groups of home buyers where there is a compelling policy
case to do so, such as for Aboriginal and Torres Strait Islander home buyers in
rural and remote areas where new housing stock is prohibitively expensive. The
committee further believes that the positive effect of first home owner grants
would likely be enhanced if they were better targeted through the use of appropriate
The committee recommends that, to the extent state and territory
governments maintain first home buyer grants, they apply appropriate value caps
and limit their availability to new housing stock (with appropriate exceptions
for certain groups of buyers), and consider introducing means testing to ensure
that the grants are appropriately targeted.
The committee recommends that the Australian Government consider
introducing a scheme designed to assist first home buyers save for a home
deposit, drawing as appropriate on the experiences of the First Home Save
The committee recommends that all governments, through the proposed
ministerial council on housing and homelessness (see recommendation 2) or
another appropriate intergovernmental forum, investigate ways to expand shared
equity programs, including both government-backed and private-sector backed
programs. The committee further recommends that, as part of this process,
consideration be given to other mechanisms to facilitate affordable home
ownership, such as community land trusts, rent to buy schemes, and the like,
and consider the inclusion of such mechanisms within the national affordable
housing plan proposed at recommendation 4, or the National Affordable Housing
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