Labor ups the election stakes with housing shared equity scheme

Housing affordability has escalated in prominence as a key federal election battleground, with Labor upping the stakes over the weekend with its home shared equity scheme targeting 10,000 households.

If elected, Labor has promised to cover 30-40 per cent of the cost of a property while retaining that same stake in the asset. When a property was sold, the government would also claim its portion of whatever capital gains were achieved.

The Help to Buy scheme would be open to people earning less than $90,000 as an individual, or $120,000 as a couple, and available for anyone who does not currently own a property. It would initially target 10,000 households.

It is envisaged there would be savings of up to $380,000 for new homes and $285,000 for existing ones, with price caps of between $550,000 and $950,000 depending on the state and region.

Homeowners would still need to qualify for a regular home loan, pay a 2 per cent deposit and live in the property for two years.

Soaring prices, more stringent lending requirements, and investor pressure have diminished first home buyer activity in the past year, and the political parties are aware of the potential for voter backlash.

The plan was widely welcomed by real estate organisations, although there was criticism the policy still failed to address one of the key components of sky-high property prices, the supply of new stock.

Property Council Chief Executive Ken Morrison said the Opposition’s announcement presented a strong foundation for what is a much-needed national plan to address the housing affordability crisis.

“Housing affordability needs to be a national priority and the Opposition’s commitments are very welcome, with the need to boost housing supply the key to helping more Australians into homes,” Mr Morrison said.

“We welcome measures to help people get into the housing market and Help to Buy would be an important addition to the housing affordability schemes already in place.

“We note the proposed Help to Buy shared equity scheme is limited to 10,000 places a year and is therefore unlikely to distort housing markets or prices,” he said.

Affordability declining

Recent research conducted for the Property Council found 70 per cent of voters feared the dream of home ownership was now out of reach for most Australians, with almost 90 per cent of aspiring homeowners saying housing affordability would be one of the most important issues in determining their vote.

“Housing affordability isn’t a nice to have, it’s a must have,” Mr Morrison said.

“Although people feel the dream is fading, we can actually turn it around with the right decisions.”

Real Estate Institute of Australia (REIA) President, Mr Hayden Groves, said they applauded the commitment to develop a National Housing and Homelessness Plan, “which is badly needed for all parties to come to the table and identify innovative solutions to unlock supply.”

Mr Groves also said he looked forward to more detail on the Help to Buy initiative.

“The program for 10,000 eligible low- and middle-income earners a year is a sensible thing and REIA has supported the development of a feasibility study for a (similar) national KeyStart-style program in the past.

“Based on the median first home buyer home loan of $459,256 this will generate around $4.5 billion each year in sales based on current market conditions.

“While an expensive program to administrate over the long term, the benefits of home ownership to Australians are clear: they live healthier, happier and more successful lives in their working life and retirement.

“A critical part of the success of Help to Buy will be the option for customers to buy back the equity stake that government takes over the long term to return to the private property market,” Mr Groves said.

According to REIA’s Housing Affordability Report, housing affordability continued its decline over the December quarter of 2021, with the proportion of income required to meet loan repayments reaching 37 per cent.

The report found the number of first home buyers decreased to 37,620, a fall of 0.4 per cent during the quarter, with first-home buyers now making up 34.1 per cent of owner occupier dwelling commitments, a decrease of 7.8 percentage points over the year.

Housing Industry Association Managing Director Graham Wolfe said the Help to Buy shared equity scheme offered a sensible first step that mirrors existing schemes in Australian and overseas.

“The policy announcement recognises HIA’s top three election imperatives; to make housing supply a national priority, to unlock land supply to support new housing, and to support home ownership.”

Supply overlooked

The issue of housing affordability is now front and centre in the federal election campaign.

The government last month announced a federal inquiry into the matter.

With both sides of politics having ruled out any changes to negative gearing, they have changed tack by offering incentives such as Labor’s Help to Buy and the Liberals’ Home Guarantee Scheme.

SMATS Group Executive Chairman Steve Douglas said the only way to slow price growth and create affordable housing was to increase the supply of medium to high density living apartments or building blocks in reasonable locations close to quality transport links or new job zones.

“Labor’s new policy proposal will only help 10,000 lucky people with an enormous one-off personal windfall, rather than create real long-term solutions,” he said.

Government taxes were also an impediment to affordability, he added.

“The key to bringing in new supply is to ensure it is also affordable but many people simply don’t realise that in every new property, land and building, there is a significant cost of 10 per cent GST being charged that is often hidden in the asking price. 

“This makes new builds very expensive compared with the established property market, which is quite rightly exempt from GST.

“When you consider that it is the State Governments that ultimately receive GST, even though it is collected by the Federal Government, then this a clear double dip that makes the purchase of a new property extremely expensive.

“A simple option here is to remove GST from new residential property, which would instantly drop the prices by 5-7 per cent through the saving in GST that developers currently get charged when they sell a property.

“Not only does new construction create more housing stock for ownership or rental, but it is also a significant economic boost and job creator, so this reduction has social and economic advantage and would likely not have a real cost to State Governments,” Mr Douglas told API Magazine.

He added that state government stamp duty rates could effectively be halved too, as prices have almost doubled over the past 10-15 years.

In response to the Labor policy commitment, federal Finance Minister Simon Birmingham defended the Coalition’s program.

“We are expanding our first homeowner guarantee to 50,000 places per annum, versus a Labor policy that is of 10,000,” the finance minister said.

“You don’t have Mr Albanese at the kitchen table owning part of your home with you.”

Professor Rachel Ong from Curtin University’s School of Accounting, Economics and Finance said that while the Coalition’s New Home Guarantee scheme focuses on the deposit hurdle, Labor's Help to Buy scheme will help with both deposits and repayments.

“Labor’s scheme is more targeted at lower-income households but shared ownership schemes such as Help to Buy are complex.

“Participants will need to read the fine print to ensure that they are prepared to accept the complications that might arise later.

“In truth though, we can't really hope to make a dent in the housing affordability crisis without hard policy choices, such as reforming tax concessions that have pushed up house prices, and neither party is willing to put forward such measures.”

The federal election is on Saturday 21 May.