Labor's shared equity policy
My thoughts? The benefits are small. But the idea that housing is an asset and that owning equity is good opens many new opportunities to enact policy to make housing cheaper for residents
I don’t have a problem with Labor’s shared equity housing policy. But I don’t think it is going to be transformational. After all, it only addresses a minor financial constraint for a certain type of potential buyer.
Shared equity schemes like Labor’s proposal have been tried before by state governments and other nations like Canada and the United Kingdom. While there are clear benefits of bringing forward homeownership for those who do participate, many schemes fail to attract as much interest as anticipated. This is because a home is both a place to live and an asset. Owners usually prefer to hold more of the housing asset if they can get the leverage.
In practice, two offsetting effects can reduce the net benefits to participants. First, few private banks usually participate in these schemes. Those that do usually only offer higher interest rate mortgages, undermining resident benefits. This was the topic of a 2020-21 review of shared equity in the United Kingdom.
Second, because the schemes have income limits and home value limits, the few housing markets and locations that could be popular under such schemes can see price effects due to the additional financial resources of buyers. I personally think this effect would be small and I can’t imagine such effects would fall outside the amount of 1-4%.
Most importantly, shared equity policies offer important lessons about how governments can capitalise on the fact that housing is an asset to broaden the housing benefits they can offer. Because if owning 30% or 40% of the equity in a home without charging any rent on that equity share is a good idea, then it is a good idea to own housing equity in general.
A more expansive approach to equity would acknowledge that state government public housing departments own 100% of the equity in their public housing assets. The federal government could expansively fund these agencies and call that funding an equity stake.
The reverse mortgage scheme offered to retirees could be brought into the shared equity scheme. Retirees could sell an equity stake in their home for cash rather than taking out a loan and facing ongoing interest repayments in their low-income years.
Governments could take an equity stake in new build-to-rent projects and actively participate in this market as a developer. If taking part equity in a single dwelling makes sense for the federal government, taking more equity in more new dwellings makes even more sense.
Indeed, Queensland’s first and largest BTR project was equity-funded by a government. Just not an Australian one. The government of Abu Dhabi thought equity in Australian housing was worth putting in their sovereign wealth fund.
Overall the shared equity scheme is fine for what it is. That the many places such schemes have been enacted don’t seem to be places where housing concerns have been solved suggests the overall benefits will be minor. But the idea that housing is an asset should change the way we think about housing policy, as I’ve noted before (here and here).
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