The Labor government’s announcement it will expand its shared equity scheme has ignited a fiery debate among property analysts about its risks and what kind of effect it will have on affordability.
The scheme known as Help to Buy is designed to allow home buyers to purchase with deposits as low as 2 per cent, with the government funding up to 40 per cent of the purchase.
Government in return will “co-own” a share of the property, which it will get back if the homeowner sells or if they buy out that share.
Until now, the shared equity scheme was eligible to singles earning up to $90,000 and couples or households earning up to a combined $120,000. The change will increase the income threshold to $100,000 for singles and $160,000 for combined incomes and single parents.
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The Albanese government has said pledged to make housing affordability a high priority. Picture: Hagen Hopkins/Getty Images
Government has also increased the price caps for the scheme.
Home buyers will be eligible for the scheme in Sydney for purchases of up to $1.3m (an increase from the previous $950,000 cap). In Brisbane and the Gold Coast, the cap rises from $700,000 to $1m.
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Melbourne’s cap has gone from $850,000 to $950,000, while in rural Queensland it went from $550,000 to $700,000. In regional Western Australia it was increased from $450,000 to $600,000.
REA Group senior economist Angus Moore said there were some benefits to the changes.
“The higher price thresholds will mean a lot more homes are eligible for the scheme than previously, and higher income bands will also expand availability to more first-time buyers than before,” Mr Moore said.
“We know saving for a deposit is one of the most common barriers for first-time buyers and with mortgage rates still quite high and housing affordability at very challenging levels, servicing a mortgage is a real constraint for many. The Help to Buy scheme allows some of these first-time buyers to buy sooner than they otherwise might.”
HOW SCHEME AFFECTS AFFORDABILITY
Economists have warned that the scheme could artificially push up housing prices by increasing demand without adequately boosting supply.
Ray White economist Nerida Conisbee said the scheme had the hallmarks of previous first-home buyer schemes that had pushed up prices.
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The scheme could drive prices up, experts claim.
“In a supply constrained environment, first homebuyer schemes lead to higher price growth for homes included in the scheme,” she said.
“This has been covered by the Productivity Commission’s review into first homebuyer incentives. On the ground, we can see greater competition for lower priced properties when first homebuyer incentives are introduced or expanded.”
Grattan Institute research estimated the impact on the market as a whole would be minimal, with 40,000 places in the scheme driving up house prices by about 0.016 per cent over four years.
PRD chief economist Diaswati Mardiasmo agreed that the impact on the market as a whole would be minor but she added that some areas could see much larger rises.
The biggest price rises would be at the most affordable end of the market – affecting many of the home seekers government said it was trying to help, Ms Mardiasmo said.
Programs to boost housing supply may be more effective, economists said.
“The scheme limits where you can buy so it means there will be a lot of concentrated buying activity in some areas and the prices in those areas will go up,” she said.
Increasing the price caps for the scheme could also mean more marginal buyers owning homes that they couldn’t afford, she added.
Under the scheme rules, homeowners would have to pay the full maintenance, repair and insurance costs of their homes – all while paying down mortgages they would otherwise not have got without the scheme.
“Any time interest rates rise, the first to struggle are first-home buyers who accessed government schemes … the problem is that if you use the scheme you only own 2 per cent.
“You don’t have much security if something goes wrong. In fact, the whole scheme can create a false sense of security for buyers.”
WHAT HAPPENS IF YOU SELL AT A LOSS?
Help to Buy is a shared equity scheme. This means that the Commonwealth’s equity in the home changes with the value of the home.
Were any homes within the scheme to be sold for less than the price the homeowner paid, the Commonwealth would have a smaller equity stake too and would recoup less upon sale.
CALLS FOR MORE HOUSING SUPPLY
Ms Mardiasmo said first-home buyer schemes had a chequered past and if government was “serious” about addressing housing affordability it would consider overhauling taxes. This would involve collaborating with state and local governments.
“About 30-40 per cent of building costs go to taxes and regulations, and even more if you count delays from councils,” she said.
“If the government really wanted to address the problem it would change many of the taxes and permits required for building to ensure more homes actually get built.
“That will make a much bigger difference.”
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The country is falling short of housing construction targets. Picture: NewsWire / Flavio Brancaleone
A recent Property Council of Australia report showed supply shortages in critical housing markets could continue for years. It noted the nation was on track to be 462,000 homes below the National Housing Accord target of 1.2 million “well-located homes” within four years.
“Well-located” homes were defined as those within capital city LGAs.
NSW had the largest shortfall in the country, with 185,000 homes still needed to meet its 375,000 target, followed by Queensland, which is 96,000 short of target, while Victoria had a 71,000 home shortfall.
One property analyst, preferring to remain anonymous, said the government has created a dilemma for itself by expanding the Help to Buy scheme.
By becoming an equity partner in many people’s homes it will have a vested interest in prices going up – all while also trying to champion new home construction that would put a lid on home price rises, they said.
“There are a lot of ways this could play out. There could be a situation where government’s actions are self-defeating.”
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