Help to Buy: Senate Inquiry Presentation

This was the planned speech in full, pared back on the spot but still a little long. Sorry Chair!

Grounded is an advocacy body established to assist the growth of CLTs, the gold standard in shared equity, where community ownership is carefully managed to retain public subsidies over time and to scale this upwards. 

Australia’s Housing system is on life support – we are witnessing the cracks driven by 25 years of the CGT discount. Land price inflation has outstripped wage growth for too long. We say that land price takes the gains – any gains society makes! That’s certainly what happened during the pandemic, when national land values increased FY21 by a full $1 trillion above the most optimistic forecasts – that’s $1.7 trillion in total. And the following year – add another 1 trillion for $2.7trillion in 2 years. The nation’s debt expanded as government support of $500bn was largely tipped into property. 

If we want to Help to Buy we must recognise that with any increase in income, whether it be by subsidy, deposit supplementation or a hefty ACTU wage agreement, land prices win. 

So to see the Help to Buy legislation boasting about helping ALL Australians was concerning.

It will hurt more Australians than it helps. Why? Because the danger is what it will do to prices on the margin. The thresholds of $850K & $950K are not only too high, but will signal to developers that they can continue pushing prices higher. We saw this with Victoria’s Stamp Duty Discount – the pricing threshold increased from $600K to $750K in a whisper, after 8 years. The same will happen here. 

The thresholds should be $150K lower. 

Importantly any increase should be indexed to wage growth. 

As our submission pointed out, the big issue about helping ALL Australians is that this policy is not only limited to 10,000 participants, but it is sold as a housing affordability tool. Housing Ministers in particular must carefully explain how housing accessibility is different from housing affordability

Accessibility has become the bane of affordability and housing ministers need to do more to warn of the dangers of keeping the music going. The treadmill cannot keep speeding up. 

The First Home Guarantee and associated policies encouraging 5% deposits as the new normal will keep the music playing. It might even turn the music up.

Not only is the equity lent without interest charged under Help to Buy, but the orientation of the program relies on the vendor selling into a higher priced market. Therefore the subsidy is largely sequestered to the open market, resulting in further responsibilities for governments of the future to find even larger sums of capital to enable housing accessibility.

Whilst the mooted thresholds do focus pricing trajectories towards that point, it will inevitably increase over time. We feel this is a poor outcome and could be improved if an affordability lock was put in place. 

An affordability lock can be implemented via:

  • Part land lease, 
  • Part resale formula (AKA CGT) 
  • Part Income threshold – 30% of the income for the 2nd lowest quintile. The house can only be sold for 30% of the income capitalised over 20 years. 
    • This ensures land and housing costs do not outstrip wage growth. 

We strongly believe in shared equity, but feel that a decentralised approach, with community holding the equity is likely to get a stronger buy in from voters. Community groundswell can build to reveal the tremendous goodwill of samaritans that entice local tradies, underutilised resources and neighbourhood philanthropists to come together. 

Grounded wishes the government would investigate more closely the use of Community Land Trusts to not only enable housing accessibility, but to then ensure housing that receives government subsidy is protected from speculative pressures. With the appropriate design, CLTs can be seen as the gold standard of shared equity, where scarce locational rents can be reinvested over time to expand the base for affordable housing. 

Subsidy retention would then be maintained in the public estate, enabling for-purpose housing to gain a further foothold in the market. 

Thank you. 

Notes

UK: Home buyers receive an equity loan of up to 20% (40% in London since February 2016) of the market value of an eligible new-build property, interest free for five years. £600,000 threshold, no income requirements. 

Help to Buy We find that the Government’s Help to Buy scheme, which will have cost around £29 billion in cash terms by 2023, inflates prices by more than its subsidy value in areas where it is needed the most. Meeting housing demand – House of Lords (2022)

Housing Australia should investigate the plausibility of CLTs on government owned land. A CLT can be constituted so that a land lease (or part land lease) could be paid to the government under a form of vendor finance, with the accompanying resale formula acting to keep prices in line with wage growth. 

I would tighten the purchasing eligibility for Help to Buy to developers who are meeting the 5% supply outcome. If a master planned community was meant to be completed in 20 years, then how are they tracking. Use a 3 year average for supply outcomes. If developers are teasing back supply as they negotiate to pay next to nothing for a $500m train station on their land, then HTB eligibility should be curtailed.

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