Australia should look to Singapore to fix housing crisis

During the past four decades in which home ownership among Australians aged 25-34 has sunk from around 60% to 45%, home ownership among the same age group in Singapore has climbed from around 60% to 88%.

There’s a good chance that’s because Singapore is doing something right.

What Singapore has that Australia does not is a public housing developer, the Housing Development Board, which puts new dwellings on public and reclaimed land, provides mortgages, and allows buyers to use their compulsory retirement savings (what Australians call superannuation) for both a deposit and repayments.

There’s more to it than that. It limits eligibility by income and age, requires owners to hang on to the property for five years, and limits their resale to only other eligible buyers.

Eight in ten of all the dwellings in Singapore today were built over the past half century by the Housing Development Board.

In a new paper released this month I suggest an Australian version called HouseMate, that could halve the cost of buying a home.

Introducing HouseMate

  • Housemate would build on underutilised crown, council, and federal land, land acquired by compulsory acquisition, or land purchased at market prices, and by tenders from private developers
  • HouseMate would sell the dwellings at a discounted price (A$300,000 on average) to Australian citizens aged over 24 and in a de facto or married relationship and to single citizens aged over 28 and over, where no household member owns property
  • HouseMate would offer loans underwritten by the federal government for up to 95% of the purchase price, charged at one percentage point above the cash rate, which at the moment would be 1.1%
  • HouseMate buyers would be permitted to use their superannuation savings and contributions for both the deposit and ongoing repayments
  • HouseMate buyers would be required to occupy the home, with limits on leasing and resale for seven years. They will own the home freehold, paying council rates, insurances, and having responsibility for maintenance and body corporate representation
  • HouseMate owners could sell after seven years. But if they sell to the private market instead of another eligible HouseMate buyer, that would trigger a waiting period of seven years before the seller became eligible for another HouseMate home, and a fee of 15% of the sale price

Homes for half price

My calculations suggest building these homes on land that would cost little (perhaps A$50,000 averaged across all types) would by itself cut the price 20-35%.

The lower interest rate, and the use of superannuation savings for both the deposit and repayments would cut the “after super” cost saved by as much again, cutting the “after super” cost savings 50-70%.

The use of superannuation savings where available makes sense. Home ownership does more for security in retirement than does super.

Because the use of super would be quarantined to new HouseMate homes, it would be unlikely to push up the price of existing homes.

No other housing policy change would do anything like as much to make homeownership cheaper, or to free up income for families at the times they need it most.

The changes to tax arrangements often talked about, including changes to capital gains tax and negative gearing, might on my estimate at most cut prices by as much as 10% – enough to reverse only six months of the past year’s price growth.

There would be critics

Because HouseMate would divert first home buyers away from private markets, private sellers would find reasons to argue it would be bad for the people it helps and somehow financially reckless or unsustainable. Banks would argue the same thing.

But because the non-land cost of HouseMate dwellings would be mostly covered by the purchase price (and 15% of private resale prices) and the other costs would mostly be covered by the interest margin, the budget cost would be low – on my estimate peaking at A$1.7 billion after seven years and shrinking to $640 million after 20 years.

The $1 billion or so per year would provide 30,000 affordable houses per year. Compared to the A$100 billion spent on the COVID JobKeeper scheme, that cost is a rounding error. Australia spends $125 billion per year on healthcare.

Each year about $11 billion is given to private landowners through rezoning decisions. Taxing those value gains could fund HouseMate ten times over.

We have got the land

The New South Wales Land and Housing Corporation has four times the net assets of Singapore’s Housing Development Board at $54 billion. Queensland’s Housing and Public Works has $10 billion in land assets. Victoria’s Department of Families, Fairness and Housing has $17 billion.

We could start by upgrading and selling existing public housing to its tenants under HouseMate rules.

The Australian Capital Territory has operated this way for decades, developing low or zero cost rural land for housing and selling the homes at cost, although in recent decades it has acted more like a private developer, maximising revenue at the expense of putting people into homes.

To start with, there would be bottlenecks

HouseMate would be overwhelmed at first. I have suggested lotteries to allocate homes until the system ramps up.

Just as Medicare didn’t displace but operated alongside the private health system, HouseMate would operate parallel to the private market, adding to overall supply rather than increasing demand in the private market.

I’ll finish with a story. I met a Singaporean resident recently who moved to Australia to study social work. She said they don’t really have homeless people in Singapore because the Housing Development Board provided an option for almost everyone.

To find homeless people required moving to Australia. I think we ought to try it. What’s the worst that could happen?

Dr Cameron K. Murray is a Post-Doctoral Research Fellow in the Henry Halloran Trust at The University of Sydney. He is also co-author of the book Game of Mates: How Favours Bleed the Nation. You can find Cameron’s work at Fresh Economic Thinking.

This article was first published on The Conversation.

Comments

  1. Great idea.

    Instead of the 15% fee upon sale, what about some sort of betterment tax? This would allow the fee to be calibrated to the actual windfall, which would vary considerably from house to house

  2. What’s the worst that could happen?
    The elite could lose their racketeering profits.

    I actually support Dr Cameron’s plan this time. The housing situation in Australia has got so bad that we really need to apply an “all of the above” solution to the problem.

    You could add to the plan that oldsters could register their houses into the plan (at current agreed market value) and then take various benefits (eg extra pension, maintenance, extra care) at fair prices with the property going to govt when they die, and expenses deducted before the balance going to heirs.

  3. Jumping jack flash

    “…and allows buyers to use their compulsory retirement savings (what Australians call superannuation) for both a deposit and repayments.”

    Perfect!

    Agree completely. Super is dead money, and it can and will never make as much of a contribution towards retirement as a property does.

    Using super for a deposit just makes sense. Magical debt does the rest – prices rise forever as the magical debt expands forever.

    Better yet, abolish deposits altogether. Their only purpose now is to lock people out of property which is cruel.

    Deposits will eventually, if not already, be the thing that causes the market to reach its limit and falter, this can be seen using simple maths. As the prices of houses approach infinity, so too do deposits, because they are a percentage. At the very least, set deposits to some kind of fixed amount, or lower the percentage to 0.5% or something. Its just ridiculous now. How can anyone afford a starter house that’s approaching 2 million shiny debt dollars, when the minimum deposit is 100K? Who has that?

    Deposits are completely irrelevant if the debt expands fast enough to create the required amounts of LVR to show that the debt is good.

    Simply removing the need for deposits would create a phenomenal increase in debt growth which would make the system work as required and create its own stability.

    Banks needn’t worry because they have LMI and the property to sell in case anything goes wrong. Which it won’t. Magical debt is magical.

      • Jumping jack flash

        Nah, just saying it like it is.
        There are easy solutions to their problems, its just perspective, and willingness to go all in on debt. We’ve come so far.

        Embrace debt, make it your friend. Take it to the movies (but only if you’re vaxxed!)

  4. HDB’s are high rise units and it works very well in Singapore. No one complains about not getting into the property market.
    Another interesting factoid about HDB is the Ethnic Quota system designed to maintain balanced proportions of all races in an HDB block between Singaporean, Malays and Indians/Others. It means Malays can only sell to Malays unless the quota is down in their block. Still one of the most raci5t countries notwithstanding, in my experience.

    • Didn’t Lee Kuan Yew institute this after decades of on-off race riots as a way of forcing people to understand each other by living alongside each other, rather than racial ghettos? Seems to be reasonably successful I would have thought?

      Same as the insistence on the English language to allow said groups to communicate.
      You can go to many hospitals in Australia and staff will tell you how difficult it is to communicate with many people who have been here 10, 20 years and not a lick of English is spoken (and how much this slows down sorting out what the underlying health issue is).

  5. Nearly…..

    • Housemate would build on underutilised crown, council, and federal land, land acquired by compulsory acquisition, or land purchased at market prices, and by tenders from private developers

    2022 market?

    • HouseMate would sell the dwellings at a discounted price (A$300,000 on average) to Australian citizens aged over 24 and in a de facto or married relationship and to single citizens aged over 28 and over, where no household member owns property

    Will this be reflected in any cost base and tax consequences?

    For instance, you put this $300k dwelling ANYWHERE in Sydney, this will be arbitraged by marking to market. You’ll find rich parents putting their kids in these the day they finish high school, It gets marked up to $1.3 million by peer value, and in 7 years time, they pocket $1 million unearned money…

    • HouseMate would offer loans underwritten by the federal government for up to 95% of the purchase price, charged at one percentage point above the cash rate, which at the moment would be 1.1%

    Not too controversial, you’ll suffer from politics of envy for those not eligible for these rates, I would be more inclined to limit this rate to regional property, which I’ll comment on in more detail later…

    • HouseMate buyers would be permitted to use their superannuation savings and contributions for both the deposit and ongoing repayments

    This type of thinking needs to stop. Superannuation should not be looked at another vessel of consumption.

    We are all paid an index of 110, with 10 being put into super, and 100 being paid to us for our PAYG and our day to day expenditure. If our before tax 100 isn’t enough, its means something is broken, and needs to be fixed, not to dig into the 10, which is specifically quarantined for retirement savings.

    Leave it alone.

    • HouseMate buyers would be required to occupy the home, with limits on leasing and resale for seven years. They will own the home freehold, paying council rates, insurances, and having responsibility for maintenance and body corporate representation

    Pretty secular

    • HouseMate owners could sell after seven years. But if they sell to the private market instead of another eligible HouseMate buyer, that would trigger a waiting period of seven years before the seller became eligible for another HouseMate home, and a fee of 15% of the sale price

    SO if my $1 million dollar gain became $850k… I don’t think I’d be disincentivised

    Now, lets talk regional…..

    It my workings in karratha, a place where properties went from $250k, to $1.5 million and back to $250k in the space of 10 years I would say this.

    Non-capital city Australia, for the most part, brought this on themselves. For lack of a better word, you can call Searipple Road the CBD of karratha…. it will take you 20 minutes to ride a bicycle to the furthest urban boundary of karratha…Baynton West.

    You look back at Searipple and say “we’re running out of land”……… swivel your head 360 degrees…… then say that with a straight face. The price of land in karratha is whatever you want it to be.

    One of Bob Katter’s stories is the level of the price of land in Charters Towers to be permanently $6,000. Again, land is a vast majority of Australia is whatever you want it to be.

    Now, if the federal government is running a scheme like you propose…. it could, even at market prices…. be able to sell blocks of land for this $6,000 price range in many appealing parts of the country. Particularly regional cities…..

    Now, imagine if you will, that with something as piddly as $6k for the block of lande, the price of a house would be, efffectively the cost of the build,,,,,, $150k-$200k…..

    In fact, I’d hazard to guess on the lower side…. if you entire debt burden is $150,000, the annual repayment on this thing over a 30 year period at 2% interest rates (imagine thinking 1.1% – or a 0.9% discount to the prevailing rate is the factor here) would be less than $7,000 p.a.

    Seriously…. if my annual servicing is $7,000, do you know how much my wage demands are going to reduce?

    Here’s the gist, government buys up tons of fringe land in sizable regional cities and gets them to $6k each….. and I dunno… sets up some concurrent bonds to funds the building of schools and roads… at the cash rate… of 0.1%….. you know, have the new areas built with all the amenities those likely to take this up will desire.

    In fact, front end this development so they’re turnkey infrastructure….

    In the midst of the greatest internal migratory movement we’ve seen in over a century, and a WFH movement gathering some steam…

    I’m saying let us return to how property was developed up until 30 years ago a wonderfully radical way of looking at providing shelter for our population.

    • Jumping jack flash

      “For instance, you put this $300k dwelling ANYWHERE in Sydney, this will be arbitraged by marking to market”

      This exactly is why you cant have a solution to create “affordable housing”. And just say the house was built from old car doors so it really would be worth 300k, then try putting that next to a 2million dollar house… itd never be allowed because the debt attached to the 2million dollar place depends on a specific LVR! If you mess with the “V” in LVR then someone’s going to get their kneecaps busted, either by the owner of the debt, or the bank.

      “Seriously…. if my annual servicing is $7,000, do you know how much my wage demands are going to reduce?”

      Excellent! And this is exactly why i need to be paid 6 figures and not a dollar less, because of the amount of money i need to spend on debt, before i can even buy food.

    • kierans777MEMBER

      For instance, you put this $300k dwelling ANYWHERE in Sydney, this will be arbitraged by marking to market. You’ll find rich parents putting their kids in these the day they finish high school, It gets marked up to $1.3 million by peer value, and in 7 years time, they pocket $1 million unearned money…

      Under HouseMate, if a member of the rich kids household owns property then they’re not eligible. So this will help keep the rich kids out. They’d need to be tuning of the legislation so that trusts, etc can’t cheat the system. Some form of means test could be added as well perhaps.

      This type of thinking needs to stop. Superannuation should not be looked at another vessel of consumption.

      Absolutely agree. Withdrawing super early denies the future self significant earnings. It would also limit diversification. It would also leave the poorer classes cash poor (no income stream) in their retirement years which means they’d have to sell the house and live where exactly …..

      I like HouseMate but super should be off limits.

      • I really don’t understand how using underutilised crown land is going to build you a Housemate next to a $2M property.

        Owning your house outright outweighs everything.

        Thanks for your input Dr Rusty Penny, when are you going to put in your submission?

  6. Why are all the solutions for buyers and not renters? Rental affordability is a bigger issue. The governments missed the boat last year and could have bought up many cheap inner city apartments to rent out as part of the housing commission program or whatever it is called these days. The inner city apartments are located close to transport, services and potential employment.

  7. Sounds good to me, who do we lobby to get it going?
    Living in coastel/rural Vic, my investment properties have gone up 50% in 2 years – that’s just not good. We’re holding them for the kids, or else it’s bum-fuck Mallee for them.

  8. The current Australian Government is concerned about their rich friends, not the young low-income earners. Singapore has a human view, not a money-grabbing focus.

  9. David WilsonMEMBER

    Great idea to use super funds as home ownership is fundamental to all of us as we age.
    I fear the current system of increasing rental of houses will see our younger generation struggle in their latter years with increasing rents eating into their saving at an ever increasing rate.. .
    Home ownership is far cheaper to maintain than increasing rents on the same property.
    Home ownership also is a form of savings and increasing personal wealth that give us flexibility to sell down as we age that often provides us with more $$$ in our hands to enjoy retirement without it being a financial struggle.

  10. Im sure the property spruikers would love the Singapore model. The penthouse in my condo is on the market right now… listed at $51,800,000 – i kid not.

    And even HDBs, many of which are awful, are now trading well above a million. Young people here feel totally shut out of the property market and its one of the factors fueling anti western sentiment as they see westerners living in these apartments, not realising they only rent (the owners being almost exclusively chinese).

  11. David IronsideMEMBER

    Sounds like a reasonable proposal. Housing affordability is a crisis for Australia. We need alternatives.