Labor announces ‘radical’ housing affordability gimmick

Labor has announced a ‘radical’ new “Help to Buy” shared equity scheme, in which the federal government will take an equity stake in 10,000 homes a year, in turn enabling Australians to enter the housing market with just 2% deposits:

The scheme, called Help to Buy, is designed to help Australians buy a home with a smaller deposit, a smaller mortgage and smaller mortgage repayments…

The equity contribution is up to 40 per cent of the purchase price of a new home and up to 30 per cent of the purchase price for an existing home.

The homebuyer will need to have a deposit of 2 per cent and qualify for a standard home loan with a participating lender to finance the remainder of the purchase…

“This will help many Australians on low and modest incomes to buy a home with a much smaller mortgage that they can afford to pay rather than renting for the rest of their life,” Labor said in a statement…

Labor says the scheme is not just for first homebuyers, it’s for other Australians who need a helping hand as well…

Help to Buy will be only available to Australians with a taxable income of up to $90,000 for individuals and up to $120,000 for couples…

The ultimate impact of these types of demand-side “affordability” policies is that they inevitably increase demand and put upward pressure on house prices. It is basic economics.

Indeed, AMP chief economist recently described shared equity schemes as a “band-aid solution” at best and counterproductive at worst:

“To the extent that it brings forward demand, there’s a risk this worsens the problem and benefits those already in the property market through higher prices”.

That said, this scheme is probably not a big deal in terms of driving demand for two reasons.

First, the extra demand will be for a small part of only a few markets, as the income and price limits (outlined here) will dampen the impact, and the people who want to use this scheme probably will have a hard time outbidding others.

Second, I doubt many people will want to to use the scheme given the fact that few banks would sign up and the mortgage rates on offer are likely to be inflated.

In the ACT land rent scheme you had to get a loan from Police Bank (the only bank willing to lend to the scheme) at a premium interest rate. The current Victorian scheme has two banks (Bank Australia and Bendigo) who no doubt do not offer their best loan products/interest rates.

A 2020-21 review of shared equity in the United Kingdom showed that few private banks participate in these schemes, and those that do usually only offer higher interest rate mortgages, undermining resident benefits.

Because the banks will only have the security of the borrower’s share of the house, it is basically a huge 98% LVR mortgage for them. So, paying an extra 0.5% to 1% interest rate will undo a lot of the cashflow benefit from getting 30%-40% equity for a deposit.

Ultimately, Labor’s policy is another in a long list of housing affordability gimmicks rolled out by both sides that address the symptoms not causes, and are more likely to make the affordability situation worse.

Unconventional Economist
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Comments

    • Charles MartinMEMBER

      But Albo said that he and his team are ready to govern. Of course he gave no measure as to how he got to that conclusion so it’s either bullschit or he is indeed ready to govern. I’m going with the former.

    • Strange EconomicsMEMBER

      This is great for punting investors, thats about it.
      If they really cared about affordability they would build low cost small affordable housing that doesn’t appeal to speculators, or raise rental assistance.
      They can double leverage by buying 60% of a house, on 90% loan, on 5 % deposit scheme also (who buy a house and then rent it out after 6 months).
      When it goes up 10% a year, they buy out the Commonwealth at the original purchase price and take the profit on the other 40%.
      Only 10000 houses a year though, will sell out in no time.
      And dumbly it applies to existing houses too – it should at least be new builds only to expand the stock.

    • kierans777MEMBER

      As opposed to keeping the current mob? I’ll take the Diet Coke of Evil thanks.

  1. GarethMEMBER

    The LVR comment of 98% doesn’t make sense. Sure with a 30-40 injection by government that the LVR is 58 or 68%?

  2. Holiday In ScomodiaMEMBER

    I’m not the most tech savvy can anyone please tell me how to search old comments by poster? Thanks.

    • Specify site + poster + search term, when using a search engine eg
      Site:www.macrobusiness.com.au “holiday in Scomodia” inflation

        • call me ArtieMEMBER

          Above suggestions are good. You can tighten it up a bit by using the google “site:” search feature. So, if you want to search for a comment by some member called Dingo beginning with or containing the phrase “I ate the baby” on this web site you could enter a search into google as follows:
          “I ate the baby” “Dingo” site:macrobusiness.com.au

          Note that the spaces and punctuation are absolutely non-negotiable if you want it to work. There has to be a single space before the word site and no spaces at all after. The quotation marks tell google that you want to exclude results without that exact phrase

  3. sps179MEMBER

    In effect, Labor, Liberal and Greens all have the same housing affordability gimmick. Endless mass migration, for a 40% population increase by 2050. Gotta love democracy.

    • Grand Funk RailroadMEMBER

      Thats the way it looks. When it comes to population, immigration, house prices and incomes, we may as well be living in a dictatorship.

      I actually sat and listened through Albanese’s campaign launch and found it thoroughly depressing. A big load of personal invective vis ScoMo – understandable – to go with as half baked a collection of glib specious ‘policy’ announcements as has ever been defecated onto the Australian public. All decorated with some fairly meaningless gender equity.

      The ALP is only electable because it is in opposition, to the extent a ‘small target’ enables, to the most thoroughly pathetic government this country has ever seen.

      And even then i have this nagging doubt they could well blow it from here

    • SupperannuationMEMBER

      I emailed my local Greens candidate and asked why the Greens don’t campaign on lower immigration. His response was that most pollution is caused by corporations not by people.

      • Yeah, the Greens will build 1m homes over 20y, while LibLab does 4.7m net migration over 20y. That’s not a policy, that’s a hamster wheel.

        • You are missing the point – this is a supply side response aimed at those on lower incomes. That will make a meaningful difference for those struggling to get a roof over their heads. I know immigration is important but it is not the only important issue no matter how much some would like to say otherwise.

  4. reusachtigeMEMBER

    Look, I hate Labor and their agenda to turn Australia into a communist transexual nation but any policy that gets young people onto the property ladder is a great thing because that is 100% the proven route to financial success. Plus it will help the next boom along.

    • RupertMEMBER

      Is there any truth to the rumour that you blew a tranny in your Bentley?

  5. pfh007.comMEMBER

    If the ALP want to do something they could offer an old fashioned subsidy for new construction.

    They can characterise it as a partial refund of the services levies imposed by state governments.

    $100,000 per lot.

    10,000 lots per billion.

    100,000 lots for $10 billion

    In most parts of Australia a $100,000 contribution would make a significant difference and it will tilt the table towards investment in new housing rather than existing housing.

    • call me ArtieMEMBER

      PHF.
      There’s nowhere to PUT the putative new houses. Nowhere anyone wants to live, at least. Australia is barren and mostly hostile. Plus subject to flooding, fire, drought and the tyranny of distance.
      The only new housing land that can be released is dregs no-one wants to live on. It’s a specious argument
      EDIT: I recall the bumper sticker and it’s true: F*ck off, we’re full”
      EDIT EDIT: Or you could throw farmers off productive land and turn it over to housing. That should work well long term

  6. Labor’s policy seems designed to demonstrate to young people Labor “cares” about their being locked out of the housing market, as opposed to the LNP who obviously don’t. Of course, sometimes the LNP also pretend to care about this issue, but they don’t do a very good job of it, as they really don’t care at all and think the “plebs” should have had wealthier parents who worked harder to help them. It’s performative politics, a bit like when Trump went to West Virginia and said he was going to bring back the coal industry. The locals didn’t really believe him, but they appreciated the fact that he could be bothered to visit and lie to them in person, as opposed to Hillary who just hoped they’d shut up and disappear quietly. In this limited sense, Labor’s policy could be quite successful.

    • Dahls ChickensMEMBER

      Yep, it’s poor policy and Labor know it. The only “problem” they’re trying to solve with this is their electability. Meanwhile, important economic reforms go undiscussed – but you can’t measure the impact of that, so that’s ok.

      • I think you are spot on. That this idea is being put forward by the only real alternative to the current mob of chocolate teapots makes me want to cry. Or drink. Or break something. You get the picture.

  7. This might not be too bad – there are many people who can afford to repay a loan but just can’t save the deposit, as their rent is too high compared to their wage.

    But, yeah, it’s still inflationary.

    • working class hamMEMBER

      On the surface it looks like a good plan for those involved. Certainly better than just giving people cash which gets absorbed by builders/developers. I guess the devil will be in the details.

    • “But, yeah, it’s still inflationary.”
      As is the bank of mum and dad for those that can get it.

    • Tassie TomMEMBER

      If you can’t afford to save a deposit, then you sure as hell can’t afford to repay your loan.

  8. Muttafukaburrasaurus.MEMBER

    Canada mades noises about banning foreign ownership, it’s probably a very good idea.
    Something must be done to allow the young of Australia to have a ownership stake in this countrys future.
    If you think a generation of exploited, casually employed renters will be willing to defend a way of life, that for them is entirely unachievable, your delusional.

  9. Reposting my comment (with minor edits) from the weekend links thread.

    Terrible policy. ALP have had a long time to put out housing policy for scrutiny so why are we just seeing this now?
    – this does not deal with the structural drivers of high prices.
    – it supports current price levels by bringing marginal buyers to the market.
    – the price caps have the potential to distort each state market and the lower stratified market segments.
    – the income caps are arbitrary and mean if an applicant earns $1 over they lose eligibility. Therefore leading to perverse outcomes where a government backed bidder can outbid a rival bidder with no financial support.
    – timing. Introducing demand side policy at or near the peak which will bake in a high price means both the government and the buyer will lose out long term.
    – opportunity cost. There are better interventions an support the Government could do with every penny. For starters I’d prefer to see them spend it on homeless services and shelter. Or to build public housing directly.
    – Interaction with other policy. Will require further analysis but with each state having some kind of FHB grant/discount it is unclear initially whether the federal policy will be in addition to state initiatives or to the exclusion.

    I’m sure there are many more rocks to be thrown at this but its just my quick take on it.

  10. this shared equity scheme already exists in western australia.
    it was initially marketed to help ‘low income’ earners to get into a home.
    it turns out that low income earners don’t qualify as you need to be earning at least $50,000 a year to get started.
    ie. low income earners can’t afford the mortgage payments even with 30%-40% government share.

    the government should be building more public housing to help the low income, not helping single income people on a large incomes, into a house and fueling the property bubble further.
    however first of all, they need to address the root cause of unaffordable housing by slashing the mass immigration program.

  11. The part about new housing seems fine to me despite it pushing up the cost of new builds. At least if it was constrained to new housing only it would be a way of building social housing, but letting the eventual owner make the decisions on the house and what suits them.

    I.e. the government effectively financies the build but leaves the decisions of the actual house to the person who will live in it.

    The part that is bad is the same on existing houses. 285,000 cash injection on existing suburbs already with inadequate housing listings (outer belts and regional areas). I thought Rudd’s 24,000 FHB was bad – this if successful is much worse.

    We can only hope it proves unworkable, to help the first home buyers it promises to help.

  12. gballardMEMBER

    Good to see the general taxpayer will also share in the real estate downturn. Socialism at its best!!