Chapter 2Key issues and committee view
Introduction
2.1This chapter sets out the views of submitters regarding the key issues about the Help to Buy Bill 2023 (Help to Buy bill or, the bill) and the Help to Buy (Consequential Provisions) Bill 2023 (consequential provisions bill).
2.2As detailed in Chapter 1, the provisions of the bills primarily set out the constitutional basis for the Help to Buy program (the program) and do not provide specific details of how the program will be run, this will be provided in the Program Directions [Regulations]. As such, few submitters made specific comment on the provisions of the bill and instead shared their views and proposals regarding the direction, priorities, and potential impact of the program more broadly.
2.3The chapter begins by outlining views on the establishment of the Help to Buy Program. The chapter then considers key issues raised by submitters regarding the benefits and drawbacks to the use of shared equity programs, and areas where the program could be reviewed.
2.4The chapter concludes with the committee view and recommendations.
Views on the establishment of Help to Buy
2.5Most submitters to the inquiry supported the intent behind the bills to establish a national shared equity program.
2.6The Grattan Institute submitted that it supported the proposal to establish the program as it would 'help level the playing field for first-home buyers and help arrest the decline in home ownership among poorer Australians of all ages'. In evidence, Mr Brendan Coates, Economic Policy Program Director at the Grattan Institute provided a rationale for this position, telling the committee:
Homeownership is becoming harder largely because it takes longer to save a deposit. We're talking about how now it takes up to 12 years for the average Australian to save a 20 per cent deposit for the average home, and so unsurprisingly a growing proportion of Australians now rely on the bank of mum and dad. Even if house prices do fall as a result of federal and state government reforms to lift supply and reduce demand, they're likely to remain high relative to incomes compared to history. That means the deposit hurdle is likely to remain a problem.
2.7Similarly, the Housing Industry Association (HIA) expressed support for the program’s establishment stating that it would enable lower income earners to access finance for a deposit which HIA identified as the 'biggest obstacle for Australians trying to buy their first home, especially those paying rent while saving for their deposit'.
2.8PowerHousing Australia—a national network of community housing providers—welcomed the introduction of the program. It noted that access to housing raises the 'social, economic and civic participation of all Australians', but that homeownership rates have gradually been decreasing. It highlighted statistics from the Housing Australia’s State of the Nation’s Housing Report 2022-23 that price to income ratios have surged for potential first home buyers in most major cities and regional areas. PowerHousing Australia also pointed to its own research produced in conjunction with CoreLogic, which noted that rising property prices are making it difficult for Australians to save, leading to longer timelines to accumulate the large deposits required for home purchases. In this context, it submitted that a federal shared equity scheme would provide 'an opportunity to lessen the barriers to homeownership'.
2.9National Shelter, the peak housing access and affordability organisation, and the Community Housing Industry Association (CHIA) also supported the bill, submitting that the program would make homeownership more accessible to people unable to compete in the open market such as those with disability, older women, and Aboriginal and Torres Strait Islander people.
2.10Master Builders Australia (Master Builders) submitted that it is 'strongly supportive' of the bills and the establishment of a federal Help to Buy program. It submitted that the extra 10 per cent equity provided by the government for participants seeking to build new homes aligns with the government’s commitment in the National Housing Accord to deliver 1.2 million new homes over five years to June 2029.
2.11A smaller number of submitters were more hesitant about the establishment of this program to solve broader housing issues but observed that it would help those who would access it.Ms Maiy Azize acknowledged while the program would not be available to everyone, for those who are eligible 'it will absolutely be beneficial'.
2.12HomeSuper noted that the government has the power and ability to enact long-term housing solutions but was of the view that its intention to establish Help to Buy would not improve housing outcomes for Australians as it has 'too much potential to inflame the excessive demand problem and increase further negative pressure on housing'.
2.13Dr Peter Tulip referring to an article criticising both major parties housing polices during the 2022 election, contended that the proposed program, just as the then proposed Coalition’s home guarantee would also be 'harmful' and would make 'housing more expensive for everybody else'.
Views on shared equity programs
2.14As an assessment on the potential impact of the Help to Buy program, submitters and witnesses expressed views on shared equity programs in general. Some purported the benefits of such programs, commenting the success of existing programs, how they can address the issue of mortgage serviceability, and their benefits in comparison to other first home-owner programs.
2.15Other submitters and witnesses were, however, critical of the shared-equity model, particularly raising concerns that it will impact the housing market by increasing house prices. These views are discussed sequentially below.
Benefits of shared equity programs
2.16The core identified benefit of shared equity arrangements, as explained by National Shelter and the CHIA, is that they can:
reduce both the upfront costs of purchase by lowering the deposit required and ongoing housing (mortgage repayment) costs. At the same time, the homebuyer will share any capital gain with the equity partner on sale.
2.17The NSW City Futures Research Centre observed that shared equity arrangements provide mutual benefit to both the participants and the government:
From the purchaser perspective, the appeal of SE is the smaller mortgage loan and deposit downpayment needed to achieve this than would have been otherwise needed. From the government perspective, SE can be one means of addressing the policy objective of easing access to home ownership for low to moderate income first home buyers.
Precedent
2.18Submitters pointed to the fact that state operated shared equity programs have been successful in enabling homeownership in Australia. Western Australia's Keystart Shared Ownership Home Loan Scheme was one existing shared equity scheme commended by several witnesses. The HIA submitted that it had been 'highly successful, in providing an affordable pathway into home ownership and enabling more Australians to get into their own home sooner'.
2.19Dr Michael Fotheringham, Managing Director, Australian Housing and Urban Research Centre stated that shared equity programs 'have been some of the most successful and most effective housing policy interventions' and pointed to the Keystart program and the HomeStart program in South Australia as 'exemplary' cases.
2.20Referring to the success of state backed shared equity programs, Mrs Alexandra Waldren of Master Builders Australia endorsed a shared-equity scheme at the federal level, arguing that it would provide a broader range of options for those seeking to enter the market.
2.21On the other hand, Grounded Community Land Trust Advocacy (GCLTA) submitted that the government 'could have learnt more' from the United Kingdom’s Help to Buy policy which they said did not 'mak[e] homes more affordable for society in general or help address other pressing problems in the housing sector'.
Accessibility
2.22As described by the Minister for Housing and Homelessness, the Hon Julie Collins MP, Help to Buy aims to assist a diverse range of Australians, including first-time buyers, singles, couples, siblings, and those nearing retirement.
2.23Submitters and witnesses outlined how shared equity programs can facilitate home ownership for specific cohorts who may have difficulty purchasing a home through the open market. The UNSW City Futures Research Centre submitted that shared equity models are suitable for 'those holding modest amounts of investable capital but lacking the earning capacity to secure a sizeable mortgage'.
2.24In evidence, Mr Coates identified that the program would be particularly helpful for older Australians as it would make servicing a loan on a house more practical at a later stage in life. Older Australians, he explained, may have a deposit for a house but will not be in the workforce long enough to pay off the full value of a loan:
They might only have 15 years left at age 50 or less. Whereas, if they only have to pay down 70 per cent and they've got a deposit that maybe takes 20 or 30 per cent of that, then they've only got to pay down 40 per cent in 10 or 15 years, and that's much more feasible…It secures them the prospect of a stable home.
2.25Further, Mr Coates explained that access to a shared equity program may facilitate a secure retirement, particularly for older women:
Less than half of women who separate from their partner and lose the house manage to purchase again within 10 years. Unsurprisingly, older women who have been separated or divorced are more than three times as likely to rent at age 65 than married women; if they have separated, men are twice as likely to rent at age 65. And we know that, on current trends, if you do not own your own home in retirement then just under half of those people are currently living in poverty, and so Help to Buy offers them a pathway back to homeownership and a more secure retirement.
2.26National Shelter and the CHIA noted that other assistance measures, such as first home-owner grants, may not be appropriate for some cohorts of Australians:
…shared equity has a role for a particular cohort that might be wanting to enter into homeownership, but first homeowners grants or the assisted guarantees that come through Housing Australia are not appropriate for them because they still don't have the right deposit. For example, it could be a particular model that works for older women who have some equity to contribute but may not be able to take on a full loan so that they can remain in homeownership following a relationship breakdown
2.27Dr Michael Fotheringham, Managing Director of the Australian Housing and Urban Research Institute told the committee that, shared equity programs have demonstratable merits compared to other first homeowner initiatives. He pointed to research published by AHURI that found that:
Unlike the first home owner grants and deposit schemes, shared equity helps not just with the barrier of the deposit but also with serviceability of the loan over time. It actually hits both aspects of housing unaffordability. In a low-interest-rate environment that's less of a concern, but as interest rates have started to creep up that has become much more important and so this becomes a really important tool to use.
2.28Further, he explained that shared equity schemes are 'a really important dimension' to the whole-of-government housing policy initiative as they facilitate homeownership for people who otherwise wouldn’t be able to, whereas home-owner grants tend to 'accelerate those who would get there anyway'.
Concerns with shared-equity programs
Risk of inflation
2.29Some witnesses who attended the public hearing on 5 March 2024 discussed that some shared equity programs can lead to increasing house prices. In a market that faces supply constraints, there is a risk that a demand-side housing assistance measure could stimulate demand.
2.30Other witnesses believed that the design and calibration of the Help to Buy scheme; its place and price caps and eligibility requirements, meant the risk of inflationary pressure was negligible.
2.31Dr Fotheringham, told the committee that shared equity schemes are not inflationary, and claims to the contrary are unfounded:
The macro and micro simulations we've done using ABS data; Reserve Bank data, which is core logic data; and the HILDA survey—Household, Income and Labour Dynamics in Australia—have shown that it's not inflationary to use this measure. Several decades worth of evidence from South Australia and Western Australia demonstrates that in live experiments.
2.32Dr Peter Tulip, Chief Economist at the Centre for Independent Studies, told the committee that the proposal ignored warnings from economists that housing initiatives should not act as a stimulus for demand. He explained:
a demand-side stimulus in a supply constrained market. So it helps the 0.2 per cent of potential home buyers, who do well, but the other 99.8 per cent suffer from higher prices. We have a housing affordability crisis, and this makes that problem worse for the majority of people entering the market.
2.33Professor John Quiggin was similarly of the view that the beneficiaries of the program would gain at the expense of everybody else in the housing market.
2.34Mr Fitzgerald told the committee that the program may 'endanger more Australians than it helps' due to the risk it presents in raising housing prices.
2.35Other witnesses were more moderated in their assessment of the likely inflationary impact that Help to Buy could stimulate.
2.36Mr Matt Grudnoff, Senior Economist at the Australia Institute, contended that policies that boost the financial position of first home buyers are usually inflationary and make housing less affordable. However, with a cap of 10,000 participants per year, Mr Grudnoff conceded that Help to Buy is unlikely to have a significant impact on overall house prices but that it may 'have some impact on the price of the kind of properties that first home buyers might want to purchase'.
2.37Mr Coates pointed to modelling undertaken by the Grattan Institute that demonstrated that while shared equity schemes can add to house prices, the impact would be minimal:
With just 40,000 places on offer over four years, it will have close to zero impact on housing prices in the context of Australia's $10.3 trillion housing market. We estimate that after four years, those 40,000 places, if they're fully taken up, could see house prices rise by 0.016 per cent.
2.38In evidence, Dr Cameron Murray agreed, stating that if there is an impact on house prices, it would be upwards, but that it would not be 'significant'.
2.39Ms Emma Greenhalgh, Chief Executive Officer of National Shelter, contended that:
Given it is relatively modest, we can't see that it would have an inflationary impact in the way that other homeownership schemes would. When I went back through the evidence of Keystart WA, and the work that AHURI has done through Rachel on the difference between first homeowners grants and other assistance measures like shared equity, it indicated that shared equity is not inflationary.
2.40Mr Shane William Garrett, Chief Economist, Master Builders Australia argued that despite there being a risk of inflation, there is an opportunity to design the program to negate the risk:
We'd argue that we should design the scheme in a way that doesn't push prices up but does push new home building activity higher so that demand for new homes is more fully met by the supply of new homes out there. So it does really depend…on how the scheme is designed in terms of how it reconciles demand with supply in the market.
2.41The Department of the Treasury (the Treasury) told the committee that while it had not undertaken specific modelling on potential inflationary effects of the Help to Buy scheme, it agreed that impacts on prices would be 'very small' for two particular reasons. Firstly, the size of the program in the context of the property market with half a million transactions annually is a low proportion. Second this program has been targeted in its design to help low and middle income earners buy relatively moderately priced homes. This program is targeted to one cohort and the types of properties they would be purchasing.
Cost to government
2.42A few submitters to the inquiry questioned the notion of the cost benefit of shared equity programs for the government and the taxpayer. UNSW City Futures Research Centre submitted that the short-to-medium cost to government is 'relatively high', explaining that to assist a participant buy a house valued at $950,000, the program would allow the government to contribute up to $380,000.
2.43Further, the recouping of the government’s share of the equity is uncertain. As articulated by GCLTA:
the resale and recouping of the government’s investment comes at a cost. Not only is the equity lent without interest charged, 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'
Suggestions on the design of Help to Buy
2.44As noted at the beginning of this chapter, many submitters welcomed the introduction of the Help to Buy program. However, majority of these submitters also argued that the program, as it has been portrayed in ALP Party documents, could be improved. Key suggestions are discussed below.
Integration with other federal and state programs
2.45As noted, there are a number of other state government operated shared equity schemes already in operation. In evidence, the Treasury clarified that Help to Buy would 'complement' existent state and federal housing accessibility schemes in different ways:
Whereas the Home Guarantee Scheme provides those on higher incomes with an opportunity to overcome the deposit hurdle, Help to Buy will help those on low and middle incomes to overcome both the serviceability and deposit hurdles. We think the Help to Buy scheme will complement state shared-equity programmes, because each of those schemes has its own mechanisms for targeting different cohorts, ranging from higher income caps to specific targeting based on job situation or tenure type, or a different approach to charging interest on government contributions.
2.46Outside of first home-owner programs, a number of submitters and witnesses suggested that the program should be designed to complement other commonwealth government housing initiatives, such as its commitment to increase the supply of new houses.
2.47For example, the HIA argued that all new housing policies should address housing supply and contended that the program had the potential to 'support the delivery of more homes' by encouraging new home building, which would form an 'important part of the mix to address [Australia’s] current housing shortage'.
2.48National Shelter and the CHIA submitted that doing so would have the added effect of 'addressing concerns that the scheme could be inflationary by increasing demand for existing housing'.
2.49UNSW City Futures Research Centre submitted that there appears to be a lack of clarity around where Help to Buy will sit in the government’s broader continuum of housing policies, which risked 'adding to the confusing complexity faced by potential service users'. It argued that there is a need to clearly outline the rationale for the program in the government’s broader housing agenda, and that it could ideally ‘be integrated within a broader home ownership support strategy to form part of the government’s forthcoming National Housing and Homelessness Plan’.
2.50The Treasury in their evidence outlined that the bill would be compatible with other housing policies and would empower Housing Australia to deliver the first national shared-equity scheme. As such, the scheme will complement existing homeownership schemes at both federal and state levels. Whereas the Commonwealth’s Home Guarantee Scheme provides those on higher incomes with an opportunity to overcome the deposit hurdle, Help to Buy will assist those on low and middle incomes to overcome both the serviceability and deposit hurdles.
2.51As Housing Australia would administer the Help to Buy program, and other new housing initiatives such as the Australia Future Fund Facility and the National Housing Accord Facility, PowerHousing Australia submitted that there is an opportunity to 'ensure alignment' between the three initiatives.
2.52Master Builders Australia suggested that, to assist in the government’s delivery of 1.2 million new homes over five years to June 2029, a certain percentage of participants in the program should be confined to new homes only.
Expand the program
2.53As outlined in Chapter 1, the Help to Buy program is planned to operate over four years with a cap of 10,000 participants per year. Some witnesses were critical of the scale of the program, particularly in comparison to the size of the observed housing crisis in Australia.
2.54Mr Shane William Garrett, Chief Economist of Master Builders Australia similarly acknowledged that the program is ‘not huge’, citing the proportion of participants for Help to Buy per year compared to amount of first home buyers in 2023 (117,000). However, Mr Garrett concluded that the program would be 'still better to have… than not'.
2.55PowerHousing Australia called for the program to be expanded, contending that the 10,000 places per annum was insufficient to meet the current need for housing accessibility support.
2.56In evidence, asked what the rationale was for capping the program at 10,000 participants per year, the Treasury explained that having a contained number of participants per year was one of the ways in which the program had been designed to limit the impact on house prices. The Treasury observed that the Government has a broad suite of housing policies that increase supply, while this is a targeted program to help low- and middle-income earners into home ownership.
Establish a revolving fund
2.57A few submitters raised the potential for the program to be extended and operate as a revolving fund. The NSW City Futures Research Centre described how a revolving fund would work:
when monies are repaid to government at property sale (or when the purchaser re-finances), these could be treated as a resource to be made available to a new qualifying home buyer. Thus, while there would be a one-off cost to government at scheme commencement, successive generations of marginal first home buyers could be assisted sequentially over time with little or no further budgetary impact.
2.58National Shelter and the CHIA submitted that the four-year period over which the program will operate is too short and housing pressures are unlikely to have substantially resolved in that time. The establishment of a revolving fund, it argued, would provide for continuing assistance to low-income home buyers into the future.
2.59National Shelter, CHIA, and the UNSW City Futures Research Centre recommended to remove Part 4, Section 27, Clause 28 of the Help to Buy Bill 2023 and replace it with clauses that would enable the retention and reuse of funds.
2.60In evidence, the Treasury did not explicitly rule out the possibility of the program acting as a revolving fund in the future. Ms Kerren Crosswaite, First Assistant Secretary, noted that under the statutory review there would be an opportunity to 'revisit… whether significant changes to the program might be required'. Ms Vera Holenstein, First Assistant Secretary, added that such a review would have to consider the fact that it would take some years before the initial funds were returned to the Commonwealth and able to be made available to new participants.
Prioritise specific groups
2.61The bill proposes that Help to Buy will be available to eligible residents on a first come, first served basis. Some stakeholders stated that certain groups warranted specific mention and treatment under the program. National Shelter and the CHIA suggested that disadvantaged groups should be prioritised, as:
under a first-come first-served model as envisaged it is unlikely that Help to Buy will help all disadvantaged households unless there is at least a requirement to (1) communicate the scheme in a way that ensures it reaches all groups, (2) provides funding for assistance to support lower income groups into home ownership and (3) targets particular groups.
2.62Similarly, the First People’s Disability Network raised concerns that the program does not contain any definitive commitments to prioritise the applications of disabled and First Nations persons who wish to enter into Help to Buy arrangements. It recommended that clause 24 of the bill be amended to specify that:
the Minister must not issue a Help to Buy Program Direction unless (i) the Minister has already issued a direction outlining the criteria for priority applications by disabled and First Nations persons, or (ii) the Minister has also included those criteria within the initial directions.
2.63In order to better target low- and middle-income earners, the Grattan Institute suggested that the income thresholds for eligibility for the scheme ($90,000 for singles and $120,000 for couples) are too high and should be lowered.
Partnering with alternative housing providers
2.64GCLTA and the Australian Community Land Trust Network both advised that Help to Buy should investigate the use of Community Land Trusts (CLTs) to deliver the program. GCLTA submitted that CLTs:
not only enable housing accessibility, but to then ensure the 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…. 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.
2.65PowerHousing Australia identified Community Housing Providers (CHPs) as another type alternative housing provider with the potential to deliver the program. It argued that CHP’s already have an in-depth understanding of housing issues and would be well placed to support According to its submission, incorporating CHP’s into the Help to Buy program would:
provide a robust trajectory for many into home ownership, maximise long term social and economic outcomes for the community and lead to sustainable flow through stages of the housing continuum together with reinvestment from CHP’s.
2.66Concerning the industry partnership for the successful financial delivery of the program, the Mortgage and Finance Association of Australia emphasised that it would be vital for the program to partner appropriately mortgage brokers. It suggested that Housing Australia could encourage such an outcome through:
ensuring a diversified panel of participating lenders that include lenders to utilise the broking channel to receive home loan applications; and
ensuring that those participating lenders provide for home loan applications to be made through brokers.
Committee view
2.67The committee welcomes the Help to Buy scheme as one of the Government’s policies to get Australians into a home of their own. It does this by directly addressing the access and affordability hurdles of home ownership; reducing the upfront costs of purchasing a home via a lower deposit amount and reducing ongoing mortgage repayments for the life of the loan.
2.68The committee is encouraged by the broad support for the establishment of the Help to Buy scheme and agrees with inquiry participants that it signifies an ongoing commitment to assist low- and middle-income Australians into homeownership.
2.69Importantly, the Help to Buy scheme complements other federal government housing policies, particularly more than $25 billion of additional investment over the next decade for new housing supply, planning reforms committed to through National Cabinet, and leveraging institutional investors through the Housing Australia Future Fund.
2.70Help to Buy is a welcomed addition to the suite of housing policies that directly address supply and ownership and is an appropriate response to current housing accessibility and affordability constraints.
2.71Importantly, the scheme has been carefully calibrated so to not have an inflationary impact on house prices, a design feature welcomed by many inquiry participants.
2.72The committee is encouraged by the housing supply measures of the Help to Buy scheme whereby homebuyers would be able to access an equity contribution of up to 40 per cent for new homes rather than 30 per cent for existing homes.
2.73The committee also notes that, importantly, homebuyers will share any capital gain with the equity partner on sale, will solely be listed on the title and will be able to modify and renovate their home as normal.
2.74The committee notes evidence from the Treasury that the Government will consult on the substantive Program Directions during the implementation of the scheme.
2.75The committee also welcomes that the Help to Buy scheme would be subject to scrutiny and oversight through several transparency, review and accountability arrangements specified in the bill.
2.76The committee again notes that the establishment of the Help to Buy scheme would be a practical step to increase access to home ownership.
2.77The committee recommends that the Senate pass the bills.
Senator Jess Walsh
Chair