Not all Shared Equity Schemes are Equal


Victoria looking to shared equity as a solution.

When people are unable to get off the rent treadmill, shared equity is a good way to achieve home ownership. However, if the shared equity scheme is not structured correctly, long term benefit is limited.

In a (straight) shared equity scheme future capital gain upon resale is distributed in the same proportion as the equity share between the parties. This means that the next purchaser will find it more difficult to purchase that same property. The reason for this is whilst ever property prices appreciate more quickly than area median income, gentrification will occur. This results in the future displacement of moderate to low income groups from that community. [Where high capital growth occurs, even middle to high-income earners can be displaced].

With some State Governments undertaking shared equity schemes (Click on link), unless it is structured correctly, it is just another Government subsidised Band-Aid solution (like NRAS, FHOG, Stamp Duty exemptions etc.) which doesn’t ultimately see people getting relief from housing stress.

What is likely to happen because of a Government funded straight shared equity scheme, is a housing price increase fuelled by the Government’s equity.

This has significant negative impacts on individuals and the communities from which they are coming from and to which they are forced to move to.

A shared equity solution with better outcomes

The crucial thing that Government should focus on is to create sustainable communities. This means supporting community (housing) organisations to expand affordable housing through methods such as (resale restricted) shared equity schemes. With Government supporting localised community (housing) organisations, communities will build their capacity to steward real property assets.

A resale restricted shared equity scheme sees most of the future capital gain retained by the community (housing) organisation. The gain is either kept in the home or used to provide additional perpetually affordable housing. As a result, future purchasers (in the same income bracket) can afford repayments on the shared equity loan. The beauty of the resale restriction is that it counteracts the effect of house prices rising more quickly than incomes. One outcome is that (assuming adequate supply of resale restricted shared equity homes in a community), children and future generations may not be forced to move out of the area.

Resale restricted shared equity means that properties serve our communities rather than people being slaves to property.

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Victoria’s Focus on Affordable Housing


How Will Victoria Provide Affordable Housing?

The Victorian Government recognises that they have an affordable housing crisis. The solutions that are offered (in their media release from 1/2/17 titled “VICTORIA STEPS UP ON HOUSING AFFORDABILITY”), in summary are:

  1. reducing red tape for development approvals
  2. changing land zoning to increase potential supply of housing
  3. expanding public housing supply to stabilise the rental market
  4. hoping that the federal government will provide community housing providers

The State Government is really only offering the solution of increasing housing supply. (zoning changes and reducing red tape are about increasing supply rapidly).

A rapid increase in housing supply can create other (sometimes unforeseen) issues, that may include:

  • excessive loads on community infrastructure (public transport, roads, sewer, water, electricity etc.)
  • approval of inappropriately small allotments or bland high density construction  (creating potential future ghettos)
  • sub-standard housing quality (because, any contractor with a heart beat will be employed to get projects finished)
  • Creating a construction employment boom, followed by a time of under-employment for those same workers.
  • Creating a potential over supply of housing ( I saw this happen in Mackay, and when the job market changed, the oversupply was devastating to the housing market which caused a lot of foreclosures)

Taking the above into consideration, it is important that the Victorian Government’s focus should be on increasing the quantity of perpetually affordable housing. This would then help to avoid similar knee-jerk reactions in the future. Consistent and planed organic growth in line with demand is key to avoiding boom and bust cycles in employment and property.

A CLT(Community Land Trust) is a very good way to provide perpetually affordable housing. We can help to implement a CLT in your local community.

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