Like most 30 somethings with a substantial HECS debt and an addiction to avocado on toast, I am an aspiring first home buyer. I’d love to buy the home I currently rent: a daggy 1960’s ‘six-pack’ flat on a main road in Footscray. It’s currently valued around $360,000. To put down a 20% deposit, I’d need to save $72K. A daunting figure for a single woman on a not-for-profit’s payroll.
Much less daunting is $18K. This is the 5% “genuine savings” I require to apply for the government’s shiny new shared equity scheme, HomesVic. HomesVic enables first home buyers to access 25% equity funding towards residential property. Government-backed shared equity schemes have existed in W.A and S.A for a number of years. The initial pilot will include 400 first home buyers, buying new or established homes in strategic locations specified by the government. Footscray is on the list.
It’s so tempting to apply.
However, like many of the other “housing affordability measures” adopted by State and Federal Governments of all persuasions, HomesVic is likely to make matters worse for people like me.
First, HomesVic is likely to generate new demand. People who hadn’t dreamed they could buy in this property cycle (c’est moi), will suddenly appear at auctions with a big wad of State-backed cash.
As Leith van Onselen put it, “housing affordability cannot be improved by pumping yet more buyers and credit into the system”.
Like other First Home Buyers grants and exemptions, this assistance will capitalise into higher land prices. Most of economists I know refer to the FHB subsidies as “First Home Vendor Grants” because that’s where the buck stops. It’s true, FHB assistance helps first home buyers compete with those already on the ladder, but they have the economic effect of decreasing affordability at the bottom of the market.
Shared equity is a lot better than grants or tax exemptions which are pure expenditure. The government, or private equity partner, will recoup its subsidy and (market conditions permitting) their share of the capital gain. That’s better for the public purse, but it’s unsustainable.
While this scheme could benefit me, the first home buyer coming after me will need to take on more debt, or be priced out. The subsidy helps a one generation of beneficiary households build capital gains rather than preserve affordability in the housing stock.
Community shared equity schemes are miles better–community land trusts or cooperative housing models. These schemes have rules limiting capital gains, and ensure that incumbents can not kick the ladder down behind them. The equity partner retains a stake in the property in perpetuity.
It’s also worth noting that losses may not be shared proportionally in the event of a downturn. The government is essentially helping people like me buy into a market they could not otherwise afford. A market that bears striking resemblance to a speculative asset bubble.
Read Ryan Dezember’s beautiful essay on the lived experience of negative equity.
HomesVic is to be welcomed if only as a sign of the Andrews Government’s desire to tackle housing affordability. Unfortunately, this scheme falls into the well-worn grooves of a bankrupt policy paradigm. For housing affordability to improve housing prices must fall.
I sense that this “housing affordability measure” will place a floor under land prices in my beloved Footscrazy. With 7,350 new dwellings near completion in postcode 3011, that’s good news for developers. Good news for speculators. Good news for the mortgage exposed banks.