How to deliver affordable housing without inflating landlord profits
by Dr Cameron Murray
Most housing subsidies end up increasing landlord and developer profits rather than reducing housing costs for residents.
Public land rent schemes that provide discounted land access to owners, and private Community Land Trusts, are proven ways to ensure that subsidies reduce costs for homeowners.
Secure, affordable housing is a worthy policy objective.
Unfortunately, many affordable housing policies are ineffective because they allow monopolist landholders to capture the value of subsidies for themselves.
If Australian governments want to enact policies to make housing cheaper for residents, they should focus on housing options that provide residents access to housing without having to pay the monopoly market price.
Option 1: The ACT’s Land Rent Scheme (LRS) is a publicly-run housing system that ensures residents get a discount on the market price of land, while providing secure long-term tenure, just as with private ownership.
Over 3,200 households in the ACT have taken advantage of the scheme, saving $69 million on housing costs since its inception in 2008. The remaining LRS residents currently save $9 million per year on housing.
An LRS owner can save 37% of their housing costs over ten years compared to renting.
Land rent revenue to the ACT government was $9.2 million in 2017, although the net financial effect is closer to revenue neutral due to forgone land sales.
State governments, councils, or even the federal government, could start their own land rent schemes at no financial cost by either acting as a land developer or by purchasing new housing from the private market.
Option 2: Community Land Trusts (CLTs) are a privately-run housing scheme that provide secure long-term housing at below market prices. The CLT is an incorporated entity, much like a ‘land body corporate’, that inserts a layer of control over property ownership for land and dwellings within the trust.
CLTs are designed to pass on any subsidy received (from government, council, or philanthropy) to residents by regulating sales at below-market prices, while removing the right of residents to set their sale price.
CLTs can reduce the cost of housing compared to the market price by more than 25%. For example, over its 25 years of operation the Champlain CLT (Burlington, Vermont) offered housing 26% below market prices on average.
A CLT owner can save 52% of their housing costs over ten years compared to renting.
Many CLTs have operated in the United States for decades, offering secure housing below-market price, saving residents billions in housing costs.
Governments can easily facilitate the expansion of a CLT industry at no cost by redirecting housing subsidies that currently go to existing landholders towards supplying land for CLTs.
Establishing land rent schemes or CLTs should be a priority over privatisation of government land for monopoly-priced housing development.