Fixing the home ownership crisis
Once upon a time I had a dream, a dream of owning my own home without stress to my home finances. That dream is now a nightmare.
I quote, and I include the professional link below. "25 years ago average houses cost 9 years of the average household income, now they cost 16-and-a-half years" (Australia Institute, March 2024).
Why has this happened? Well market forces have definitely had an impact. This can't be avoided in a capitalist economy and just to be clear, I am a capitalist and believe in capitalism and democracy. However, in my opinion, a law of the jungle, profit oriented system does need some guidance in regard to social responsibility.
So how do we fix this?
The problem.
Instead of lip service and treating symptoms with cash handouts and half hearted policy, we need true, modern and even radical changes to assist with affordable home ownership.
1. Home investment bonds.
One of our proposals is the Home Investment Bond. An investment bond is a unit of ownership of a property. It will comprise 20 - 25% of the value of the property and is offered to Superannuation Trusts and Investment trusts as an investment option.
Australian Superannuation funds and Investment funds combined, manage $4.75 trillion dollars as of the December quarter 2023. The Home investment bond can be offered as a stable, fixed interest bond with a variable term and a 7 - 9% fixed return (to be negotiated).
Basically, eligible borrowers can borrow 75 - 80% of the listed value of the property. Participating Superannuation and Investment funds will contribute to an investment pool for this type of bond. The remaining 20 - 25% of the value will be drawn from this pool.
The rate of 7 - 9% (TBN) will be applied to the bond amount which the home borrower will pay. Note that the 7 - 9% will only be applied to the bond percentage. The rest of any loan will be borrowed at the going fixed, variable or special rate with the balance between the going rate and the bond rate spread across the borrowers owing amount.
For example: Borrowing amount of $400,000 - bond amount $100,000 (25%) = $300,000 (75%) at going bank rate, say 5%.
$100,000 at 7% with $300,000 at 5% = 7% (1 unit 100k) + 15% (3 units $100k combined) = 22% with an effective rate of 5.5% for the borrower over the entire $400k amount
Note that any borrower deposit is obviously taken off the the borrowed amount and rate applied to remaining combination of bond and borrowed amount.
This reduces the borrowing burden and overall debt burden on the borrower. Also, the principle amount is only calculated against the borrowed amount reducing repayments as the bond amount is simply returned to the pool if the property is resold.
This initiative is beneficial to both borrowers, by providing a more affordable gateway to owning a home and also to investment funds by providing a stable and secure investment option.
At the end of the loan term the borrower can either seek to borrow the bond amount and pay-out the bond or just continue to pay the 7% interest only on the bond amount.
Note the exact dynamics of this initiative will be negotiated between the government, lending institutions, investment funds and borrower advocates when our party has house of representative and senate control.
2. Initiative to build new housing
The current government is already talking about a housing initiative to provide more rentals, although this appears to be all air at the moment. We plan to start promoting a home building initiative immediately we have control of the house of representatives and senate.
Again. instead of burdening the public purse we will seek interest from investment funds to invest in rental housing. The Government will pay fixed interest on amounts invested to construct housing in areas of high need (amount to be negotiated - again possible 7%).
Once the properties are completed, they will be rented out under the control of the investment funds in order to continue achieving the agree rate (7%) as a return.
Preliminary estimates indicate that with private investment, appropriate federal government tax concessions and discounted land release, it is possible to achieve below $500 weekly rentals in suburban Sydney, based on a townhouse format rather than unit blocks. Depending on mean property prices, these rentals would be less expensive in other State capitals and regional areas.
Once again, this will be negotiated between Superannuation funds, property developers and Federal and State Governments once we are in a position to initiate this project.
Rents can increase, but only in line with the CPI. There will be no rent bidding or rent price gouging. We would also expect that this initiative would have a flow on effect, likely slowly reducing house prices to a more reasonable level.
3. Build 2 new cities
Now this is not as ominous and environmentally unfriendly as it sounds and has a number of positives. This type of initiative would cover several areas that need great attention. Building cities increases GDP, allows space for new migrants, allows for cost effective exploitation of resources and most importantly, builds more homes and brings rental costs down. For more detailed information on this, see optimal population.
