Lower income working households: how can they access and sustain homeownership?

Transcription

1 Lower income working households: how can they access and sustain homeownership? Presentation to Shelter NSW conference, The crisis and beyond, Sydney, 2 July 2009 Simon Pinnegar City Futures Research Centre, University of NSW

2 home ownership For those that had grown up in the depression, home ownership was a rock of security a roof over their heads that could not be taken away. For those that had returned from war, home ownership was the tangible realisation of the freedom from which they had fought for. For those post war immigrants that had travelled across the world to make a new life for themselves, home ownership was a stake in Australia proof that they had established a foothold in their new homeland. In the post war period, home ownership became an important part of the Great Australian Dream. The suburban quarter acre block with a hills hoist, a BBQ and a shed became an iconic Australian image. The objective of our Government is to continue and strengthen the great Australian dream of home ownership. It is to move Australia closer towards a home owning democracy (PM Kevin Rudd, addressing the HIA, 2 May 2008, pp. 1-2)

3 Discussion today Focus on measures to help lower income working households access and sustaining homeownership A difficult policy space and whether governments should be promoting homeownership in the midst of the subprime fallout, global financial crisis and ensuing recession makes this all the more so But difference between targeted assistance for working households caught within the spaces of renting and owning and ideological pursuit of higher levels of homeownership Targeted, ongoing policy engagement across the divide about getting in and staying in In the current context, there are both short term concerns to respond to/address, but also longer term ramifications/opportunities for policy moving forward CFRC/UNSW 2009

4 Context Discussions draw on insight from recent City Futures and AHURI research: Housing Affordability for lower income Australians Innovative Financing for Homeownership: the potential for shared equity in Australia National Affordable Housing Agreement Interest in whole of housing system, facilitating transition, social mobility, new instruments Parties to NAHA are committed to: Preliminaries Outcomes Outputs: Roles and responsibilities Performance Indictors (4a) providing direction for a range of measures including home purchase assistance (7c) people can purchase affordable housing (7e) number of people receiving home purchase assistance States and Territories: (12e) housing related financial support and services for renters and home buyers Shared: (14d) provide home purchase assistance (16e) proportion of Australian households owning and purchasing a home (16f) proportion of Indigenous households owning or purchasing a home

5 Lower income working households Median household income levels by suburb, Sydney 2006 and Percentage income change, Source: Randolph, B, Pinnegar, Tice, A (2008) Our Changing City: A Census Overview

6 Lower income working households: Renting ownership transition CRA/NRAS supported private rental Market rental Assisted/low deposit Shared ownership Homeownership Shared equity Intermediate housing market working, not eligible for benefit, struggle to afford lower quartile to median house prices in area. Amongst existing owners, those at risk of falling out of ownership

7 Accessing homeownership

8 Accessing homeownership: Improving efficiency, savings, grants Broader measures to increase efficiency and responsiveness of housing market A more effective, efficient planning system, Housing Affordability Fund (HAF) Pre purchase measures First Home Saver Account (FHSA), education and counselling Purchase measures First Home Owners Grant, the First Home Owners Boost, stamp duty exemptions BUT Essentially untargeted, not focused on challenges of lower income ownership The main focus grants in the form of one off lump subsidy rather than an ongoing framework for assistance Even in heady days pre GFC, private sector struggled to address affordability constraint for marginal owners Elephant in the room: Government as lender

9 Accessing homeownership: Government as lender A difficult history, resulting in a fragmented policy landscape across Australia Government backed affordable financing arrangements within Departments, arms length, Statutory Corporations operate at state/territory level with the exception of IBA Homes Little or no engagement in states where low start loans fallout in early/mid 1990s was of most concern: NSW, VIC Survivors: organisations such as Homestart (South Australia) and Keystart (WA): Remit to facilitate lower income households access ownership. Helped over 100,000 since late 1980s/early 1990s Policy focused, commercially operated on socially responsible lines FirstStart returned $20m to government in last financial year, Homestart has returned over $200m to the SA government in past 20 years

10 Accessing homeownership: Government as lender Accessibility/affordability aided by low deposit requirements, strict use of affordable lending multiples, and ongoing affordability safeguards for the borrower Customer profile made up mainly of households who would not quality for a mainstream loan or not on affordable terms. Delinquency and default rates are comparable with national averages Arms length operation has enabled organisations to drive innovation: Shared equity arrangements an increasingly important part of their portfolios Funding mechanisms supporting affordable housing provision Local market/customer expertise enabling responsibility in this complex policy space

11 Accessing homeownership: Current shared equity initiatives Max equity grant Max household income Max property value Western Australia: First Start (Keystart) 25% Sliding scale up to $70,000 $355,000 in metro areas Northern Territory: HOMESTART NT 30% Up to $105,000 plus asset limit Regional variation, max. of $420,000 in Darwin South Australia: Breakthrough (FirstStart) 35% Not set Not set Tasmania: Homeshare 25% Up to $95,316 plus asset limit Determined by 25% held by Housing Tasmania being no more than $50,000 Victoria: Ownhome Queensland: Pathways 25% Up to $66,000 Tied to product 40% No income/property value limits: restricted to tenants purchasing home they re renting Source: Updated from Pinnegar et al (2008): Innovative Financing for Homeownership: the potential for shared equity in Australia, Melbourne: AHURI

12 Sustaining homeownership

13 Falling out of ownership Risk of falling out of ownership always present: flexible economy, changing circumstances, vulnerability due to high loan to value ratios Existing State/Territory mortgage assistance schemes but operate on a very small scale Onset of credit crisis and weak economic and market conditions Strong regulatory frameworks partially shielded Australia from the subprime crisis BUT Rising unemployment likely to raise important policy challenges in short term Ramifications as we come down from the Boost? The appropriate response depends on recognising the scale and nature of these risks Widespread or focused? individual or systemic shocks? Likely length of economic downturn/absence from labour market? Potential for negative equity?

14 Unemployment rate, December 2008 Source: City Futures Research Centre (2009) based on Small Area Labour Markets Australia Dec QTR 2008 data, DEEWR.

15 Sustaining homeownership Response Initiatives Short/long term Loan modification Working with lenders postpone payments up to 12 months where hardship demonstrated Time limited loans, extending term, reducing the principal Federal Government: Mortgage Relief Plan Existing State/Territory relief assistance schemes International responses Hope for Homeowners (US) Homeowner Mortgage Support Scheme (UK) Income support arrangement s Support through existing mechanisms: tied to other benefit assessment and administration structure Use of CRA arrangements: extend to assist homeowners facing income shock? Use of tax credits to cushion reduced income? > Short term Expectation that that household finances and ability to pay will return as economic/employment circumstances improve Strategic tenure transition Households helped to reduce repayments, step down to affordable levels Precedents in Australia: SafetyNet (Keystart) > Complex, appropriate where changes are likely to reflect longterm revised circumstances Shared ownership/equity/ rent back arrangements Breakthrough (HomeStart) Also require body to take on role of partner capacity issues?

16 Sustaining homeownership More flexible, innovative products helps facilitate private sector response Policy engagement faces challenge in terms of determining eligibility, allocation, administration: How to distinguish between helping retain shelter and protecting asset? Does it matter? How much support do you give? How should the assistance be repaid? Over what length of time? Are arrangements effective in the face of deep recession or market collapse, or delaying the inevitable? Beyond possible short term pressures, need to think about how mechanisms such as tenure transition can be integrated into broader policy responses

17 Policy thoughts, considerations

18 Policy thoughts, considerations 1 Post subprime and global financial crisis, a need for pragmatic policy engagement with homeownership 2 Taking responsibility in this transitional space: policy focused on providing frameworks that ensure sustainable homeownership 3 Facilitating links between current policies to maximise their impact, encourage mobility and provide ongoing safety net 4 Thinking strategically in this space: policies responding to ongoing challenges in cross tenure lower value markets

19 1 Pragmatic policy engagement Debate regarding appropriate level/form of government support and promotion of homeownership will always be present Fallout from current financial concerns puts a spotlight on the dangers of pushing households on the margins of homeownership over the line Need to be more pragmatic about the benefits and risks tied to ownership Need to differentiate between short term measures, long term support and acknowledge that policies have a range of drivers/objectives

20 2 Taking responsibility Providing sustainable, responsible frameworks in this transitional space Global financial crisis makes government engagement more, rather than less, important More realistic about what the private sector can achieve and the risks attached Tied to the process and timeframes of buying a home and being a homeowner Support in early stages for borrowers to establish a track record, providing a stepping stone, helping transition to finance from prime lenders Need to do so while protecting affordability/sustainability of product for customers Arrangements appropriate to/responsive to local market context and needs State/territory government: reestablishing role as socially responsible lender? Given history, a big political ask Understandably don t like debt on their books and risks tied to it

21 3 Coordination across initiatives operating in this transitional space Renting NRAS FHSA low deposit loans shared equity/ ownership FHOG safety net Homeownership Opportunities across policy initiatives to support transition, mobility, efficiency: NRAS/First Home Savers Accounts/FHOG/low deposit loans/shared equity or ownership/safety net Coordination is complex as is all targeted, efficient use of public subsidy Building frameworks that provide certainty and scale understanding where risk lies, how it can best be managed and how it can be shared

22 4 Strategic cross tenure policies for lower value markets Policy seeking to assist mobility, transition points to a whole of housing system approach Impact of those policies will be shaped, and may impact on, local market contexts Housing policy can be seen as integral to wider social disadvantage/inclusion/ urban renewal agendas Need for broader, integrated policy frameworks taking a strategic view of lower value housing markets in western Sydney, Melbourne fringe etc? Balance between targeting support and risk of consolidating social spatial polarisation Need for all levels of government to work together

23 4 Strategic cross tenure policies for lower value markets