But shared equity would also help many older Australians,especially many older single women,to buy a home.
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Older Australians often have the deposit but won’t be in the workforce long enough to pay off a home by the time they retire. A shared equity scheme could help many of them into home-ownership,and eventually use their super to pay off any remaining loan at retirement.
Couples who are separating could especially benefit. The home is typically a family’s largest asset. If they split,couples typically lack the equity to each buy a new home. Just 34 per cent of women who separate from their partner and lose the house manage to purchase another home within five years,and only 44 per cent do so within 10 years. Older women who have separated or divorced are more than three times as likely to rent at age 65 than married women.
It’s tempting to dismiss shared equity as another in a long line of schemes that boosts house prices even further. But a well-targeted scheme,such as we propose,would have only a modest impact on Australia’s housing market. Even if the scheme were to eventually offer 10,000 shared equity loans a year,with each buyer purchasing a $500,000 home on average,would only add at most $5 billion in housing demand each year to a $9 trillion housing market,and probably a lot less.
The direct financial cost to the federal government would also be small – just $220 million over the first four years. In fact,a national scheme is likely to be a net positive for the budget in the long term,if house prices rise faster than the interest rate on government debt to finance the purchases – as they have in the past.
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Shared equity is no substitute for governments to take the difficult decisions needed to make housing more affordable. Governments should still loosen planning laws and wind back housing tax breaks such as negative gearing and the capital gains tax discount,to reduce demand for housing.
But even if the federal and state governments make thesehard choices,house prices are likely to remain much higher,relative to incomes,than they have been over most of Australia’s history.
Falling home-ownership is a big problem. A national shared equity scheme would revive the “great Australian dream” for many Australians.
Brendan Coates is the Economic Policy Program Director at the Grattan Institute.