November 3, 2022 by Dymphna

In the future, you’ll only buy ¾ of a house

Soon, governments are going to be paying you to buy property.

So the Victorian state election is coming up, and one of the promises I’ve taken a bit of interest in is Dan Andrew’s proposal to introduce a shared equity scheme, following a brief trial over the past year.

At the moment, there’s talk of a Federal scheme, and Western Australia has their own version. But I don’t think that will last.

I think soon the remaining states will be pressured into following suit.

Shared-equity for everybody!

If you’re new to the concept, basically the government helps you buy your property, then retains a stake. When you sell up, you pay the government their share.

It’s a joint-venture deal, except your JV partner is the state.

But what’s new here is that you can lean on Victoria for a full 25% stake! As the AFR notes, that’s a quarter of your house:

Daniel Andrews is offering to pay a quarter of the price of home purchases with a $1.1 billion shared equity scheme in the Victorian premier’s latest intervention into the free market ahead of the November 26 state election.

Eligible participants will only need to make a 5 per cent deposit, while the Victorian government will provide up to 25 per cent of the purchase price.

The Andrews government will on Monday announce the extension of the trial scheme. It comes ahead of federal Labor’s plan to introduce a similar Help To Buy shared-equity scheme and follows Western Australia’s HomeShare Scheme.

Victoria’s scheme is more generous than the federal plan, but state Treasurer Tim Pallas said it would only “add to the choices available to families and individuals”. The government said it would open the door to homeownership for 7000 Victorians and take the total to 10,000 purchasers, after an initial $500 million pilot of the scheme was launched last year.

The other thing that’s really interesting about the Victoria version is how broad it is. We’re not just talking First Home Buyers. We’re not even really talking lower income earners. Eligibility is pretty broad:

The conditions of the scheme are broad, not limited to targeting first home purchases like the federal scheme. The main condition is it being limited to homes valued below $950,000 in Melbourne and Geelong and $600,000 in regional Victoria.

Individuals must earn less than $128,000, or $204,800 for joint applicants. The equity share can be repaid at market value over time, however, is only required to be repaid once the house is sold.

The Victorian scheme is more generous than the proposed federal scheme, which would limit the income threshold to $90,000 or less for individuals and $120,000 or less for couples. The federal scheme limits house prices to $850,000 in Melbourne and $550,000 in regional Victoria.

The thing to note here is that this is a one-way street. Eligibility will broaden. It will be politically impossible for it to narrow. Price limits will increase. It will be politically impossible for them to fall.

And stake sizes will increase. It will be politically impossible for them to fall.

And so look into the distant future, and what do we have?

Something like 80% of Australian’s being eligible for an 80% stake injection for the government, for all houses up to $4m.

Something like that.

In that context, this isn’t a direction I’m entirely comfortable with.

But for now, shared equity is in vogue.

Onwards and upwards.