Shared Equity

Ask:

Will the State government act to establish a perpetually affordable shared equity scheme within 100 days of winning office?

 This needs to:

  • Include a restriction on the equity gain at resale to maintain affordability;
  • Enable first home buyers within the scheme to access the First Home Owners’ Grant;
  • Involve the participation of the state, whether as the equity partner or as guarantor for a scheme run through registered community housing providers; and,
  • Deliver new properties into the scheme

Frequently Asked Questions

What IS shared equity?

A:

Buying your house in partnership with a dedicated community housing provider or another equity partner, such as the State. Ownership over a house is in effect a bundle of rights which include both the right to occupy the house and the right to potentially profit from re-sale. The profit (or loss) from re-sale is split between equity partners according to an agreed formula, while occupation rights are granted to the occupying partner.

Is this achievable?

A:

There is currently no Shared Equity scheme available in NSW but other states have take on similar schemes, and various Shared Equity schemes are successful in the USA and UK, so we can build on the experience and expertise of those jurisdictions.Shared equity programs are currently underway in Western Australia, South Australia and the Northern Territory, and while early surveys show user satisfaction, the longer-term effects are yet to be felt on the property market. Current community housing providers are a potential home for shared equity so the opportunity certainly exists in NSW.

Who is eligible?

A:

Most Shared Equity schemes have household income limits, targeting housing towards households on moderate incomes. Ideally a Shared Equity scheme should work in addition to social and community rental housing, and provide another rung on the tenure ladder.

If I go into a shared equity scheme am I giving up part ownership of my home?

A:

Depending on the initial agreement, the equity partner has no occupation rights over your house. You will only half half the equity on the house as an investment, so you probably will not make as high a return as you would on the open market, but the initial purchase will be much more affordable for you and your family.

If I go into a shared equity scheme will I have the right to renovate or upgrade my house?

A:

Yes. The conditions for this will be stipulated in the initial agreement.

How will this affect the rental market?

A:

A Shared Equity Scheme would give many people currently renting the opportunity to begin owning their own property at a cost comparable to their current rental expenses. In particular, it will give people confidence to leave the rental market who were previously locked into the rental market and therefore reduce overall demand.

Will this drive up house prices?

A:

The overall effect will be hard to predict and will vary across different areas. This scheme will give groups such as low to moderate income earners more access to the housing market and therefore create more demand, but there will be restrictions on equity gains upon shared equity property when sold. Additionally, included within our asks, is a demand for more housing supply in the program to meet the increased demand, a measure highlighted by the Australian Housing and Urban Research Institute. There would most likely also be restrictions on the eligibility of certain properties for the scheme beyond a certain value.

Why does this scheme ask include a limit to the household’s equity gain?

A:

Overseas evidence shows that resale restrictions are crucial if the home is to be kept affordable to the next buyer, otherwise the scheme will need more funds to keep it affordable. There are many ways that a resale formula can be tailored to balance the equity gain to the seller with affordability to the next buyer. More information about this can be found here.

Isn’t this just a minority issue?

A:

A significant portion of the market could benefit from this scheme, current research shows that depending on the amount of subsidy this scheme would be beneficial for households with moderate incomes, so at least $70,000 p.a. in a major city. This will also have a ripple-effect to other areas of the market.

How will this affect people looking to buy a home?

A:

It will give different options for financing their loan. What is meant by this?

It will provide affordable purchase options that are currently lacking and make it easier for households to move from renting to owning. It is an intermediate tenure form that can help people into the market without placing them in housing stress. In current shared equity schemes, many households have been able to sell after a few years and move into the open market.

Who else supports this issue?

A:

The City of  Sydney Council, Property Council of Australia, and the Urban Research Centre at UWS have all made submissions to the State Government in support of this issue. Additionally, various peak organizations and community housing providers have been working with Regional Development Australia on a shared equity scheme, including Shelter NSW, NCOSS, the Western Sydney Community Forum, the Federation of Housing Associations, St George Community Housing, Evolve Community Housing, Link Community Housing, Argyle Community Housing and Wentworth Community Housing.

How will it be effective in meeting Sydney Alliance’s goals?

A:

It will provide an additional way for government and community organisations to invest in affordable housing, and also align with the other asks of Sydney Alliance’s housing affordability policy platform. It provides an additional affordable, stable housing option and gives working households the ability to put down roots in their community.

Why is it important now?

A:

Sydney is in the midst of a housing affordability crisis, with house prices in some areas higher than ever and a large percentage of potential first-home buyers locked out of the market. Additionally, a range of other solutions have been tried and have failed or made matters worse. The lack of affordable purchase options is pushing rents up and creating pressure throughout the housing system, including on public housing and homelessness services.

Won’t a shared equity program attract high-risk households?

A:

No. The scheme has requirements for participation which ensure that households entering the scheme will be financially responsible, and overseas experience has shown that as a result they bear little risk of being unable to meet repayments.Many overseas models include compulsory financial training making those participants in the scheme a lower risk than those entering ‘full’ mortgages.

What is the government's position?

A:

The government has not made their position known.

How does this issue stand for the common good?

A:

This is a step towards solving Sydney’s current housing affordability crisis, which has implications for most if not all of Sydney’s inhabitants. If more people can establish stable home ownership, there will be less competition among them to bid for houses, and this will cool down the housing market, although this also depends on the State Government bringing in new stock as part of our overall ask. Also it will reduce overall demand in the rental market, thereby pushing rental prices down.

Overall, when combined with a supply-side strategy, the creation of intermediate tenure forms makes stable long-term housing available to more households. The provision of long-term, stable housing is a core component of social justice, with impacts shown in health, employment and education outcomes.

If I go into a shared equity scheme, what will happen if I am unable to meet my repayments?

A:

The equity partner can buy you or the bank out. This is normally part of the initial agreement.

If I go into a shared equity scheme, can I buy the equity partner out?

A:

This is referred to as staircasing and the system works better if you can’t. Overseas experience shows that in systems where households can staircase, it then takes more money for the partner to bring more housing back into the system. It’s more effective and efficient to prevent this. Click here for more information.

How is this different to shared equity mortgages provided by banks?

A:

Shared Equity mortgages from banks only reduce the burden of interest rates for part of the house, rather than reducing the overall cost of purchasing an equity share in the house that entitles one to live in it.

How does shared equity work alongside the other Sydney Alliance asks?

A:

Shared equity provides a clear area where the government can increase housing stock in a manner effective to solving Sydney housing affordability crisis, which is the first ask in our platform.

In relation to our third ask, affordability measures for first home buyers are implemented it will be easier to raise the deposit for a house for the Shared Equity scheme.

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