How using super for housing could cut costs by 50%

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Over the past four decades in which the share of homeownership among Australians aged 25-34 has fallen from around 60% to 45%, homeownership among the same age group in Singapore has fallen from around 60 % to 88%.

Chances are it’s because Singapore is doing something right.

What Singapore has that Australia does not have is a public housing developer, the Housing Development Board, which builds new homes on public and reclaimed land, provides mortgages and allows buyers to use their mandatory retirement savings (what Australians call superannuation) for both a deposit and repayments.

There is more than that. It limits eligibility based on income and age, requires owners to keep the property for five years and restricts resale to only other eligible buyers.

Today, eight out of ten homes in Singapore were built in the last half century by the Housing Development Board.

In a new article published this month, I suggest an Australian version called HouseMate, which could cut the cost of buying a home in half.

HouseMate Overview

The joint tenant would build on underutilized Crown, Council and Federal Government land, land acquired by compulsory acquisition or land purchased at market prices and tenders from private developers

HouseMate would sell the homes at a reduced price (A$300,000 on average) to Australian citizens over the age of 24 and in a common-law or married relationship and to single citizens over the age of 28 and over, where no member of the household owns no property.

HouseMate would offer federally underwritten loans up to 95% of the purchase price, charged at one percentage point above the cash rate, which would currently be 1.1%.

HouseMate buyers would be allowed to use their savings and pension contributions for both deposit and ongoing repayments

HouseMate buyers would be required to occupy the home, with rental and resale limits for seven years. They will own the house in full ownership, paying council rates, insurance and having responsibility for the upkeep and representation of the legal entity

HouseMate owners could sell after seven years. But if they sell on the private market instead of another eligible HouseMate buyer, it would trigger a seven-year waiting period before the seller becomes eligible for another HouseMate home, and a fee of 15% of the price. of sale.

Half price houses

My calculations suggest that building these houses on land that would cost little (perhaps A$50,000 on average for all types) would alone reduce the price by 20-35%.

The lower interest rate and the use of superannuation savings for deposit and repayments would reduce the “after super” cost saved by the same amount, reducing the “after super” cost savings from 50 to 70%.

Using retirement savings when available makes sense. Home ownership does more for retirement security than super.

Since super usage would be quarantined in new HouseMate homes, it is unlikely to drive up the price of existing homes.

No other housing policy change would do as much to make home ownership cheaper or to free up income for families when they need it most.

The oft-talked-about changes to tax provisions, including changes to capital gains tax and negative gearing, could, in my estimation, reduce prices by up to 10% at most – enough to reverse just six months of last year’s price growth.

There would be criticism

Because HouseMate would divert first-time home buyers from private marketplaces, private sellers would find reason to say it would be bad for the people it helps and somehow financially unwise or unsustainable. Banks would say the same.

But because the non-land cost of HouseMate homes would be mostly covered by the purchase price (and 15% of private resale prices) and other costs would be mostly covered by the interest margin, the fiscal cost would be low – by my estimate peaking at AU$1.7 billion after seven years and decreasing to AU$640 million after 20 years.

The roughly $1 billion per year would provide 30,000 affordable housing units per year. Compared to the AU$100 billion spent on the COVID JobKeeper scheme, this cost is a rounding error. Australia spends $125 billion a year on health care.

Each year, approximately $11 billion is paid out to private landowners through rezoning decisions. Taxing these value gains could fund HouseMate ten times as much.

We have the land

The New South Wales Land and Housing Corporation has four times the net assets of Singapore’s Housing Development Board, or $54 billion. Queensland Housing and Public Works has $10 billion in land assets. Victoria’s Department of Families, Equity and Housing has $17 billion.

We could start by upgrading and selling existing public housing to its tenants under HouseMate rules.

The Australian Capital Territory has operated this way for decades, developing low-cost or no-cost rural land for housing and selling the houses at cost, although in recent decades it has done more as a private developer, maximizing revenue at the expense of getting people into houses. .

To begin with, there would be bottlenecks

HouseMate would be overwhelmed at first. I suggested lotteries to assign houses until the system speeds up.

Just as Medicare did not displace but operate alongside the private healthcare system, HouseMate would operate alongside the private market, adding to overall supply rather than increasing demand in the private market.

I will end with a story. I recently met a Singaporean resident who moved to Australia to study social work. She said there weren’t really any homeless people in Singapore because the Housing Development Board provided an option for almost everyone.

To find homeless, you had to move to Australia. I think we should try. What’s the worst that can happen?

Originally posted by The Conversation
Author: Cameron Murray Research Fellow – Henry Halloran Trust, University of Sydney

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