New housing solution to help first home buyers and key workers into the market
Key workers and first home buyers could break into the housing market more easily and start building equity within just a few years, according to a new economic model being proposed by Australian property economist Martin Hill AM.
“There’s a gap between what homes cost and what many households can afford to pay,” Hill said.
“If young Australians increasingly need help from their parents to buy a home, those without that support are disadvantaged. We risk making the opportunity to build security and wealth through home ownership more dependent on the family you’re born into.”
Hill’s new Housing as Infrastructure model includes an innovative feature that seeks to defer part of the land value payment until the property is sold.
“Land can be a substantial part of the cost of a new home. If we can delay that payment, we can reduce the amount that needs to be borrowed at the beginning. This matters because the size of the mortgage is the primary factor in whether someone can afford to enter the market.”
Alongside a government subsidy, as well as more compact and modular construction, the aim of the Housing as Infrastructure model is to significantly reduce the amount a buyer needs to borrow at the outset, so repayments are more affordable and sustainable.
“We already think about roads, transport, water and other essential services as infrastructure. I think we should also start thinking about housing in that way. Afterall, it is fundamental to how our communities function.
“This approach could also have benefits for developers, regional communities and employers. Developers may be able to bring forward later stages of large developments, while regional communities and organisations such as health services and Defence could benefit from a more affordable pathway to home ownership for essential workers.”
Another feature is to link the home’s future sale price to an index, such as a wage index, rather than allowing it to rise in line with the broader property market. This could preserve affordability for the next eligible buyer, rather than passing the same cost problem on to the next household.
Hill says the Housing as Infrastructure model would sit alongside existing market, public and social housing, offering another option for people who are working and able to make mortgage repayments but can’t afford the initial cost of buying because the entry price is too high.
“We call it the Australian Dream, but this is much more than a dream. It is also an economic and social issue and I am worried about where our housing market is going. If we don’t intervene, it’s going to get worse for our grandkids.”
Hill will outline the model in an address at the launch of the new Martin Hill Public Program in Housing Affordability, established at the University of Sydney’s School of Architecture, Design and Planning. The Program seeks to advance the national conversation on housing affordability and brings together people from industry, finance, government and academia to examine what works, what doesn’t and what could be done differently to improve housing supply and affordability.
The inaugural event on Thursday 5 November will be moderated by former NSW Housing Minister Pru Goward and speakers include:
- Mr Alex Wendler, Landcom CEO
- Ms Rebecca Pinkstone, Homes NSW CEO
- Dr Rob Stokes, Anglicare Chief Advocacy Officer and Group Executive Housing; and former Minister for Planning
- Mr Martin Hill AM, HillPDA Director
- Mr Matthew Hassan, Westpac Senior Economist
- Mr David Maxwell, Riverview Group Managing Director
- Professor Donald McNeill, University of Sydney Dean of Architecture, Design and Planning
- A/Prof Laurence Troy, University of Sydney School of Architecture, Design and Planning Head of Urbanism.
Hill’s interest in housing affordability is longstanding. Earlier in his career, he was a founding director of Metro Housing, a not-for-profit organisation involved in housing affordability modelling and advocacy. He also worked on the City Edge project in O’Connor, Canberra, a joint venture between a community housing organisation and a housing developer that directed land and development profits towards further affordable and social housing.
How the model could work in practice
Consider a single mother with two children living in Western Sydney who works as a nurse and earns around $90,000+ a year. She is able to make mortgage repayments and wants to provide a secure home for her children, but the price of buying a property is beyond what she can borrow. Under Martin Hill’s proposed model, a combination of government support, more compact home design and construction methods, and deferring part of the land value payment could reduce the amount she needs to borrow upfront.
Under the model, part of the land value would be paid when the property is sold, potentially after seven years. Hill’s modelling suggests that, in this example, the buyer could build nearly $120,000 in equity over that period, giving her a stepping stone into the broader housing market. The model would also link the home’s resale price to an index such as wage growth, rather than allowing it to rise with the wider property market, with the aim of keeping the home affordable for the next eligible buyer.
Media contact: Imogen Brennan | 0426 522 832