Shared equity for steeeep housing prices: Innovative shared equity scheme to help low-income earners buy homes

Hell Hill from across the road DSC05674

Social housing schemes have mostly concentrated on affordable rent. What about affordable ownership? A new housing development in North Melbourne, Victoria, might be a model for the future. 

By Warren Heggarty

There is no more fundamental form of economic security than owning your own home. Yet home ownership is portrayed as being beyond the reach of even moderately well-off people these days. This has not stopped people looking for new ways to foster home ownership opportunities even among low-income people. 

In June Panorama, we told how Flourish Australia has been involved in the Guildford affordable housing project under the National Rental Affordability Scheme. We developed a block of 41 home units in Guildford, 21 of which are for rent at rates 20 per cent below the market rate, and 20 of which are for sale. 

Under the National Rental Affordability Scheme, the government provides incentives to allow for lower rents (Heggarty, 2018, p. 36). 

What sort of options are there for lower mortgages to allow for actual ownership by people on lower incomes?

The Barnett Foundation and its partners in Victoria have developed the 34 unit Melbourne Apartment Project in North Melbourne which uses a shared-equity scheme called the Barnett Model, or the “deferred second mortgage.”

This is only a small project compared to the 82,000 long waiting list for public housing in that state (Mills, 2018), and people who are already in public housing find it very difficult to move into private housing (Redman, 2018), but it might point the way to a future large scale solution. 

Buyers take out a mortgage on 63% of the apartment’s value. The remaining 37% is a deferred, no-interest second mortgage which is not payable until the homeowner sells the apartment. “Instead of taking a profit margin, the developer uses the proceeds to fund the second mortgages.” (Redman, 2018)

What’s the catch? Dr Kate Raynor, a researcher at Melbourne University, says that the most obvious obstacle to this working on a large scale is that the developer has to set aside their own profit. “This is a philanthropic venture,” she told ABC Radio’s Alicia Loxley.

Can the Barnett Model work on a larger scale? According to the Melbourne University report into this project, it can. It provides “sufficient cash flow to support an expanding portfolio of projects over time. This is predominantly as lump-sum payments from home purchasers, financed throughout mortgage loans from banks, allow the developer to recoup the cost of developing the housing on settlement.” This is where it is different from the more common rental model of affordable housing (Raynor, Palm, & O’Neil, 2018, p. 5).

What has been the effect on the purchasers? According to the report’s “lived experience analysis,” there have been “significant improvements in feelings of safety and security, a sense of ownership and great satisfaction with the capacity to build equity in this project (Raynor, Palm, & O’Neil, 2018, p. 5).

One purchaser interviewed by the ABC said that moving out of public housing and becoming a home owner had changed the way he looked at himself. He said he no longer has a “poor person’s mentality” and looks to the future with more optimism (Mills, 2018).

Dr Raynor told Elizabeth Redman of The Australian that the model was a good solution for low to moderate income households, but would not help those on “very low” incomes. However, “community housing” providers would be well placed to adopt this model. Future developments could include a mix of market rate hosing and Barnett Model housing as a form of cross-subsidy.

The Barnett Foundation manages the model as a Public Benevolent Institution. Its partners in this project include the University of Melbourne, The Melbourne City Mission, Resilient Melbourne and the City of Melbourne. 

References

Heggarty, W. (2018, June). The Guildford Project. An opportunity for growth and diversity. Panorama, p. 36.

Mills, N. (2018, June 30). Developer’s ‘deferred second mortgage’ model getting people out of public housing. Retrieved from ABC News: https://www.abc.net.au/news/2018-06-30/developers-deferred-mortgage-model-helps-free-up-public-housing/9918524

Raynor, K., Palm, M., & O’Neil, M. (2018). The Barnett Model. Evaluating the outcome and scalability of an affordable homeownership model. Melbourne: Transforming Housing Research Network, The University of Melbourne.

Redman, E. (2018 , October 18). Shared-equity scheme to help the poor buy homes. The Australian .

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