New housing analysis suggests shared equity schemes and institutional ownership offer the greatest potential to improve housing affordability and the rental experience in Australia.
The new PEXA and LongView analysis also suggested that the jury remained out on the longer-term impact of BTR developments on affordability.
Institutional ownership refers to the creation of Real Estate Investment Trusts (REITs) that hold large numbers of rental properties, while shared equity schemes refer to where an investor puts up some of the purchase price.
LongView Executive Chair, Evan Thornley, said shared equity schemes improved purchase affordability by reducing the mortgage deposit barrier faced by homebuyers while offering good exposure to capital growth – the core component of returns in Australian housing markets.
Thornley said institutional ownership could offer a radically better renting experience through more professional ownership and because institutions tended to hold property for longer periods.
Institutional ownership has a long history in Europe and the US, where there are many rental housing REITs and other corporations.
The analysis evaluated four key private investment models – shared equity, institutional ownership of rental properties, build-to-rent (BTR) developments and rent-to-buy schemes – to determine which ones will make the biggest difference.
Each of these models has been trialled extensively internationally and are already attracting investment in Australian markets.
“Australia’s housing affordability crises has been decades in the making and despite well-meaning attempts to solve it, it is only getting worse,” PEXA Chief Executive Glenn King said.
“These crises fundamentally threaten the Australian way of life, and underpin some of our most pernicious challenges, from homelessness to health and wellbeing, and employment and economic growth. The size of Australia’s housing market, and the seeming impossibility of government intervention at the scale required to significantly address these problems, requires the involvement of private capital, and Corporate Australia, to find new solutions that work.”
The analysis concluded that BTR developments offered better tenure security and experience for renters than other market alternatives but, to date, had not demonstrated that they improved affordability as they tended to target premium markets.
Shared Equity models involve a third-party investor co-investing in a property with a homeowner in exchange for a share of a property’s capital growth.
Shared Equity programs enable buyers to buy properties with lower deposit savings. They can also result in lower monthly mortgage payments, allowing owners to share financial risk with third parties.
Shared Equity programs exist in Australia at both State and Federal government level. The model has an extensive history overseas, mostly funded by governments to improve housing affordability, but also by private sector organisations to achieve commercial outcomes.
