A Summary of Conclusions from Assignment 1
As noted in the previous assignment, “the affordable housing policy in Australia, and its relation to young people in New South Wales”, is ineffective. According to Yates, Kendig and Phillips (2008, p. 2), “home ownership rates for young people aged between 25-34 years, in The NSW, have drastically declined from 56 percent in 1991 to 47 percent in 2011”. Eslake (2013, p. 6) posits that this decline brought about by lower house affordability. However, the current measures in the NSW, aimed at addressing this issue, including the first home ownership scheme, seem to have a negative impact on house prices, and, fail to provide young people with affordable houses. This paper therefore examines the two similar programs that have the potential to be “borrowed” and be applied in the NSW. These programs are Shared-equity homeownership policy and the Help to Buy Equity loan scheme. The former is a housing strategy that is currently being applied in the United States, while the latter is in the United Kingdom. This paper argues that the shared-equity policy is the best option for the NSW government to help more young people buy their first homes.
A Brief Summary of the Shared-equity homeownership policy and the Help to Buy Equity loan scheme
Shared-equity homeownership is a housing strategy that incorporates responsibilities, rewards, and risks of homeownership in shared manner between households, who buy homes at prices relatively lower to the market price and organizational agents, who oversees the quality, security, and affordability of those homes after purchase. The affordability of these homes is preserved for future lower-income buyers. The policy is implemented at local government level, with each state having its own set of policies concerning shared-equity homeownership (Davis, 2010, p. 261). The “Help to Buy” equity loan scheme on the other hand, is a housing strategy in which house buyers are offered a certain proportion of equity loan, in order to buy or build new homes. The central government of the UK implements this housing scheme to the grassroots (Alakeson, 2011, p. 131).
A Critical Analysis of the Shared-equity ownership policy and “Help to Buy” equity loan scheme
Each of the housing policy discussed above has its own strengths and potential limitations. The following is an analysis of each policy, in an effort to determine which of the two policies shows the most promise of being transferable in the NSW. To start with, as noted earlier, the shared homeownership policy is targeted at those unable to fulfill their ambition of homeownership, especially for low-income households, at the time of purchase. This policy involves stewards, which plays a central role in distinguishing shared-equity homes from other market-priced homes (Stone, 2006, p. 17). The role of a steward is to manage potential risks that related to the funding and the operation of a home, thus, defending homeowners in the low income strata against any possible threat of foreclosure. In addition, most bailiffs carefully takes care of “predatory” lending and associated high cost mortgages, and equate the financial cost of operating a home to the ménage’s capacity to bear the additional financial encumbrance involved. Moreover, after the procurement is complete, stewards control the refinancing and the improvement of shared-equity homes, in an attempt to warrant that proprietors do not shoulder additional debt beyond what they can afford. Majority of stewards also emphasizes on being a party to other loan arrangements, including mortgages, by requiring the lender to provide the steward with a notification in the event that the homeowner delay in their payments (Orbit Group and Chartered Institute for Housing, 2014, p. 11). The stewards may also insist on an opportunity to offset any defaults on behalf of the homeowner’s foreclosure and the right to be first to buy the foreclosure, in cases where the steward is unable to help the homeowner retain the home.
It is critical to note that these protections have proved effective throughout the United States, by overseeing safekeeping of young people and homeowners in the lower income strata, especially during the collapse periods of real estate markets. Nanda and Parker (2015, p. 107) notes that, this model is a “stepping stone” to full homeownership for the young people, with statistics confirming that two-third of new shared-equity homeowners were aged 17-34 years old in the 2000-2010 periods. Furthermore, it is evident that shared-equity homeowners derive abundant benefits, including psychological impartialities of being homeowners, which reduces stress-related complications, and possibly, adds to the quality of life of the young people. At the same time, critics have also pointed out some limitations in the policy. For instance, according to Wallace (2012, p. 219), the implementation of this policy offers constrained opportunities for the housing sector to accumulate sufficient wealth to grow and remain competitive. In addition, Rugg and Kellaher (2014, p. 161) argue that since most young people have high likelihood of access shared-equity ownership prior to starting families, then it may be difficult for the young families to move upwards or into larger family-sized accommodation, especially in the event of hard economic times.
Similarly, the “Help to Buy” equity loan scheme has both potential benefits and drawbacks. According to Alakeson (2011, p. 213) the scheme allows people to buy homes with deposits as low as 5% of the total cost. Alakeson further indicates that to date, about 50,000 people have been able to purchase houses through the scheme, 82% of whom are first-time buyers. It is therefore sound to argue that the scheme provides an opportunity for most young people to own homes. The Coalition Government has publicly singled out this effort by indicating its desire to ensure that hardworking young people and those who have perfected their ways have is able to buy homes (BBC News, 2014). The 2015 Budget further continued its support of this scheme, by providing a maximum of £3,000 worth net of tax relief for the first time buyers (Straus, 2015). However, in spite of its potential success, especially with the direct involvement and aid of the central government, there is criticism surrounding its effectiveness. Commentators such as Powley (2013) and Sarling (2014) have warned that the implementation of this scheme my fuel affordability problems by causing inflation in the mortgage market. These commentators have also cited that the scheme is more oriented towards amassed sales for home investors than enhancing efficient housing needs of young people and the nation at large. In addition, whereas the average prices of houses under the scheme has been relatively lower than the average in the United Kingdom, Sarling pinpoints that the costs still remains outside the reach of majority of the young people save for those on higher incomes.
Based on the analysis above, it is sound to argue that the shared ownership policy shows the most promise for being transferable to the NSW than the “Help to Buy” scheme, as its potential advantages outweighs the latter. The best homeownership public policy is one, which meets the needs of the nation as a whole, without affecting the market forces. As noted, the stewardship embroiled in the shared ownership policy enhances the security of homeowners, especially when the property market collapses. This protection not only reduces foreclosures, but also ensures that homeowners retain their homes. On contrary, the implementation of the “Help to Buy” is linked to fueling affordability problems by causing inflation in the mortgage market. The fueling of affordability problem contradicts an effective housing policy for the young people. Even though it is agreeable that the shared ownership policy has its own set of drawbacks, it is sound to note that, when designed well, the policy presents the best alternative for the NSW government to help more young people buy their first homes. In the words of Crabtree (2015), “shared ownership provide feasible and steady housing options for the low-to moderate income earners to become first homeowners, many of whom would have otherwise have been unable to own homes without a helping hand at the start.”
An Evaluation of the Shared-Equity Policy
The shared ownership policy in the U.S. traces its origin to 1970s (Nanda and Parker, 2015, p. 101). It targeted those unable to fulfill their desire for full homeownership at the time of purchase. Typically, the model is not exclusively aimed at the young people, but rather low-income earners, majority of whom cannot afford to buy a house without requiring help. The young people are the major beneficiaries because most are low-income earners. There are various prevalent models of shared-equity homeownership in the U.S., including community land trusts, limited equity cooperatives, a price restricted houses, and condominiums with affordability covenants that last more than 30 years. It is important to point out that households that live in shared housing are homeowners, and not tenants. They hold an ownership stake that can be bequeathed to their heirs, or reassigned from one proprietor to another occupier. Their homes are financed, regulated, and taxed, in ways tend to differentiate them for rental housing. Most importantly, then they resell their homes, they recoup their investment, often augmented by modest returns. However, they do not receive all the equity, but most of it, which belongs to the larger community, remains in the property, while maintaining its affordability for the subsequent homebuyers in the lower income strata (Stone, 2006). In the U.S., there is always “someone” behind the purchased homes ensuring that their security is protected, their quality is maintained, and most importantly, their affordability is preserved. This therefore makes foreclosure a rare event. That “someone” may sometime involve the authority, coordinating as the long-term steward. In other states, stewardship is the responsibility of non-profit organizations or community development corporations. The main duties of stewards, as mentioned earlier, are to enhance the livelihood of homeowners in the low income strata, especially when the property markets are at risk of collapsing (Orbit Group and Chartered Institute for Housing, 2014, p. 17).
Conclusion
it is notable that the current housing policy in the NSW does not address the housing problem facing the young people. The policy seems to have adverse effects on real estate market prices, which, poses a potential threat on housing affordability in the long term. As noted, the “Help to Buy” equity loan scheme allows low-income earners to purchase homes with relatively low deposits. However, the challenges with this scheme are that, it may not address the housing problem facing the young people today, as it remains outside the reach of the majority of the low-income earners. If well designed, the shared-equity policy used by the U.S. proves to be the best alternative for the NSW government to help young people buy their first homes. The stewardship embroiled in this policy not only enhances the security of homeowners, especially when the property market collapses, but also reduces foreclosures, ultimately, ensuring that low-income earners purchase and retain their homes.
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