Tuesday, 18 October 2022

Home Ownership

Everyone wants a place to call home.  According to Maslow’s Hierarchy of Needs, shelter is one of the most essential components of life.  This became even more evident since the onset of COVID-19.  For those that had significant lockdown periods, home was the place we stayed for 23 hours a day.  Overall, Australian governments enacted great measures to ensure everyone had a safe and secure home during the peak periods of the pandemic.  As we emerge from that crisis, housing has again become more precarious.

In a country where private rental laws are considered very weak – home ownership is the most secure form of housing in Australia.  Indeed, private rental was at one point seen as a stop-over on a young person’s housing journey to ownership; a way to save a deposit to purchase a forever home.  Now Australia has two of the most unaffordable housing markets in the world and home ownership is increasingly out of people’s grasp.

Philanthropy’s role in home ownership

Beyond the great Australian dream, there are other reasons why philanthropy should enable home ownership.  The private rental market is not an even playing field, with many people routinely locked out due to discriminatory practices prevalent in other areas of the community such as gender, race and parental status.  Sometimes a lack of financial literacy also adds to the challenge.

In recent times, home ownership also provides a way to generate great wealth.  For better or worse, ownership can provide a way for families to move from intergenerational poverty to a higher standard of living.  If not, then the continued gap between the haves and the have nots increases. 

For instance, the Victorian Aboriginal Housing and Homelessness Framework Mana-na worn-tyeen maar-takoort notes that Aboriginals living in social housing is 1 in 5 while for the mainstream population this figure is 1 in 50, due to both lower home ownership rates and discriminatory practices within the private rental market.  This further undermines Aboriginal housing security, intergenerational wealth, and restricts personal autonomy and mobility.

Commissioners Interpretation Statement

A recent ACNC Commissioners Interpretation Statement (CIS) on the Provision of housing by charities has clarified how and who charities can help into home ownership.  The CIS is firmly grounded in the charitable purpose of ‘advancing social or public welfare.’  Without limitation, this includes the relief of poverty, caring for the aged or people with disabilities and supporting children and young people.  Notably when considering those in poverty, the ACNC CIS notes that the requirement is not destitution but the inability to provide a modest standard of living.  Further, the CIS recognises the 30/40 rule as an Australian benchmark for assessing housing stress.  A good overview of the 30/40 indicator has been done by the Australian Housing and Urban Research Institute (AHURI):

The 30:40 indicator identifies households as being in housing affordability stress when the household has an income level in the bottom 40 per cent of Australia's income distribution and is paying more than 30 per cent of its income in housing costs.

The revised CIS also details several home ownership models that could be used by charities to assist the type of people listed in the CIS.  This includes shared ownership, rent-to-buy schemes, or loans with low or no interest.

Alternative housing models of home ownership

There are many examples of home ownership pathways through alternative, or off-market housing models although Australia is still in its infancy on this journey.  A good overview can be found through the SEFA Partnership report Finding affordable home options for invisible women.  Although this report is focused on modest-income older women, the report uniquely provides a financial comparison of the individual models.
The first hurdle for any potential homeowner is the 20 percent deposit required to purchase a home, which can take years for an average family.  The deposit required for a lower income household can be seemingly insurmountable.  HeadStart Homes has a way of helping lower income households with a deposit scheme.  HeadStart provide a guarantee for a home purchase, using philanthropic funding, and then continue their support through financial coaching.

A shared ownership model can provide a discount on a deposit, as well as a discount on continuing repayments, enough to ensure that the homeowner is not under housing stress.  In Australia, a tried and tested model of shared ownership is shared equity, with a common split of 75/25 between the owner of a home and another, usually silent, investor.  The majority owner is also the resident and depending on the arrangement, both owners share both the purchase cost as well as the equity, or loss.  It is appealing to the charitable sector as the individual owner’s equity uplift is limited, allowing the charity, or other investor, to recycle profits for future owners.

Shared equity has the added bonus in Australia of early government involvement, establishing it as a credible and safe form of home ownership.  While many of the states have established shared equity programs, the Federal Government is set to launch its first, albeit not aimed at lower income households.  See an ABC article for a good overview of existing and upcoming shared equity schemes.

Philanthropy need not wait for government to shift these schemes to lower income households, with active charities already in this space.  The Barnett Foundation were trail blazers, notably with their Melbourne Apartment Project, a 34 bedroom apartment block in North Melbourne.  Local social housing residents relied on a deferred second mortgage that allowed homeowners to pay approximately 63 percent of the apartment’s market value upfront.  More recently Ys Housing aim to provide net-zero, shared equity housing for single parents and are unique as a charity with the sole purpose of developing shared equity housing. 

Build to Rent is a housing type where large developments such as apartment complexes are built for rental, often with a single owner.  Seen largely as the purview of the institutional investor, social housing developments can be seen as a form of build to rent.  More recently, ownership has been coupled with this existing model to offer build to rent to buy also known as build to rent to own.  Like build to rent, developments are designed with an eventual owner in mind.  Often home prices are fixed when renters moved in and a portion of rent is syphoned off as a form of forced savings.  Build to rent to own is still in its infancy in Australia – Assemble is a good market example. 

The use of this model for lower income households is following behind.  For example, in the ACT Ginninderry is a joint venture trialling a build to rent to buy for vulnerable women, using low cost debt.  In Victoria, Unison Housing are exploring a build to rent to buy option in the West of Melbourne that is again expected to combine low-cost government debt and institutional debt to provide mixed tenure, including lower income, housing. 

Other emerging models

Women’s Property Initiative’s Older women’s housing project is a type of share purchase, where women use their modest savings to put towards a development.  While their investment is preserved, women are also charged an affordable rent.  The four-townhouse trial has been built and is currently being tenanted, but the model has yet to scale.  The project was funded by Lord Mayor’s Charitable Foundation, Gandel Foundation, Homes for Homes and the Mercy Foundation.

Citizen-led housing is emerging in Australia and is the close cousin to the Baugruppen model popular in Germany and known for sustainable housing, community led housing.  Translating it to lower income households is the next step.  Lord Mayor’s Charitable Foundation is funding SEFA Partnerships to review a model set up by Property Collectives.  In future it’s hope that these citizen-led housing developments, where residents lead development while reducing costs, could be used for mixed-tenure housing to help groups like WINC and other cohousing groups that include lower income households.

Staircasing, is another shared ownership model, which combines both a deposit and rent.  Owners can continue buying shares in their own property to reduce rent but the total purchase is capped, usually at 75 percent.  This example has an established practice in the UK, for instance through the Older People’s Shared Ownership Initiative.

The future of philanthropy’s role in home ownership

For those philanthropic organisations that work in homelessness, providing affordable housing is an essential and enduring way to prevent entry and entrenchment into the homelessness system.  It is a satisfying approach that stops the revolving door of homelessness cycles.  Beyond our granting, Lord Mayor’s Charitable Foundation commits to home ownership through impact investing, for instance through the provision of loans to Habitat for Humanity.

In the future, Australian philanthropy should consider contributing both grants and impact investments into larger pools of investment to further home ownership.  Let’s not forget that Australian philanthropy has only scrapped the surface of legislative changes to public and private ancillary funds.  As well as distributing funds, rules for these types of trusts were updated to allow for investments in social impact bonds, loans and/or guarantees. 

We should look to other overseas examples to see how philanthropy has affected lower income home ownership at scale, for instance the Community Advantage Program which has funded more than 50,000 mortgages since 1998 made possible because of a $50 million grant from the Ford Foundation to establish a loan loss reserve fund.  The New York Acquisition Fund offers flexible bridge loans to organisations that create or preserve affordable housing.  In this example, philanthropic investment is mixed with government funds to serve as a guarantee limiting the senior lenders’ risk exposure.  In many ways, philanthropy’s role in home ownership in Australia is only just beginning.

This article is written by Erin Dolan, Senior Program Manager - Homelessness & Affordable Housing, and first appeared in Philanthropy Australia's 'Our Voices' blog.