Housing finance revolution nears

By Fia Cumming
September 29 2002
The Sun-Herald

http://www.smh.com.au/articles/2002/09/28/1032734372564.html

A radical plan to create a new form of housing finance may be available within six months after attracting massive interest from banks and other financial institutions.

Senior executives from dozens of banks, investment brokers and finance houses will attend private briefings this week on details of the world-first proposal.

The split-equity plan would allow financial institutions to become "silent partners", owning a stake of 50 per cent or

even less in private homes, rather than just lending the money.

Home buyers would finance their purchase with a deposit and mortgage, while the silent partner would buy the remaining equity outright.

Owners would retain the advantages of possessing their own house, including control over selling or renovating, while the silent partner would receive a share of the profits when the house was sold.

It would have a dramatic effect on housing affordability, and increase consumer spending, which would have the knock-on effect of priming the economy and creating jobs.

Prime Minister John Howard has supported the concept as a way to make housing more affordable, especially in Sydney, and make wealth available for other investments. It could ease the burden of the ageing population by

freeing up billions of dollars locked up in housing for retirement incomes.

Mr Howard is setting up a task force to consider practical aspects of creating what would be an entirely new financial market, trading in home equity.

He has also approved briefings for a swag of his ministers, including Treasurer Peter Costello, Assistant Treasurer Helen Coonan and Health and Ageing Minister Kay Patterson.

The ANZ, Colonial First State, Westpac and Macquarie Bank are among the major institutions keen to study the proposal, which could transform the housing market.

Leading finance house JB Were is promoting the concept through private seminars in Melbourne and Sydney on Wednesday and Thursday. The Australian Property Council and the Australian Bankers Association have also shown strong interest in the proposal.

The proposal was developed by economists Christopher Joye and Professor Andrew Caplin as a project for the Menzies Research Centre, the Liberal Party's think tank.

The centre's chairman, merchant banker Malcolm Turnbull, said the scheme would have clear advantages for home

buyers and financial institutions, which would get a stake in the massive residential property market.

It would create new options for people of all ages to use their money in different ways, instead of putting it all into their homes.

"The proposition, don't put all your eggs in one basket, is true," Mr Turnbull said.

"People will also be able to secure their own home with a much smaller level of financial commitment and at the same time, less financial risk, because they are borrowing less."

Australian Public Trustees, which invests in social infrastructure and public housing, was keen to take part in the Prime Minister's task force.

"We have reviewed the proposal in detail and we think it has serious potential to improve housing affordability," chief executive Darren Olney-Fraser said. "I think its main benefit is for families who would want to buy their family home."

Home Price Guide managing director Tony Shannon said it was important to see what types of split-equity products banks and institutions offered.

"I think it's important that we explore the options to help people to be able to afford housing," he said.

Real Estate Institute of Australia president Michael Davoren said the task force should also consider new housing, and barriers to home ownership such as State stamp duties.

"REIA welcomes the fact that the affordable housing issue is now well and truly on the table and looks forward to playing a constructive role in the debate," he said.

http://www.abc.net.au/pm/content/2003/s915615.htm

MARK COLVIN: With houses and apartments less affordable in much of the country than they have been in a decade or more, the Federal Government is on the verge of announcing a fresh inquiry into property prices.  The Productivity Commission inquiry is expected to focus on fees, taxes and charges, and restrictions on the release of new land. Meanwhile, State and Commonwealth ministers today failed to reach agreement on scams which are convincing the gullible to pay over the odds for investment property.

Finance Correspondent Stephen Long reports.

STEPHEN LONG: Just two months the Prime Minister's Home Ownership Taskforce released its report on how to extend the so-called 'Australian dream' to more people. That report was prepared by John Howard's favoured think tank, the Menzies Research Centre.

Now, the Prime Minister's about to announce a fresh inquiry into home price affordability headed by the Productivity Commission. The impetus came in the form of research for the Housing Industry Association showing home price affordability is at its lowest point in 13 years, and at record lows in Sydney.

Simon Tennent is the Chief Economist at the HIA and he says the root of the problem is clear.

SIMON TENNENT: The most crucial thing that must be done to improve the affordability of housing for first home buyers is not to be giving them more money, it's really got to be coming from the other side.

We need to be looking at the supply side of the equation, we need to be looking at the availability of land, we need to be looking at making housing more affordable by not having so many fees, taxes and charges and multiple taxation of housing and obviously there's some gains to be made with the levying of stamp duty and also GST.

STEPHEN LONG: But others aren't convinced the problem is lack of supply. Catherine Wolthuizen is the Finance Policy Officer at the Australian Consumers Association and she believes the inquiry should look at many raft of tax concessions for investment property, which have helped to create a booming market.

CATHERINE WOLTHUIZEN: In ACA's view, the first step has to be to take the property investors out of that market. It's their ability to use the equity in their existing homes to gear into property investment and take advantage of all the tax concessions available that have forced prices up and of course, forced prospective home buyers out of the market.

STEPHEN LONG: Meanwhile, Commonwealth and State Ministers met today to discuss how to regulate the boom in property advice scams. The States and the Commonwealth agree on what has to be done.

The consensus is property advisors should be licensed and forced to declare any secret commissions or kickbacks that they get from developers. But the two sides are at odds on who should take responsibility, so in the absence of agreement, the issue's been sent off to a working party, which will report in March.

It's an outcome that bitterly disappoints people who deal with the fallout from property scams, such as real estate consumer advocate Neil Jenman.

NEIL JENMAN: I think it's just buck-passing again. What we've got is the Federal Government is blaming the states, the states blaming the Federal Government, when in actual fact we already have existing laws that can protect these people and to put it off until March next year, just means that more and more victims are going to be saying please, please, help me, help me.

I'm getting calls and emails constantly from people that are actually telling me, consumers, they call one department, they get sent to another department, backwards and forwards, bouncing around. Meanwhile, these property predators are getting a free ride. It's just amazing what they get away with.

STEPHEN LONG: The Commonwealth believes it's an area of state responsibility and it wants the states to agree to nationally consistent laws. But along with the Australian Consumers Association, Neil Jenman says the power should rest with the Australian Securities and Investments Commission. But ASIC says it lacks jurisdiction to deal with the property industry.

MARK COLVIN: Finance Correspondent Stephen Long.