Implications for policy 118

Projected decline in rate of home ownership

The evidence overall would suggest that there will be a decline in the rate of home ownership (owner occupation) in Australia if the changes identified in this study continue. This indicates that the policy levers that underpin the Australian housing system are failing to sustain levels of home ownership, particularly for low-moderate income households, including but not only younger households. It implies a need for a fundamental review of the housing and non-housing policy context and the market factors which shape the future of home ownership in Australia.

These changes will have broad implications for public policy, including breaking the traditional nexus between high rates of home ownership amongst older households and a relatively low rate of age pension by the standards of developed countries. As seen in this report, older Australians are able to live on low incomes because they are outright owners with low and relatively predicable ongoing housing expenditures. This implies some combination of the following:

Æ Rethinking of policies on retirement incomes to enable low-moderate income Australians who are unable to buy to have sufficient income to rent their housing, in particular when they are unable to work or as they start to retire from the labour force, reinforcing other research on this topic (e.g. Yates and Bradbury 2010).

Æ A different set of policies to enable households on low-moderate income households to enter and remain in home ownership, for example, through shared equity arrangements as discussed in another recent AHURI project (70394) (Pinnegar et al. 2009).

Æ Reconsideration of the main alternative to home ownership, the rental sector (private and social renting), to ensure that there is a sufficient supply of rental housing which is affordable to Australians who cannot afford to buy their own home, including older Australians. This is being considered in an AHURI project (50565) (Hulse et al. forthcoming).

Low-moderate income purchasers with children

One of the worrying aspects of the research is the decline in low-moderate income purchasers who have children. Whilst this to some degree reflects demographic

change, the decline is strongly related to household income. It is increasingly difficult for low-moderate income purchasers to afford to both buy a home and have children. The qualitative research confirmed that families with children feel very strongly on this point: they want to own a house to provide the security, control and stability that they feel is essential to create a home for children, and will take on high levels of debt and compromise on location in order to achieve this. There are two implications for policy:

Æ Development of different types of home ownership products that will enable families with children with their higher household expenditures to buy. A number of ideas have been floated over time including shared equity arrangements, community land trusts, and a HECS type system whereby mortgage repayments are rescheduled to lower costs in the initial years and recouped later when children are older and household expenditures decrease.

Æ Reform of the rental sector to enable families with children and who will be unable to access purchase to have better security, control and stability of their living arrangements. The purpose would be to provide a realistic alternative for such families so that they do not feel that they have to buy, even if they cannot really afford it, without undue financial hardship and risk of precipitating financial crisis.

Older low-moderate income purchasers

Low-moderate income purchasers are getting older compared to the early 1980s. The traditional model of home purchase in Australia involved paying off a house before retirement to ensure very low housing costs in older age. Increasingly, it appears, some low-moderate income purchasers will reach retirement age with debt still outstanding against the property they live in. This may have positive effects in view of an economic imperative to retain people in the labour force for longer, and some will want to work for longer, but not all will retain good health or have life circumstances which enable this choice. The implication is that there may need to be schemes for those who face difficulties due to poor health, disability, role as a carer or other factor which makes it difficult to remain in work. These would involve paying off the remaining mortgage in return for an agreed return on subsequent sale; in effect, a government managed or guaranteed reverse annuity scheme but specifically targeted to older low-moderate income purchasers at risk of being unable to complete repayment of their mortgage.

Older low-moderate income outright owners

Despite having no mortgage repayments, some older outright owners do not have sufficient funds to pay for housing-related expenses and also face financial hardship. This is essentially a problem of low levels of income. There are a number of ways of addressing this. The age pension should be sufficient to enable older home owners to pay ongoing costs associated with their housing, such as rates, insurances and repairs. Local government does offer rate discounts but these may need to be supplemented by additional targeted schemes. There are already a number of reverse mortgage products sold by private financial institutions to enable older home owners to access equity in their homes for current expenses, although the take up is relatively low (Bridge et al. 2010). In addition, Centrelink offers a Pensions Loans Scheme which is more limited than a reverse mortgage and offers an income stream without a lump sum option, equivalent to the level of the age pension and supplements such as Rent Assistance. The Home and Community Care Program—a joint Australian, State and Territory Government initiative—provides some funding for home modification and maintenance. However, consideration may need to be given to additional means of enabling older home owners to effect repairs essential for their health and safety or

to retrofit their homes to make them more energy efficient, thus reducing some of their ongoing expenditures.

Housing and financial stress

It is more useful to think in terms of a continuum of mortgage and financial stress rather than a binary of households who do, and do not, meet an arbitrary ratio of mortgage expenditure to household income. The research distinguished between mortgage stress, financial hardship and financial crisis. Only the latter group is at risk of falling out of home ownership. The implications for policy are that:

Æ Using a ratio of housing costs to household income to measure mortgage stress remains useful for some purposes, such as for presenting a broadbrush picture of changes in affordability over time and for understanding the number of households who have had to make major compromises in wellbeing or living standards to achieve ownership.

Æ The residual income (budget standards) approach used in this study is more accurate for certain purposes, e.g. establishing affordable housing price points, distinguishing between types of households with different expenditures, and as the basis for developing mortgage calculators.

It is important to understand the extent of financial hardship, and in particular financial crisis, being experienced by low-moderate income purchasers. This requires considering mortgage repayments along with other household debt. This raises a whole range of policy issues around lender practices and informed consumer behaviour which are well canvassed in Berry, Dalton and Nelson’s (2010) report on mortgage default. Over and above these recommendations we would add:

Æ Inclusion in any mortgage calculators of some measure of the additional ongoing costs of ownership, which for low-moderate income purchasers would be an additional 15 per cent over and above mortgage repayments.

Æ Consideration in any mortgage calculator of an income related sliding scale of capacity to pay, using the budget standard (or variation thereof) as a base.

Addressing disparities in housing wealth

There are increasing disparities in opportunities to generate housing wealth due to the restructuring of Melbourne housing markets from the mid-1990s as house prices in inner and middle suburbs have increased to a far larger extent than in outer suburbs and the growth zones. Differential house prices reflect differences in valued amenities including house types, transport, access to employment, schools and many other factors. Related to this point we found that low-moderate income purchasers living in outer suburbs and growth zones may not be able to move to other areas because they have insufficient equity, even after many years of purchase. Given the same broad policy contexts and similar urban forms, we have little doubt that other capital cities confront the same issues.

Addressing these problems requires more than housing policies. In larger part, this is an issue for urban policy: greater equity in amenity throughout an urban area rather than focusing public investment in inner city areas. The amenity of outer suburbs and growth zones can be increased through better urban planning and design, strategic investment in child care and education, as well as physical infrastructure, particularly public transport.

Lack of housing diversity

Low-moderate income purchasers are increasingly singles and couples, but the supply of housing which is affordable to them is predominantly in the outer urban and

growth zone where much of the stock is designed to cater to demand from families with children. Builders and developers appear locked into the assumption that new housing demand is largely only from families, where the evidence suggests otherwise. Again this takes us into the housing and planning domain and the vexed issue of the degree to which government can use the planning system to enable more appropriate and diverse housing outcomes.

REFERENCES

ABS (2006) Information Paper: Household Expenditure Survey and Survey of Income and Housing, User Guide, 2003–04, Cat. no. 6503.0, Australian Bureau of Statistics, Canberra.

ABS (2009) Information Paper: Survey of Income and Housing, User Guide, Australia, 2007–08, Cat. no. 6553.0, Australian Bureau of Statistics, Canberra.

ABS (2010) Housing Finance, Australia, June, Cat. no. 5609.0, Australian Bureau of Statistics, Canberra.

Badcock, B. (1990) ‘Homeownership and the accumulation of real wealth’, Environment and Planning D, 7(1), pp. 69-91.

Badcock, B. (1992) ‘Adelaide’s heart transplant, 1970–88: 1. Creation, transfer, and capture of “value” within the built environment’, Environment and Planning A, 24(2), pp. 215-41.

Badcock, B. (1994) ‘Snakes or ladders? The housing market and wealth distribution in Australia’, International Journal of Urban and Regional Research, 18(4), pp. 609-27.

Battellino, R. (2010) Aspects of Australia’s Finances, address to Financial Executives International of Australia, Sydney, 15 June.

Baum, S. and Gleeson, B. (2010) ‘Space and place: Social exclusion in Australia’s suburban heartlands’, Urban Policy and Research, 28(2), pp. 135-59.

Baum, S., Haynes, M., van Gellecum, Y. and Han, J. H. (2006) ‘Advantage and disadvantage across Australia’s extended metropolitan regions: A typology of socioeconomic outcomes’, Urban Studies, 43(9), pp. 1549-79.

Beer, A. (1993) ‘A dream won, a crisis born’ in Paris, C. (ed.) Housing Australia, Macmillan, Melbourne.

Belsky, E. and Duda, M. (2002a) ‘Anatomy of the low-income homeownership boom in the 1990s’ in Retsinas, N. and Belsky, E. (eds) Low-Income Homeownership: Examining the Unexamined Goal, Brookings Institution Press, Washington, DC.

Belsky, E. and Duda, M. (2002b) ‘Asset appreciation, time of purchase and sale, and the return to low-income homeowners’ in Retsinas, N. and Belsky, E. (eds) Low-Income Homeownership: Examining the Unexamined Goal, Brookings Institution Press, Washington, DC.

Berry, M. (1999) ‘Unravelling the “Australian housing solution”: The post-war years’, Housing, Theory and Society, 16(3), pp. 106-23.

Berry, M. (2000) ‘Investment in rental housing in Australia: Small landlords and institutional investors’, Housing Studies, 15(5), pp. 661-81.

Berry, M., Dalton, T. and Nelson, A. (2009) Mortgage Default in Australia: Nature, Causes and Social and Economic Impacts, Positioning Paper no. 114, Australian Housing and Urban Research Institute, Melbourne.

Berry, M., Dalton, T. and Nelson, A. (2010) Mortgage Default in Australia: Nature, Causes and Social and Economic Impacts, Final Report no. 145, Australian Housing and Urban Research Institute, Melbourne.

Boehm, T. and Schlottmann, A. (2004) Wealth Accumulation and Homeownership: Evidence for Low-Income Households, Office of Policy Development and Research, Department of Housing and Urban Development, Washington, DC. Bray, J. R. (2001) Hardship in Australia: An Analysis of Financial Stress Indicators in

the 1998–99 Australian Bureau of Statistics Household Expenditure Survey, Occasional Paper no. 4, Department of Family and Community Services, Canberra.

Brennan, M. and Lipman, B. (2008) Stretched Thin: The Impact of Rising Housing Expenses on America’s Owners and Renters, Center for Housing Policy, Washington, DC.

Bridge, C., Adams, T., Phibbs, P., Mathews, M. and Kendig, H. (2010) Reverse mortgages and older people: growth factors and implications for retirement decisions, Final Report No 146, Australian Housing and Urban Research Institute, Melbourne

Bridge, C., Flatau, P., Whelan, S., Wood, G. and Yates, J. (2003) Housing Assistance and Non-Shelter Outcomes, Final Report no. 40, Australian Housing and Urban Research Institute, Melbourne.

Burbidge, A. (2000) ‘Capital gains, homeownership and economic inequality’, Housing Studies, 15(2), pp. 259-80.

Burbidge, A. and Winter, I. (1996) ‘As safe as houses – or a house of cards? The real costs and benefits of home ownership’, Family Matters, 43, pp. 31-3.

Burke, T. and Hulse, K. (2010 forthcoming) ‘The institutional structure of housing and the sub-prime crisis: An Australian case study’, Housing Studies, 25(6).

Burke, T. and Pinnegar, S. (2007) Experiencing the Housing Affordability Problem: Blocked Aspirations, Trade-Offs and Financial Hardships, National Research Venture 3: Housing Affordability for Lower Income Australians, Research Paper no. 9, Australian Housing and Urban Research Institute, Melbourne. Burke, T. and Ralston, L. (2003) Analysis of Expenditure Patterns and Levels of

Household Indebtedness of Public and Private Rental Households, 1975 to 1999, Final Report no. 34, Australian Housing and Urban Research Institute, Melbourne.

Cairney, J. and Boyle, M. (2004) ‘Home ownership, mortgages and psychological stress’, Housing Studies, 19(2), pp. 161-74.

Christie, H. (2000) ‘Mortgage arrears and gender inequalities’, Housing Studies, 15(6), pp. 877-905.

Demographia (2010) 5th Annual Demographia International Housing Affordability Survey: 2010: Ratings for Metropolitan Markets, Belleville, Ill., http://www.demographia.com/dhi.pdf.

Department of Families, Housing, Community Services and Indigenous Affairs (2008) Housing Affordability Fund: The Guidelines, Canberra, http://www.fahcsia.gov.au/internet/facsinternet.nsf/vIA/housing/$file/

haf_guidelines.pdf.

Dupuis, A. and Thorns, D. (1998) ‘Home, home ownership and the search for ontological security’, Sociological Review, 46(1), pp. 24-47.

Flood, J. and Baker, E. (2009) Housing Implications of Economic, Social and Spatial Change: Key Issues, Positioning Paper no. 116, Australian Housing and Urban Research Institute, Melbourne.

Ford, J. and Burrows, R. (1999) ‘The costs of unsustainable home ownership in Britain’, Journal of Social Policy, 28(2), pp. 305-30.

Ford, J., Burrows, R. and Nettleton, S. (2001) Home-Ownership in a Risk Society: A Social Analysis of Mortgage Arrears and Possessions, Policy Press, Bristol. Ford, J. and Wilcox, S. (2005) Managing Risk and Sustainable Home-Ownership in

the Medium Term: Re-Assessing the Options, Joseph Rowntree Foundation, York.

Forrest, R. and Murie, A. (1989) ‘Differential accumulation: Wealth, inheritance and housing policy reconsidered’, Policy and Politics, 17(1), pp. 25-39.

Forrest, R. and Murie, A. (1991) ‘Housing markets, labour markets and housing histories’ in Allen, J. and Hamnett, C. (eds) Housing and Labour Markets: Building the Connections, Unwin Hyman, London.

Forster, C. A. (2004) Australian Cities: Continuity and Change, Oxford University Press, Melbourne.

Gabriel, M., Jacobs, K., Arthurson, K. and Burke, T. (2005) Conceptualising and Measuring the Housing Affordability Problem, National Research Venture 3: Housing Affordability for Lower Income Australians, Research Paper no. 1, Australian Housing and Urban Research Institute, Melbourne.

Gans, J. and King, S. (2003) Volume 2: Policy Options for Housing for Low Income Households, Menzies Research Centre, Canberra.

Garreau, J. (1991) Edge City: Life on the New Frontier, Doubleday, New York.

Glick, J. (2008) ‘Gentrification and the racialized geography of home equity’, Urban Affairs Review, 44(2), pp. 280-95.

Goetzmann, W. N. and Spiegel, M. (2002) ‘The policy implications of portfolio choice in underserved housing markets’ in Retsinas, N. and Belsky, E. (eds) Low- Income Homeownership: Examining the Unexamined Goal, Brookings Institution Press, Washington, DC.

Goodman, A. (1981) ‘Housing submarkets within urban areas: Definitions and evidence’, Journal of Regional Science, 21(2), pp. 175-85.

Grigsby, W. G. (1963) Housing Markets and Public Policy, University of Pennsylvania Press, Philadelphia.

Hamilton, C. and Mail, E. (2003) Downshifting in Australia: A Sea-Change in the Pursuit of Happiness, Discussion Paper no. 50, Australia Institute, Canberra. Harkness, J. and Newman, S. (2002) ‘Homeownership for the poor in distressed

neighborhoods: Does this make sense?’, Housing Policy Debate, 13(3), pp. 597-630.

Haurin, D. and Rosenthal, S. (2005a) The Growth of Earnings of Low-Income Households and the Sensitivity of Their Homeownership Choices to Economic and Socio-Demographic Shocks, Office of Policy Development and Research, Department of Housing and Urban Development, Washington, DC.

Haurin, D. and Rosenthal, S. (2005b) The Sustainability of Homeownership: Factors Affecting the Duration of Homeownership and Rental Spells, Office of Policy

Development and Research, Department of Housing and Urban Development, Washington, DC.

Herbert, C. and Belsky, E. (2006) The Homeownership Experience of Low-Income and Minority Families: A Review and Synthesis of the Literature, Office of Policy Development and Research, Department of Housing and Urban Development, Washington, DC.

Hiscock, R., Kearns, A., Macintyre, S. and Ellaway, A. (2001) ‘Ontological security and psycho-social benefits from the home: Qualitative evidence on issues of tenure’, Housing, Theory and Society, 18(10), pp. 50-66.

Hulse, K. Et al. Forthcoming. Secure occupancy in rental housing: a comparative analysis (AHURI project 50565).

Hulse, K. and Burke, T. (2009) The Benefits and Risks of Home Ownership: Disaggregating the Effects of Household Income, Positioning Paper no. 120, Australian Housing and Urban Research Institute, Melbourne.

Hulse, K. and Saugeres, L. (2008) Housing Insecurity and Precarious Living: An Australian Exploration, Final Report no. 124, Australian Housing and Urban Research Institute, Melbourne.

Jones, A., Elsinga, M., Quilgars, D. and Toussaint, J. (2007) ‘Home owners’ perceptions of and responses to risk’, European Journal of Housing Policy, 7(2), pp. 129-50.

Joye, C., Caplin, A., Butt, P., Glaeser, E., Kuczynski, M., Gans, J., King, S., Moloney, D. and Bor, A. (2003) Summary of Findings for the Prime Ministerial Task Force on Home Ownership, 3 vols, Menzies Research Centre, Canberra. Kearns, A., Hiscock, R., Ellaway, A. and Macintyre, S. (2000) ‘“Beyond four walls”:

The psychosocial benefits of home: Evidence from west central Scotland’, Housing Studies, 15(3), pp. 387-410.

Khoo, S. (1993) ‘Housing after marriage breakdown: A longer-term perspective’ in Funder, K., Harrison, M. and Weston, R., Settling Down: Pathways of Parents After Divorce, Monograph no. 13, Australian Institute of Family Studies, Melbourne.

King, R. (1987) ‘Monopoly rent, residential differentiation and the second global crisis of capitalism: The case of Melbourne’, Progress in Planning, 28(3), pp. 201-98. King, R. (1989) ‘Capital switching and the role of ground rent: 2 Switching between circuits and switching between submarkets’, Environment and Planning A, 21(6), pp. 711-38.

King, R. (1990) ‘Homeownership, accumulation, and restructuring: A comment on Badcock’, Environment and Planning D, 8(3), pp. 357-62.

Krivo, L. and Kaufman, R. (2004) ‘Housing and wealth inequality: Racial-ethnic differences in home equity in the United States’, Demography, 41(3), pp. 585- 605.

Li, Y. and Rosenblatt, E. (1997) ‘Can urban indicators predict home price appreciation? Implications for redlining research’, Real Estate Economics,