Housing – An Idea from Outside the Square

The housing issue, particularly for first home buyers, is a primary concern for Australia. We have to think outside the box to resolve the problem. There are solutions available, but they are too complex for a government to implement. Most involve bringing down the price of existing homes, but a fall in house prices is something no government will go near.

Here is another solution. It might not solve the problem, but could make a big difference. There are three types of titles to a house.

Torrens Title. Torrens title grants full ownership of the land and any buildings on it, providing the owner complete control.

Strata Title. Strata title involves shared ownership of common areas within a building, with individual unit owners having specific ownership of their units and shared responsibility for maintaining the building.

Company Title. Like strata title, company title involves owning a share in a company that owns the building, granting the right to occupy a specific unit.

Company title units are reducing in numbers, with many converted to Strata Title.

Developers undertake most new development to make a profit.  If there were no profit involved, the new homes would be cheaper. Instead of building for profit, governments could develop and sell on a cost basis. The price of the new dwelling will be whatever it costs to acquire the land and build the house or unit. In fact, it may be possible to use land already owned by the government.

The objection would be that homes are sold at cost to first home buyers. The obvious problem is that it would upend the property market. Instead of paying a million for a unit, someone may pay eight hundred thousand dollars. It would suddenly cause the price of the million-dollar property to drop.

That is where a different type of title would come into play. It would only be available to first home buyers. They could buy a home at a cost price from the government. When they come to sell the property, they have to sell it back to the government at a price nominated by the government.

The price would be calculated based on the CPI and an assessment of the house’s state when they bought and sold it. It is purchased as a First Home Title.

Say they buy it for $800k, and in a few years, they sell. The CPI increased by 10% so that they would get $880k. After an assessment, the government estimates that adding a pergola and other landscaping has increased the value by $50k. Still, painting costs $10k, so they are paid $40k ($50k – $10k), which is added to the total. The government pays them $920k ($880k + $40k) – The government then resells it to another first home buyer for $920k or maybe a little more to handle transaction fees.

 

The Government wins in that they build homes and break even on cost. It is a cost-neutral exercise that puts homes for first home buyers on the market. They also get to control the build quality better, as there is no incentive to cut corners, as they will be the ultimate owners for decades. There is a cost in setting up the infrastructure to manage the building and sale of the homes, which would have to be built into the price.

First-time home buyers win in that they pay less for a property than the market is asking for, but they will make less capital gain, assuming the market continues to grow at unrealistic rates. As fewer first home buyers will compete for properties, it means less pressure on the prices of existing properties. In turn, it should reduce the price rises for existing houses.

Since the price is known in advance for a new or resold property, how do you select who purchases the home? One option is to run a ballot. Potential purchasers nominate their interest a month before the sale, and a ballot decides who gets the property. There may be some restrictions, such as people can only nominate for two or three properties at a time, to avoid everyone nominating for everything. The time they have been nominating may also be a factor. If, after 2 years, they have not been successful, they get some preference. A myriad of details would need to be worked out.

And, if we ever get to the point where there are too many properties under this title, what then? Easy. The government can convert from a First Home Title to a Torrens or Strata Title. The property would probably sell for more than the government would get under the old title, which can be put back into the system.

Some people will find multiple reasons why this should not go ahead. The trick would be for the government to determine how the risks could be mitigated to make it a workable solution. I would like to see this idea before a Housing Minister and hear them explain why it should not be investigated. Surely we have to look at solutions we have never considered before.