News

Australian Economist Proposes to Replicate S’pore’s HDB Model in Australia

2022-02-07 , 12:24 pm

Complaints about new BTO sizes, the age requirement for singles to buy HDB flats and housing prices in Singapore?

If that doesn’t sound all too familiar to you, are you even Singaporean?

But I know someone who’s not complaining about any of these things.

It’s Australian economist Cameron Murray, who’s looking to see if Australia can implement something similar.

Home Ownership in Singapore VS Australia

Despite Singapore’s large resident to land space ratio, HDB flats have allowed the home ownership rates for 25 to 24-year-olds to increase from 60% to almost 90% over the past forty years.

On the other hand, home ownership rates in Australia have fallen from 60% to 45%.

HouseMate’s Effectiveness

With Murray’s newly proposed scheme, HouseMate, he intends to allow couples who are 24 years old and older, as well as singles who are 28 years old and older to purchase houses.

Those purchasing property under HouseMate must also not own any other property to begin with.

Similar to Singapore’s Minimum Occupation Period (MOP), HouseMate home owners can only sell their property after seven years. During this seven-year period, they are also limited in terms of renting and resale rights.

If they choose to sell their HouseMate property after seven years, they are encouraged to sell it to another HouseMate buyer. If they do not, a fee of 15% of the sale price will be imposed on the seller.

According to Murray, the scheme may be able to help roll out 25,000 to 30,000 houses of all kinds across Australia, with the average housing price being AU$300,000 (approximately S$286,000).

Cheaper Property Prices

Through the scheme, homeowners will only have to pay for renovation and construction, with the land money being paid by the government. This will result in a large saving of up to 30% as compared to private dwelling.

The scheme will allow Australians to use their superannuation (basically, their CPF) as a deposit as well as to pay off their mortgage.

Cheaper Loans

Additionally, the HouseMate scheme also aims to provide financial help for new homeowners, with government loans priced at 1% above the cash rate.

This will mean that loans will be priced at roughly 1.1%, making it a far more affordable deal than most banks which have a rate of around 2.4%.

According to Murray, “you would be able to reduce costs by 50-70 per cent through those critically important years, where your spending needs are higher, especially when you are raising children”, addressing the significance of low loan rates for the target audience.

Despite the lower loan rates, Murray also believes that it will not be too financially taxing on the Australian government.

He estimates that HouseMate will only take up at most AU$1.7 billion (approximately S$1.62 billion), and this amount will be slowly reduced to AU$640 million (approximately S$609 million) as time passes due to the inflow of money from mortgage payments as well as proceeds from future sales.

Challenges

Despite the idealistic viewpoint that Murray takes on, there are some undeniable aspects about the scheme and its effects that need to be addressed.

Limited Vacancies

Murray predicts that there might be an oversubscription to the scheme due to its enticing benefits, especially at the beginning of it.

This may put a strain on the supply of houses as the scheme tries to increase its capacity in order to meet the overwhelming demand for HouseMate houses.

To tackle this limitation, Murray proposes a ballot-like lottery scheme for prospective owners in regions where there are more buyers than houses to decide who has the rights to purchase the property.

Australian Government’s Land Ownership

Although HDB flats being government property may seem like an absolute no-brainer concept in Singapore, it might work differently for our Australian counterparts.

This is due to the percentage of land that the Australian government owns.

As pointed out by Ray White chief economist Nerida Conisbee, the Singaporean government owns a whopping 90% of our land. On the contrary, up to 62.7% of Australian land is privately owned, making the amount of land that the Singaporean government owns more than twice of what the Australian government does.

Additionally, despite Grattan Institute’s economic policy program director, Brendan Coates’s opinion that the government may need to use the little land they own for other purposes, Murray feels that this is not an issue for the Australian government.

“You could also compulsorily acquire land, just as we do for roads and other important infrastructure that we invest in for our community,” Murray remarked.

However, even if the Australian government is able to acquire land in such a fashion, it will result in an increase in cost occurred.

This is due to the fair compensation that needs to be issued to the land sellers, which will then result in a raise in either HouseMate properties or a decrease in the remaining budget available.

Location and Accessibility

Apart from the aforementioned factors, another thing to consider for Australia is the location of the HouseMate houses, as well as how well homeowners can thrive in those neighbourhoods in terms of job opportunities.

“One of the challenges in Australia is that there is affordable housing, but it is often in places where people can’t live or find it difficult to live, or find it difficult to find employment,” Conisbee added.

Conclusion

Although there are some issues to sort out, it seems like there are no factors that are strictly ruling the scheme out for now.

Coates also mentioned that as compared to previous grants and subsidies that have had mostly detrimental effects on the market, Australia needs to adopt a more aggressive approach towards promoting housing affordability.

“It’s worth thinking about more out-of-the-box solutions for housing affordability,” he concluded.