Last month, I wrote an article about how Sydney is fast becoming like the Property markets in New York and London and also how the younger generation is feeling disenfranchised due to out of reach affordability of property ownership.
I have recently returned from a trip to the UK and while there, undertook some research on how cities like London and the younger generation are dealing with the affordability of property ownership, what strategies are being implemented and then looked at how these strategies could apply back here with young Australians.
The concept that has become popular in the UK is the “share the pain” principle. As property prices rise the option of shared ownership is gathering momentum, the bottom rung of the housing ladder is being pulled further out of reach with data showing how few potential first home buyers earn enough to get the mortgage they need on a typical first home in high price areas.
This is not unlike markets in Sydney and Melbourne where the gap is sometimes even greater. Unless young people have access to the Bank of ‘Mum and Dad’, then shared ownership may be the only option. The young generation point to the now or never syndrome… before even a ‘share’ of a home becomes unaffordable.
In the UK, they have organisations called Housing Associations. These are private non-profit groups which offer properties for shared ownership. I am not yet aware of any such organisations in Australia but don’t be surprised if something similar doesn’t start to emerge in this country soon.
There are advantages and disadvantages with the UK model, but what the research did highlight is the fact that there is a growing need for shared ownership strategies among the younger generation to allow an entry point.
With shared ownership, you have to pass an income eligibility test with the banks before you can then get a mortgage of between 25 and 75 per-cent. You pay rent on the part of the home you do own and you can increase the mortgage to take out larger slices based on the increase in property value until you own the home outright. This is called ‘staircasing’.
Until organisations like those in the UK appear in this country, one option for young people could be a joining of family members or close friends to pool deposits and use combined incomes to access finance.
A slightly more complex idea could be that they enter into a Joint Venture where the rules are clearly defined and the property is held jointly via a Partnership or Trust structure. This would give them access to property ownership which is an obvious advantage.
The disadvantages with a model like this is that what happens if circumstances change, how flexible is the structure to allow changes in personal situations and at what cost? This will all be governed by the Joint Venture Agreement.
With any change of percentage of ownership of property then you would also need to consider the cost of Stamp Duty and Capital Gains Tax. However, if structured correctly and the appropriate agreements are in place then this can be managed to some extent.
When a property seems financially out of reach, a joining of two or more people’s resources may potentially allow them leverage to enter the market together, at a younger age.
There has to be…. and there is, hope for our younger generation with regard to property ownership. The old fashion principles still apply – work hard, budget, save hard and then perhaps to get entry into the market they may just have to think outside the square and consider non-traditional methods of property ownership.
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