Report Into Housing Costs Considers ACT's Land Rent Scheme and Community Land Trusts

A recently published report "Unspoken Alternatives to Expensive Housing "(the report), written by Cameron Murray, Lecturer in Economics, at the University of Queensland, for The Australia Institute and Prosper Australia has looked at the proposition "what if there was a way, right now, to offer a form of secure long-term home ownership to renters while saving them about half their housing costs?" and concluded that "not only is it entirely possible, but it has been happening quietly in our nation’s capital for a decade, saving Canberra residents millions per year".

About the ACT Scheme

The Land Rent Scheme (the LRS), as it is known, is part of the ACT Government's Affordable Housing Action Plan.  The LRS gives ACT residents the option of renting land through a land rent lease, rather than purchasing the land to build a home. Under the LRS, those who purchase a single-dwelling residential block of previously unleased land from the "Suburban Land Agency" can apply for their Crown lease to be a land rent lease. Choosing this option means reducing the up-front costs associated with buying and owning a home so that for example, there is no need to finance the cost of the land; and the only finance needed is the costs associated with the transfer of the land (such as duty) and the construction of the home. In the case of land rented under a land rent lease, the main recurring costs are payment of an annual land rent charge and rates and land tax, if they apply.

It should be noted that from 1 October 2013, the ACT Government restricted those who could access the LRS to "low- to moderate-income" households that are eligible for the discount land rent rate of 2 percent. Further, lessees who want to transfer a land rent block to another person, must transfer to a transferee that also meets the eligibility criteria, namely, a transferee whose income is below the relevant threshold amount.

There is an annual review to determine that the lessee continues to be eligible to remain in the scheme, where lessees need to confirm by 30 September every year that their annual income is still less than the relevant income threshold amount. Annual rent increases are capped by comparison to growth in wages.

The Report - Findings and Recommendations

In broad terms, the report considers the proposition that most forms of "housing subsidies" (first home buyer grants, etc) end up increasing landlord and developer profits rather than reducing housing costs for those who want a secure residence. It then argues that "public land rent schemes" providing discounted land access to owners, and private Community Land Trusts, are proven ways to ensure that subsidies reduce costs for the actual homeowners.

The report offers two options as an alternative to the current housing subsidies scenario. 

The first option: The ACT’s LRS is, as described above, a publicly run housing system that ensures residents get a discount on the market price of land, while providing secure long-term tenure in a way which is similar to private ownership. The report notes that over 3,200 households in the ACT have taken up the LRS, a saving of $69 million on housing costs since the inception of the LRS in 2008.  The remaining LRS residents currently save $9 million per year on housing with a typical LRS owner saving as much as 37% of their housing costs over a ten year period as compared to renting in the same period.
 
Land rent revenue to the ACT government was $9.2 million in 2017, although the net financial effect is closer to revenue neutral due to forgone land sales. 

The report concludes this option would not be hard to implement, noting that, "State governments, councils, or even the federal government, could start their own land rent schemes at no financial cost by either acting as a land developer or by purchasing new housing from the private market."

The second option: Community Land Trusts (CLTs) are privately run housing schemes providing secure long-term housing at below market prices. A CLT would be an incorporated entity, much like a "land body corporate", inserting a level of control over property ownership for land and dwellings within the trust. A CLT is designed to pass on any subsidy received (be it from government, council, or philanthropy) to the residents by regulating sales at below-market prices, while removing the right of residents to set their sale price.

The report claims a CLT can reduce the cost of housing as compared to the market price by more than 25 percent. Further, a CLT owner can save 52 percent of their housing costs over ten years compared to 10 years of renting.

The report points out that many CLTs have operated in the United States for decades and have offered secure housing below-market price, saving residents billions in their housing costs. Governments in Australia, the report states, could easily facilitate the expansion of a CLT industry at no cost by redirecting housing subsidies that currently go to existing landholders towards supplying land for CLTs:

Conclusions

The report's author points out in an article for The Conversation that:

Interestingly, the report shows that solutions to the question of housing affordability do not need to be a "revenue loss" or drain on government. As the report's author says:

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Unspoken Alternatives to Expensive Housing [Australia Institute Report by Prosper Australia]

Introducing land rent, the ACT’s excellent idea for making houses cheaper [Cameron Murray, Lecturer in Economics, The University of Queensland, The Conversation, 4/09/2018]

ACT's innovative scheme could cut housing costs by 50pc if rolled out [Michael Inman, The Sydney Morning Herald, 3/09/2018)

Land rent scheme [ACT Revenue Office Report]