Productivity Commission: Inquiry into First Home Buyer Ownership

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Housing Legislation

7.25 In 2003, Queensland introduced historic housing legislation that abolished the Housing Commission, established in 1945. A new regime was introduced whereby, in addition to limiting building owning and operating state housing, it would encourage non-government provision of housing. Housing providers who might be given funding assistance to provide housing services mat be registered under the Act Provider may only qualify for registration if they are non profits or similar organizations. If funded, the obligations to provide the housing can be secured by mortgage or covenant on the land. This allows the funded organization much greater scope in raising money on the land, having a freehold title subject only to a covenant, not a mortgage.

7.26 The Act does not envisage the state providing assistance to anyone other than a registered provider, but there is nothing to prevent the state entering into covenants to secure housing on land where no funding has been provided. Thus, if amendments were made to taxation legislation to allow deductions for affordable housing, and the Commonwealth wished to secure compliance monitoring, it could conceivably enter into arrangements with the state for that to be done, via the registered covenant.
7.27 The model would also require local government involvement via planning approvals and building specifications, but any local dispensations might also be secured through the state and local governments entering into a joint covenant over affected land.

8 “Be it ever so humble…”

8.1 “…there’s no place like (your own) home.” A constant and valid criticism of public housing programs is that they don’t allow long term tenants any opportunity to purchase their homes. Tenants may rent for over 30 years and never achieve any equity sufficient to enable them to fund retirement. Throughout this time, the government accumulates substantial portfolios of properties that require maintenance and upkeep. There’s no doubt home owners are far more motivated to upkeep their homes when they have that sense of pride in them that can only come from ownership. The same pride is infectious in a neighborhood and encourages community development. Ownership of homes goes a long way towards encouraging ownership and pride in the local community.

8.2 Dissatisfaction of the American people with the lack of ownership rights of affordable tenants under the LIHTC programs led the Bush administration to amend the LIHTC legislation to secure a measure of “permanent affordable housing”. The covenants that secure affordable housing with state agencies must now secure the use well after the tax credits have been paid. Owners must agree to retain the affordable housing for 30 years, with special allowances being made for owners to exit the covenant if they, or the housing credit agency, can’t find another buyer. The Low-Income Housing Preservation and Resident Homeownership Act of 1990 was also enacted to allow transfer of ownership of affordable housing from profit motivated entities to non-profits, to preserve the affordable status.

8.3 Other forms of title have developed in America to allow a greater sense of ownership in affordable housing. The Community Land Trust (CLT) allows a community to keep trust land for its residents and take it out of the speculative real estate market. Ownership of the land is retained by a non profit corporation trustee, cooperatively controlled by community members, residents who own land, and other interested parties (such as funding source representatives, church and municipal officials). The trust holds title to the land and grants long term (usually 99 year leases) to owners of buildings on the land, allowing the trust to control affordability while providing individual house owners the chance of long term security and pride of ownership.

8.4 Unlike an application for a loan to buy house and land, which most of the affordable CLT residents would fail, an applicant for finance to build a house on CLT land is first approved by the CLT, and assisted with the application process. Once approved, the CLT enters into long-term leases with the homeowners, but if they want to sell the home, they must first offer it to the CLT at a price which is pre determined in the lease. The price formula is structured so that the homeowner receives a fair return on any money invested in the home (value of improvement they made with CLT approval). If the CLT exercise its option to purchase, it will then resell the house to an affordable owner, or it may be sold directly, but with the same price limitations applying.

8.5 Another increasingly popular mechanism is the limited equity cooperative, where a corporation is formed which provides residents with ownership rights in buildings. The cooperative arranges finance to purchase a building with grants and financing from socially responsible investors, such as churches and federal grants. Members of the cooperative have restrictions on resale of their shares to secure the continued use of homes for affordable housing, while at the same time giving them a flat or CPI percentage return on investment as well as the value of improvements made with approval of the board of the company. Contracts among the shareholders and company and covenants on land safeguard the log-term affordability of the building.

8.6 The Mutual Housing Association is another form of non-profit tax-exempt Corporation formed to develop own and manage housing. They encourage resident control by including residents as a majority on the board, with the remaining directors being local business, community and government representatives.

8.7 In England, resident control has also been encouraged through the Tenant Management Organization (TMO) developed in the early 1990’s under a “Right to Manage” policy, adopted through the Office of the Deputy Prime Minister. TMO’s took over the letting, rent collection, tenancy and property management functions typically undertaken by local authorities. They employ their own staff and are paid and operate under management agreements with local authorities. Currently there are 202 established, with 66% being in London and the average controlling 400 homes. The traditional manager of public housing was the local authorities, but a recent study conducted by the Office of the Deputy Prime Minister found the TMO was resulting in a greater sense of openness, inclusiveness and community development within the properties managed. They gave taken steps to actively combat crime in the communities and have greatly reduced the time taken to re let properties in the estates. Tenants are far more satisfied with their operations and they are exceeding local authorities in terms of repairs, re letting and rent collection.
8.8 It seems clear that great benefits are to be had in allowing those within the affordable market a chance of long term residency with ownership and self management right. Where land is a scare resource subject to the volatility of the speculative real estate market, it makes sense to take the land on which affordable housing exists out of that market through the pricing restrictions imposed by the various resale mechanisms in covenants. In addition, sections of those needing affordable housing do not necessarily want or need the traditional detached stand alone dwelling aspired to by market buyers. For example, those who are mentally or physically ill and sole parents will benefit from sharing of resources such as common eating rooms and childcare sharing opportunities.
8.9 As the study of Times Square showed, half the affordable group included AIDS patients who needed to access the social services provided by University of Columbia Social Work Department on the premises. Another interesting form of shared services is developing in Mississippi, a variation of the affordable housing themes discussed so far. Elderly residents, who no longer work but live in wholly owned large houses with grounds to upkeep, have opted to register with a “Co housing” program. Under this, families in affordable categories are matched with elderly, and share the house, on the basis that they provide cleaning and maintenance services, in exchange for resident rights. This is a variation on the ownership theme, but still has great merit as an idea, especially when the benefits to elderly people are also apparent, such as less loneliness and sense of isolation and greater security of knowing that basic services will be supplied to them.

9. Taxation Possibilities: Income Tax, Stamp Duty, Land Tax and Rates

9.1 Whatever style of affordable housing is considered, and for whatever sector of the affordable housing sector, it is crucial to address the supply as well as the demand side of the equation. Unless the government reverts to policies of by gone years, whereby it owned built and operated assets, it musty encourage private sector involvement and this cannot realistically be achieved without a cost subsidy.

9.2 Currently, such subsidies are provided to encourage growth of the film and wine industries, there is no technical reason why they could not be extended to the market for affordable housing.
9.3 In addition to income tax deductions, tax concessions could be offered at state and local government levels. Stamp duty could be exempt on the transfer of land subject to affordable housing covenants and the value whole or part of that land attributable to affordable housing could be ignored when calculating land tax.
9.4 Concessional rates and reduction of pedestal charges could be considered at local government level. State Housing is already fully exempt from rates, so it would seem reasonable that a similar exemption apply when land is subject to a covenant that secures delivery of affordable housing by the private sector.
9.5 Politically, these propositions would be quite controversial, as they would encourage affordable housing development. More development of this kind would lead to a backlash from those afflicted with NIMBY ism. Allegations of social engineering and the fears born of prejudice would give rise to hostility towards government. As against this, governments should consider the long-term effects of a growing affordable housing sector becoming socially isolated and disadvantaged through lack of home ownership. The home owning sector is also in danger of isolation and fear, as the advent of gated communities and “golden cages” grow.

10. Conclusion and Recommendation to the Inquiry

10.1 Even though the scope of this paper is wider than the primary focus of the Terms of Reference, the tools outlined to achieve affordable housing for the traditional low income sector could still be used to service the narrower 25 to 34 year old couples.Such tools would include:

  1. Tax deductibility of a percentage of expenses incurred by developers on affordable housing (which would need to be defined to suite either one of the sectors identified in Diagram 1 at the start of this submission);

  1. The deduction to apply for each year of the life of a program, say 10 years, during which time the land must be covenanted and continually rented at a particular level (either a percentage of market rate or a percentage of the area median income level);

  1. At the end of 10 years, each lessee be given the option to buy the land or home on which it is built;

  1. The Commonwealth to administer the scheme through state housing authorities who have the expertise necessary to identify the desired location of the housing, the rental to be offered;

  1. State housing authorities to develop selection criteria acceptable to the Commonwealth for developers to bid for projects that will attract the subsidy;

  1. Local governments work with the states to agree upon the locations and levels of density bonuses and other remissions that will be allowed to the affordable housing;

  1. State and local governments to form dedicated cells to assess, approve and monitor compliance with the affordability requirements, which might be secured on the land by statutory covenant;

  • Join statutory covenants be entered into between developers and state and local government on approved sites to include the following:

  • The use of the land restricted to affordable housing for a minimum period;

  • The rent be limited and sale be offered to the occupier at the end of the period at a discount to market level;

  • Monitoring and compliance functions be agreed between the state and local governments, with the state reporting to the Commonwealth prior to approval of deductibility each year;

  • Recapture of subsidies and withdrawal of deductions for non-compliance, with sale (subject to covenant) provision for continued non-compliance.

10.2 A scheme such as this could only work with a clear policy commitment. This might take the following broad form:

Policy Statement

The government supports creative and comprehensive measures to increase the availability of affordable housing and improve the accessibility of such housing to employment, schools, transport and human services.

Such measures will include:

  • A Register of land identified for affordable housing (both brown field and green field sites) to be kept by state housing authorities and continually updated. Such land can include former government sites, such as schools, jails or hospital sites no longer used, new airspace subdivisions above roads or rail corridors, particularly suited due to proximity to transport, heritage listed sites, derelict or condemned inner city buildings;

  • Amendment of the Tax Act to grant tax deductions to developers over the relevant period;

  • Amendment of planning legislation to allow local authorities power to plan for the housing to be located in the areas best suited to the affordable residents and the city, allowing it to give relaxations and density bonuses for the building and integration of affordable housing;

  • Affirmative action to increase and preserve the supplies of stock of affordable housing and integrate it into the community as much as possible;

  • Amendment of legislation, if necessary, to allow state and local governments to dedicate resources to establish the affordable housing assessment, development, monitoring and management programs.

Robyn Trigge

26 October 2003

Multi Use Developments the UK Experience”

Alison Miller, Brisbane, November 2001, Australian Property Law Conference

Breaking the Cycle Campaign”

Umbrella Bulletin, Anglicare, Brisbane, September 2003

Report of the Impact of Non-Market Housing on Property Values

February 2000, Housing Department British Columbia

Second Reading Speech to Housing Bill 2003

Honourable Mr. Schwarton, Minister for Public Works and Hosing, Hansard (Qld) 27 May 2003 2079 to 2082
Conference Papers, 12th Annual Conference of the American Bar Associations Affordable Housing and Community Development Law Forum

Washington 22 - 23 May 2003

Affordable Housing and Community Development Law Journals

Chicago, Spring and Summer Editions, 2003, Volume 12 Numbers 3 and 4

Housing Research Summary, Number 174, 2002

Office of the Deputy Prime Minister. London


Declarations of Restrictive Covenants for Affordable Dwelling Units, Agreements authorizing density bonuses and imposing covenants (Barnstable, Massachusetts, Loudoun County, Virginia, Collier County, Florida)

Community Development through Gardening: State and Local Policies transforming urban open space”

Jane Schukoske New York University School of Law Journal of Legislation and Public Policy 1999/2000

Saving the Worlds’ Poor Profitably”

Prahalad and Hammond, Harvard Business Review September 2002 at 48

Affordable Housing: Can NIMBY ism be transformed to OKMBY ism?”

Peter Salsich St Louis University Public Law Review 2000

Paradise Found: The American Dream of Housing Justice for All”

Deborah Kenn The Boston Public Interest Law Journal Spring 1995
The Urban Crises: The Kerner Commission Report Revisited: A decent home for every American,: Can the 1949 Goal be Met?”

Peter Salsich North Carolina Law Review June 1993

Community Land Trusts: Towards Permanently Affordable Housing “

David Abromopwitz Mississippi Law Journal Winter 1991
Housing Law Symposium: Developing a Housing Plan for Mississippi: Some Program and Funding Alternatives”

Stacey Earnest Mississippi Law Journal Winter 1991

Revitalizing the Central City with Resident Control”

Benjamin Quinones University of Michigan Journal of Law Reform Spring Summer 1994

Affordable Housing Initiative – Legal and Policy Analysis”

David Nicholls

Queensland Environmental Law Association Bulletin, Brisbane 2002

1 Brisbane Courier Mail 29/9/2003

2 See “Impact of Non market Housing on Property Values”, for example of the effects of affordable housing covenants

3 (2000) NSWLEC 20

4 Pyx Granite Co. Ltd v Ministry of Housing and Local Government [1958] 1 QB 544

5 Acts Interpretation Act, S 14B

6 See Honorable Rod Welford MP. at page 5158 ff. Hansard, 23 November 1999.

7 Pyrenees Shire Council v Day (1998) 192 CLR 330, Puntoriero v Water Administration Corporation (NSW) (1999) 165 ALR 337, Crimmins v Stevedoring Industry Finance Committee (1999) 167 ALR 1, Barclay Oysters v Ryan (2003) HCA

Submission to Productivity Commission

R Trigge 26/10/03

Directory: inquiries -> completed
completed -> Une university of New England Australian Centre For Agriculture and Law aagLaw
completed -> Of proceedings
completed -> Of proceedings
completed -> Conservation of Historic Heritage Places By Ian Evans, oam
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completed -> Of proceedings
completed -> Productivity Commission Inquiry into National Workers’ Compensation and Occupational Health and Safety Frameworks Submission of Professor Michael Quinlan School of Industrial Relations and Organisational Behaviour University of New South Wales
completed -> Inquiry into the Policy Framework and Incentives for the Conservation of Australia’s Historic Built Heritage Places
completed -> The National Disability Insurance Scheme and why there must be a full inquiry by the Productivity Commission by Blair Williams1 Summary
completed -> Reform of Building Regulation

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