Page 2584 - Week 07 - Thursday, 18 June 2009
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Lessees will not need to borrow capital payment for a large one-off lump sum on the crown lease and will only need to fund the purchase or construction of a house on a rented block of land. The rental payments are likely to be less than the mortgage payments required to fund the up-front capital payment of the crown lease. A household with an after-tax income of around $58,000 would pay around 45 per cent of their weekly income on a traditional mortgage for the house and land. However, under the land rent scheme the same household would only pay around 30 per cent of their weekly income on mortgage repayments and rent upon the land—15 per cent less.
This scheme will ensure affordability for households, especially those on a lower income, and make the dream of home ownership a reality for them. The land rent scheme mitigates a number of risks and provides additional protections compared to a traditional crown lease, including a rental cap and income test. The income test means that the participants can move between the two rental rates as their circumstances change. For example, if their income falls below $75,000 at any point during the year, the lower rental rate will apply.
There is no other scheme which provides such a high degree of protection for participants against a change in their circumstances. The rental cap protects lessees from significant increases in rental payments, increasing rent in line with wages growth to hold rental payment constant as a proportion of income over time, ensuring affordability over both the shorter and longer run.
The cap will ensure the lessee is not burdened with an extreme increase in land rent at any one time. In circumstances where the unimproved value increases by 20 per cent, land rent payments will be capped at average weekly earning growth which, on average, is around five per cent. In essence, lessees will benefit from a drop in land values but are protected from sharp spikes in land values.
If the value of the participant’s block of land falls, the amount of rent paid will also fall. However, if the block of land appreciates, household rental increases will be modest as they will be capped. This scheme has been designed to be flexible and to respond to changes in participants’ circumstances. Remembering that the households in the scheme have a crown lease and they are paying a mortgage, this is the only scheme of its kind which adjusts housing costs according to changes in personal circumstances and the market conditions.
Contrary to suggestions by the opposition, there is a lower risk of financial stress under the land rent scheme as participants will only need to borrow for the construction of the house. These lessees are also under less risk from rising interest rates than households borrowing for both the house and the land.
There have been recent suggestions that lessees with blocks on hold under this land rent scheme will be financially worse off and incur a range of penalties and fees. This is not true. There is no fee or charge for those lessees holding a single block of land under the land rent scheme who are waiting to exchange contracts. Participants are free to exit the scheme at any time they wish without any additional costs.
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