LOW-INCOME earners moving into the Canberra housing market will have the option of renting the land on which they build their homes under a new scheme to be outlined in Tuesday's ACT Budget.
The option, flagged in the Government's Housing Affordability Action Plan, will mean instead of paying full 99-year leasehold value for the land, homeowners will be able to rent it for a payment of 2 per cent of its unimproved value.
They will be allowed to focus the savings which on a typical land value of an outlying block of $90,000, would be about $130 a week on the house they build, instead of the complete house and land package.
A family with a household income below $75,000 could rent a $90,000 block for $35 a week, compared with the $165 a week that borrowing $90,000 for the land component would cost in a typical mortgage.
Under the scheme, rental payments would not go to paying off the land, but tenants could buy their land at any time for its unimproved capital value.
It is the most ambitious assistance program for lowincome homebuyers in at least a generation.
The scheme has some elements of the annual land rental system operating in the ACT until 1970. In the purest version of the old scheme, people could acquire a 99-year leasehold on a Canberra block by a down-payment of 5 per cent of its UCV, plus an annual 5 per cent rent payment based on whatever the UCV was in the year of payment. The rental was inclusive of rates.
That scheme, based on a 19th century model proposed by US economist Henry George, was thought to best capture for the community the increased land values as the city grew.
After the Gorton government abolished the scheme providing an instant bonanza to many people who had made only a few annual payments new homebuyers had to buy, in one go, the full 99-year leasehold. Effectively, this was at UCV or the price the bare (but already serviced) land, achieved at auction.
The rental scheme will initially only be open to low-income earners that qualify for the discounted rate of 2 per cent, but would eventually be open to higher income owner-occupiers and investors, who would pay a rental rate of 4 per cent. Those who start out on a 4 per cent rate will be able to change to the discounted rate of 2 per cent if their circumstances change.
The $75,000 threshold to qualify for the discounted rate will rise depending on the number of dependants living at home.
The first stage of the scheme is planned for July 1, if the legislation is passed. Householders interested in the scheme would be required to attend information sessions on appropriate mortgages and building contracts as well as the scheme itself.
The land rental option will only be available on residential blocks provided by the Land Development Agency.
One of the potential concerns was whether financial institutions would back house-only loans, particularly in terms of mortgage defaults. But a spokesperson from the ACT Chief Minister's office said the land would be part of any future sale of the house. Or the rent option could be taken up by a new buyer.
The Government had consulted with financial institutions who had supported the scheme.
Senior Partner NAB Government business Avi Rebera told the Sunday Canberra Times he endorsed the direction of the scheme but would reserve final judgement until he had seen the legislation.
"We will certainly do what we can to support the initiatives," he said. "But we don't see this from a purely commercial perspective, we have a community obligation and are pleased to be involved in socially responsible lending."
Buyers would also have to be aware of some other potential catches. For example the (discounted) rental for low-income earners represents 2 per cent of the unimproved value of the land and the land value could rise rapidly once an area was developed. However, the Government said its plans for large-scale land release would stabilise land prices.
The Government has indicated that it expects the scheme will be cost neutral as most of the land purchased would otherwise remain vacant.
A spokeswoman for Chief Minister Jon Stanhope said the Government had received advice that, coupled with the affordable blocks plan (released last month), the land rent scheme would open up the prospect of home ownership to people on incomes as modest as $50,000 a year.