12/12/2019 - 10:46

Keystart’s investment future

12/12/2019 - 10:46


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OPINION: The impact of helping people into the housing market is invaluable.

Paul Graham says Keystart can become permanently self-funding. Photo: Gabriel Oliveira

OPINION: The impact of helping people into the housing market is invaluable.

Is home ownership desirable?

I’ve often pondered this question, especially given Australia’s high rate of home ownership compared with other comparable markets.

Ideologically it is an idea that, to me, seems to fit both sides of the traditional political divide.

From the side of capital, home ownership equals participation in the economy at a deeper level, and on top of a purchase, it often entails further investment in building, renovating, additions, interior decorating and homewares.

These fuel construction and retail, which are major parts of our economy.

Just buying a home helps fuel the real estate industry, which is another big employer.

And it also comes with indebtedness. The need to borrow is served by the financial sector, which is a big and important, if not popular, part of our economy.

The labour side of the debate seems equally as attuned to home ownership, especially in Australia where laws around tenancy and the rights of those renting are much weaker than in many other parts of the world.

I have no doubt those who represent this side of politics see home ownership for all as a way for a greater proportion of society to share in the nation’s wealth. This is, perhaps, a result of the way Australia has developed with land tenure and grants, even for former criminals, driving the relatively recent and extremely rapid spread of European settlement.

To my mind, all but the most marginal elements of the political class like the concept because it fosters stability. People who have a lot at risk are more likely to get on with the task of servicing their loans in order to retain their chance to get ahead. Good employees, good citizens.

Intriguingly, in Australia it is very hard to walk away from a home loan without serious consequences, even if the value of the asset is worth less than the borrowings. During my time working in Britain in early 1990s, I learned that lenders there hold more risk, and the prospect of handing back the keys and walking away from a mortgage is less threatening to borrowers.

So Australia has a unique blend of accessibility coupled with inflexibility. In the main, our long-term positive economic growth driven by migration has insured there’s little sovereign risk in this approach.

Which brings me to the unique idea of Keystart – a very Western Australian institution, which for 30 years has successfully helped more than 100,000 people who may not otherwise have entered the housing market.

That Keystart, which provides state-backed loans for people who can’t raise the necessary deposit for a loan from a retail institution, has had bipartisan support across three decades suggests what I am saying above is accurate. Home ownership equals stability – for families, employees, employers and governments.

What is interesting about Keystart is that its settings, notably slightly higher interest rates, means that borrowers have a financial incentive to refinance with a retail lender once they have made a sufficient dent in their loan – typically after five years. Banks, it seems, like these pre-qualified customers.

Keystart has had a few makeovers in its time, with a private sector player now providing more than 15 per cent of Keystart funds.

The state-backed lender recently underwent a significant internal restructuring to modernise its operations and, after 30-plus years in business, believes it could become perpetually self-funding with a significant, but not out-of-this-world, boost to its $6 billion balance sheet.

Keystart CEO Paul Graham raised the prospect with me a short while ago and I was intrigued enough to sit down and try to understand what he wants and how it works.

In effect, Mr Graham said his organisation’s calculations showed that an additional $2 billion in funding provided to Keystart would mean the net interest earned on all loans, combined with repayments from those moving to retail lenders, would be sufficient for the organisation to meet the needs of the market without seeking top-up funding on a regular basis (as it has twice in the current term of government).

I can only assume that the state government’s Treasury Department has run its ruler over these assumptions. 

Of course, this is a big ask. Such an amount buys an awful lot of big-ticket items and could be a serious additional debt on the state balance sheet.

But such spending, as stimulus measures go, is also attractive. It goes to the people who need it and are looking for a way ahead. They are, we would hope, going to use it wisely, investing in their futures while at the same time generating jobs as discussed above. This all seems desirable to me. Oh, and they pay stamp duty too.


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