Western Australia's leading property industry groups have warned the government not to abolish its Keystart shared equity home loan scheme, arguing it could push thousands of low-income earners into public housing.
Western Australia's leading property industry groups have warned the government not to abolish its Keystart shared equity home loan scheme, arguing it could push thousands of low-income earners into public housing.
The Economic Regulation Authority last month called for Keystart to be scrapped in its draft microeconomic reform report, requested by former treasurer Troy Buswell.
The ERA claims the scheme distorts the market by pushing up the price of housing for non-eligible buyers and poses an unreasonable level of risk to government finances because its customers are more likely to default on their loans.
The Keystart scheme provides eligible homebuyers with low-deposit loans to purchase homes within a defined price bracket.
Unlike private lenders, Keystart does not charge borrowers mortgage insurance or ongoing monthly account keeping fees.
Clients in the metropolitan area must have a maximum income of $95,000 for singles or $135,000 for couples, with those rates increasing for borrowers in regional areas.
The ERA's recommendation to abolish the scheme has raised the ire of the property industry.
In draft public submissions to the ERA report released today, the Real Estate Institute of WA, Property Council of Australia, Urban Development Institute of Australia, Master Builders Association, Housing Industry Association, developer BGC and home builder ABN Group all firmly opposed the proposal.
UDIA chief executive Debra Goostrey said Keystart had helped low-income earners climb the housing ladder, with nearly 80 per cent of clients moving into private financing arrangements within three years of the initial mortgage being approved.
"The argument for the abolition of Keystart is premised on a very narrow understanding of the housing continuum and identifies issues created through the single interface of Keystart clients with privately financed buyers in the market when in reality the housing continuum is far more complex," Ms Goostrey said.
"Consideration of Keystart should be undertaken across the full spectrum of options, from homelessness to home ownership."
ABN Group managing director Dale Alcock said scrapping the scheme would have a "devastating impact" on the state, potentially placing increased reliance on public housing and rental subsidies.
BGC Residential chief executive Kelvin Ryan said the ERA had disregarded the fact that Keystart default rates had remained relatively low during the existence of the scheme, even during the GFC.
He pointed out that the arrears rate for Keystart loans fell from 0.83 per cent to 0.38 per cent between June 2008 and June 2010, while the rate for private lenders reached 1.39 per cent.
"The central element to the recommendation to scrap Keystart was the element of unjustifiable risk," Mr Ryan said.
"In so making the recommendation, the draft report has disregarded these historic examples of default rates to justify its own case.
"Whilst risk in inherent in all lending, it can be seen that even during times of economic contraction, defaults with Keystart have remained low."
Prominent economist Saul Eslake earlier this year called for the Keystart scheme to be expanded or replicated across the nation, while criticising other housing affordability measures such as the first home owners grant as ineffective.
The ERA says an estimated 69 per cent of households or individuals in the greater Perth area would be eligible for Keystart financing, based on currrent income requirements.
It argues this is evidence that the activities of Keystart go beyond the Department of Housing's policy objectives and into commercial activities.
