Bipartisan support for temporary extra government spending to preserve businesses and jobs through JobKeeper was one of the few positive outcomes from the COVID-19 pandemic.
Recognition that the long-term damage caused by short-term economic crises far exceeds the cost of temporary government spending to avoid it underpinned that consensus.
It’s worth considering now whether the same logic could be applied to create a “HomeKeeper” program, especially given Reserve Bank Governor Michele Bullock’s recent message that interest rates could stay higher for longer than expected.
JobKeeper kept businesses open and preserved jobs during the short pandemic economic chasm.
Equally, HomeKeeper could help financially stressed mortgagees avoid losing their homes during the current interest rate crunch, and stop them joining already too-long rental queues – or worse, becoming homeless.
Government could apply vital lessons from JobKeeper’s design flaws too, making HomeKeeper a winner not just for vulnerable mortgagees but for government’s balance sheet too.
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How a ‘HomeKeeper’ scheme could work
Rather than loans or handouts, the government could take a small equity stake in the property, equal to the value of the mortgage aid as a proportion of the property’s market value at that time.
The idea is to give those experiencing mortgage stress a little breathing space to recapitalise and get them through until interest rates ease without having to lose their homes. Up to $25,000 in assistance per family would be a reasonable ceiling.
It would work like this. Say, for example, someone has a $500,000 mortgage and their monthly repayment is $5,000. They could apply for HomeKeeper assistance for five months (reaching the $25,000 cap). In return, the government would get a 5% equity stake in their house. This could also be taken out as partial assistance, depending on the home owner’s needs.
Then, when the owner is able to pay back the government’s stake, or when the house is sold – whichever is sooner – the government is paid back the market value of the equity stake at that time.
These equity stakes could be held in a government “housing trust” until repaid on market terms. This would reflect growth in the property’s capital value and make it a sound investment for taxpayers.
By keeping the maximum size of the stake low, the help would matter most to families on low incomes in modest homes. Relative to the size of their mortgage, it would be significant assistance, and might mean the difference between keeping the family home or having to sell.
Mortgage payments could be dispatched directly from the government to the relevant bank with the mortgagee’s permission, to ensure the funds are applied on time and for the agreed purpose.
What happens if I can’t pay my mortgage and what are my options?
Why is a HomeKeeper program necessary?
Australia has a crude system for identifying mortgage stress.
In research after the Global Financial Crisis (GFC), Western Sydney University’s Urban Research Centre found a range of partial, sometimes indirect measures using “inconsistent categories”.
There is “often a failure to disaggregate between wealthy and poorer households”, it said. In other words, government tends to cite the overall picture instead of the specific situation of different types of mortgagees.
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There is also often the casual assumption that because Australia has full employment, people won’t have trouble meeting their mortgage payments.
“Most households, because employment is so strong and unemployment is so low, they seem to be coping,” ANU economist Ben Phillips told the Australian Financial Review last month.
Phillips conceded, though, that Australia doesn’t have meaningful, up-to-date financial stress indicators. “Various measures such as arrears, insolvency, savings and so on are partial measures or measures that are perhaps too late in the game,” he said.
So the picture is opaque, and lags. The early 1990s recession showed how immense damage can already happen by the time governments realise its dimensions.
This eventually had devastating consequences for the Labor government that oversaw it.
The then prime minister, Paul Keating, won the 1993 election immediately after the recession, up against the crusading neoliberal opposition leader, John Hewson, who had proposed a big new goods and services tax.
But Labor lost the following election in a landslide as voters, in Queensland premier Wayne Goss’s words, sat “on their verandahs with baseball bats” waiting to vote the Keating government out.
Banks classify loans as “delinquent” when mortgage payments are in arrears. NAB chief executive Ross McEwan told federal parliament’s House Standing Committee on Economics in July that NAB was seeing “some stress in the system” and an “uptick in 30, 60 and 90-day delinquencies”, but said they remained below the ten-year average.
However, not all mortgagees are equal.
AMP senior economist Diana Mousina said in March that “the downside risks to the household sector are greater than the RBA, and most commentators, are estimating”.
Mousina drew attention to Australia’s record household debt as a proportion of household disposable income, upping the scope for financial stress considerably, and also to the particular vulnerability of one kind of borrower.
In our view, the risk of mortgage stress lies with recent borrowers who have taken out loans between 2020 and mid-2022, which is around 62% of outstanding housing loans.
These households have not had time to build prepayment buffers […] have had a very fast repricing of mortgage rates, are more likely to have taken out larger loans and were probably not stress-tested for the current increase in interest rates.
Homeowners often feel better about life than renters, but not always – whether you are mortgaged matters
Helping those who don’t have access to the ‘Bank of Mum and Dad’
Anecdotal evidence and logic suggest there’s another vulnerable group in addition to the one identified by Mousina: working-class mortgagees.
The “Bank of Mum and Dad” in middle- and upper-income families has for some time helped offspring buy their first home.
A recent further development is the Bank of Mum and Dad providing assistance to help their offspring avoid mortgage delinquency in another intergenerational transfer of wealth among the well-off.
But there’s often no Bank of Mum and Dad for working-class mortgagees, who lack families with accumulated wealth to turn to for help.
HomeKeeper could be the government equivalent to the Bank of Mum and Dad for working-class families trying to hold onto their homes until interest rates ease.
Roy Morgan
What are the likely objections?
Three main objections are likely.
The first is that there’s no evidence there’s a problem whose solution requires something like HomeKeeper. However, current indicators are partial, inconsistent and lag, so over-reliance on them is risky – and there are signs there really is a problem.
The latest Roy Morgan survey of stress among owner-occupied mortagees showed near-record numbers of people “at stress”, numbering 1,514,000, or over 30% of mortgage holders. Nearly a million of them (967,000) are considered “extremely at risk”.
RedBridge pollster Kos Samaras has been regularly drawing attention to the extent of mortgage stress in social media posts all year.
By mid-2023, Samaras says, “over 1.1 million borrowers in just NSW and Victoria were experiencing negative cash flow” – that is, “income not enough to meet repayments and other expenses”.
The second objection is that there have been assistance schemes in the past and they haven’t worked very well.
It’s true there have been some small fragmentary schemes, but never one on a JobKeeper-type scale, or with a JobKeeper-level public profile, or with the sound finance characteristics of using equity stakes rather than loans or handouts to fund it.
HomeKeeper would be different in kind, scale, profile and fiscal responsibility from any previous mortgagee-assistance program.
The third potential objection is that it would undermine the impact higher interest rates are designed to have – namely, to restrain household spending – and that interest rates would have to remain higher for longer to make up for that.
This misses an important point.
Radiation treatment for cancer used to involve obscenely large amounts of radiation over diffuse areas to achieve the desired goal, doing massive collateral damage in the process.
Over time, medical scientists refined their techniques and learned how to achieve the desired result using much less radiation confined to much more targeted areas. These days it’s a very precise science.
There’s no reason monetary policy shouldn’t undergo a similar evolution, becoming less blunt, more targeted and causing less collateral damage in the way it achieves the necessary goal of low inflation.
Working-class mortgagees are not the ones whose spending need to be restrained in the current inflationary environment. They shouldn’t be collateral damage in the RBA’s crusade to tame inflation.
A program like HomeKeeper could make the difference between them keeping or losing their homes, in a way that’s good for them and their families, and at the same time a sound investment for taxpayers.
