Affordable Housing through Leasehold Title?

Finding solutions to the affordable housing crisis is one of the nation’s most pressing problems. One idea that I believe has some potential to be at least a partial solution, but which has not received serious attention, is residential leasehold title.

I’ve been intrigued by the potential for leasehold since I first went to London over 30 years ago, when I saw the amount of reasonably priced housing that was available for sale as leasehold. It allowed people who earned their living in the city to live in the city, something that is becoming almost impossible for many working people in Australia’s cities.

The leases were being offered for sale for various lengths of time; some for twenty or thirty years, down to as little as five or eight. The latter were the tail-ends of longer leases and, being cheaper, were often snapped up by people who had newly arrived in London, or who didn’t necessarily see themselves staying there forever. Until recently almost all flats offered for sale in Britain were leasehold title.

We are accustomed in this country to thinking of residential leases as lasting for six or twelve months. Such housing is viewed as being inherently less stable, more temporary, than that ideal of owning your own home.

Most Australians do yearn for a home of their own. It is the reason why so many go so deeply into debt to buy one. The stress of that debt can be enormously damaging; and we are now seeing the fallout as many families lose their homes through foreclosures. And not just the families. The cost of buying a home and meeting mortgage repayments as a single person makes it almost prohibitive for a person on average pay.

It seems to me we require an extra strand in the residential field; a type of tenure that provides affordability and security while making it relatively simple for people to change homes when they need to; and that doesn’t require people to spend the rest of their lives handing over a large portion of their income to the banks as interest payments. Leasehold could provide a solution.

So how does leasehold work?
If you could buy the leasehold on a home for, say, the next 25 years, at less than a quarter of the price you would pay freehold, wouldn’t you consider it? Particularly if purchasing that leasehold gave you the right to decorate the home as you liked, to undertake renovations, and to sell the remainder of the lease if you wanted to? You would have the same security as if you owned the freehold. And as with freehold, you would have responsibilities – to pay the rates and upkeep.

Leasehold title provides the holder with a long term, secure lease on a property. Investors who own the freehold title receive returns on their investments through the initial sale of the lease hold and through ground rent of 4 per cent per annum. or thereabouts. They also benefit from capital gain if they choose to sell the freehold to another investor. (As too – to a lesser extent – does the leaseholder if they choose to sell their title.) Investors might be interested in holding residential freehold title and selling leasehold. It would be a secure investment and, because the leaseholder would be responsible for rates and maintenance, largely hassle-free. Nor would the investor have to worry about the constant turnover in tenants.

Leasehold is widely used in Australia for business premises. There is no reason why a similar system couldn’t operate for residential property. The most obvious advantage of introducing residential leasehold is the benefit and relief it could afford those facing foreclosure on their homes. With rising interest rates, a growing number are facing this crisis right now. If the concept of leasehold were facilitated and promoted by government they might be able to avoid this upheaval by selling the freehold. They could sell the freehold to an investor while keeping the leasehold for themselves. The ongoing benefit of this to individuals would be immense. But it would also help to lift and stabilise the housing market, giving investors with capital a safe haven against the vagaries of the stock market.

The Government could actively encourage leasehold housing through the provision of some form of assistance to enable low income people who might not be able to afford the price of the lease. Creating an Affordable Housing Bond might be another way of generating the necessary finances. The Government could then buy long-term leases (say 50 years) and give a 25 year sub-lease to those without capital.

One of the exciting things about leasehold is its versatility. It could, for example, be used to provide homes for the mentally ill. The family of a mentally ill person could buy a lease on a studio unit in a purpose-built centre, where support services such as cooking, cleaning and nursing supervision were available. The cost of much of the support could be covered by the pensions of the residents. The Government would fund the cost of building but much of that would be recovered when the leaseholds for the units were sold, leaving the government with responsibility for providing medical care. This is only one example – one that would result in a much improved quality of life for the mentally ill.

For this system to work, we as a community will need to rethink our attitude to housing tenure: someone with a lease on a home for twenty years is not a tenant. They legally hold the right to occupy that property for the next 20 years: they OWN the leasehold. There is, of course, nothing to prevent long-term residential leases happening now. But what is missing is a culture of acceptance of leasehold as a legitimate and viable way of ‘owning’ a home. Both householders and investors in residential real estate need to become comfortable with the concept, and this is where government will need to play a part.

Blog Comments

Why is it not possible to obtain a mortgage loan (in my case only $30,000 ) for a legitimate retirement complex property? I had to abandon my search for a loan after trying about 8 different lenders including my own bank NAB. I would have about $350,000 equity in the property, with full disposable rights. Because the property is classed as ‘Leasehold’ no-one is interested. Is there any avenue out there?

I am having the same issue
Over 55 complex living is now a great option for single mature people. Like you i have banked with anz for 30 years i have 80% of the value and no one wants to know

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