The HomeGround real estate agency in Australia is one with a difference. This is a community organisation which is run “not-for-profit” but to ensure more affordable housing is made available. These aspirations are all good and well but how has a not-for-profit real estate agency gone down in Australia?
Set up in 2014
The HomeGround real estate agency began life in 2014 having been set by community organisation Launch Housing in Melbourne. Like so many countries around the world Australia has seen a significant reduction in public housing stock and a significant increase in private sector rental properties. Indeed public housing stock has reduced from 20% down to a mere 3% over the last 20 years, something which has been replicated right across the world.
The first thing to say is that all commissions are invested back into the business to encourage more investors to come forward with affordable housing. This is an opportunity for some investors to give back at a time when many are struggling to find accommodation right across Australia.
How does the system work?
As we touched on above, all commissions earned by HomeGround are invested back into the business to encourage more investors to step forward. The idea is that affordable properties are offered at a discount to the market rental rate in order to assist those on low income. There are set criteria for prospective tenants to ensure that they are able to cover the subsidised rental charges and the properties will be well looked after.
While business is business, it is worth noting that subsidise rents can be used as a tax deduction as ruled by the Australian authorities. In effect this allows investors to offset their additional income against their reduced rental income. Many will already have worked out that while these properties may be rented at a discounted price there is still significant potential for capital growth going forward.
Giving something back
This scheme is not for all investors because ultimately it does allow those with relatively large exposure to the real estate market to give something back. The fact that this reduction can be offset against their additional income is an interesting byproduct but not the main reason why it is proving popular. Some prospective tenants are sceptical about why investor would lease a property to a new tenant at a reduced rate especially when there is significant demand for private rental properties. The simple fact is it is down to each individual investor and we can only assume they have sufficient income elsewhere to cover their everyday expenses.
The scheme is about to be rolled out across New South Wales and Queensland with all income reinvested back into the business. There is no doubt that the ruling by the Australian tax office has assisted this particular scheme. Whether we would see authorities in the UK allow a similar scheme is debatable.
In some ways the HomeGround not-for-profit real estate agency is a win-win for all parties because low-income families now have options, landlords can collect tax incentives and investors will still benefit from long-term capital appreciation. The scheme itself is unlikely to have a major impact upon the traditional rental market where landlords/investors will still be looking for full rental income. However, to those struggling this could be the lifeline they have been waiting for.