“This proves rent-to-buy is accepted!”

(Update August 2016 – In 2016 the words in the Census question were changed from “rent/buy scheme” to “shared-equity scheme” suggesting that my conclusion in this post – that the question never referred to vendor finance or lease options –  was correct).

I don’t claim that rent-to-buy is a scam, or that the models used in rent-to-buy or vendor terms are illegal – but that a lack of appropriate regulation puts buyers and, what industry calls, “motivated sellers”, at risk. You would hope that people would stop and question these unusual transactions – but understandably some in the ‘creative real estate’ industry seem to go to a lot of trouble to demonstrate how these transactions are legitimate, and widely accepted by government and the community. On their own, the claims made may seem trivial – but in combination they can give an overall impression that these deals are more prevalent and accepted than they are.  Here I start to put some of those claims to the test.

Claims used to demonstrate the legitimacy of rent-to-buy transactions include:
• A question in the census “proves rent-to-own is an accepted way of buying a home”
• “Even the banks are suggesting rent-to-buy”
• But “leading government officials regularly seek [Rick Otton’s] advice on solving the housing affordability crisis.”
• In 1927 the “legality of both forms of vendor finance was accepted by the High Court of Australia.”

The Census Question

A claim is made on a number of websites that a question added to the Australian Census in 1996 “proves ‘rent to own’ is an accepted way of buying a home”. This is just one example “Australian Census Question Proves ‘Rent to Own’ is an Accepted Way of Buying a Home” and another example where the Census question is used to explain “Why Rent to Own is Recognised by the Australian Government”

One of the range of possible answers in the Census question about housing tenure type is “being purchased under a rent/buy scheme”. Even if you believe that reference to something in the Census “proves” that something is “accepted” (and I think that’s a stretch) I’m reasonably confident that it does not refer to the type of ‘rent to buy’ or vendor terms schemes that are being promoted on the websites and discussed on this blog.

The commentary on the Australian Bureau of Statistics (ABS) site makes it much more likely that this refers to arrangements where an individual is purchasing part of a house and renting the other, arrangements designed for social housing tenants called “shared ownership” or “shared equity” schemes.

Census questions were changed in 1996 including the one about housing tenure type. The reason for change was “because of the emergence of rent-buy schemes” and demand from data users for actual amounts [rent and mortgage payments] instead of the range of data obtained in the previous Census. “Type of tenure responses were used to determine whether payments were recorded as rent or loan repayments.”

The Census Dictionary for the 2001 Census says that the Housing Tenure (TEND) category ‘Being purchased under a rent/buy scheme’ “refers to households who are both purchasing some equity in the dwelling, and paying rent for the remainder.”

A recent report by KPMG describes “shared ownership” arrangements, which (along with similar “shared equity” schemes) were designed to assist lower income social housing tenants:

Shared equity (often used interchangeably with shared ownership) aims to assist social housing tenants with low to moderate income to purchase a share in the property they currently occupy. A shared ‘equity’ scheme involves tenants purchasing a minimum share of the property (in many instances this equates to no less than 60- 70 per cent share of the property value) or a larger share depending on the tenant’s capacity to afford a larger share.

The remaining share of the property will be owned by the State Government and / or a [Community Housing Provider]. Tenants are not charged rent for the use of the remaining share of the property under a shared equity scheme. A shared ‘ownership’ scheme is slightly different in that tenants make repayments on the mortgage component and pay rent on the remaining portion owned by the State Government and / or [Community Housing Provider].

Schemes such as these have been established by some state governments, and some private enterprises. For example governments in Western Australia, ACT and a private enterprise.

Of course, regardless of the intention behind a particular response option, people will answer based on their own understanding of the wording, and the Census statistics might give some indication of the usage of the types of “rent-to-buy” schemes discussed in this blog.

It is possible that those claiming that the Census answer relates to “rent to buy” and vendor terms type arrangements they are promoting and that it shows Government acceptance of their strategies, have spent more time on researching this issue than I have, and have more knowledge about the background to the Census question. If not, they should do so, to ensure that they are able to support their claims.