A radical real estate solution helping Australians save millions on housing costs has been revealed.

About 1,000 households in Canberra are saving $9million every year by renting the land their houses sit on instead of buying it.

The scheme has been operating in the nation's capital for a decade, with households paying a tiny annual rent to the government.

A radical real estate solution helping Australians save millions on housing costs has been revealed

About 1,000 households in Canberra (pictured) are saving $9million every year by renting the land their houses sit on instead of buying it

Economics lecturer Cameron Murray said it helps renters secure long-term home ownership while saving 'about half' their housing costs.

Renters pay two per cent of the market price of their property each year to the government.

'As long as they pay the rent, they can occupy it for life,' Mr Murray wrote in a post for The Conversation.

'The downside, for them, is that they forgo the increase in the value of the land. The upside is that it costs them two per cent per year instead of the five per cent interest rate they would pay if they had a mortgage.

'When they sell their home they built on the land they pay out the land value to the government.'

Mr Murray said the scheme 'works out pretty much even' for the government.

The scheme has been operating in the nation's capital for a decade, with households paying a tiny annual rent to the government

'What it loses by renting cheaply, it gains as the value of the land goes up.'

He said the non-conventional method is particularly attractive for first-home buyers, enabling them to save on the required amount for a deposit by subtracting the land value.

'What makes the scheme in the Australian Capital Territory so radical is that it has been almost entirely ignored in the mainstream policy debate about housing affordability,' he said.