Wednesday, December 23, 2009

Seasons Greetings

Having completed the TU's submission on the draft Residential Tenancies Bill – download your copy here – your Brown Couch correspondents will now decamp to their respective banana lounges for a few weeks.

On behalf of N.C. and myself, may I wish you all the very best of the holiday season. We look forward to seeing you again on the Brown Couch in the new year.

In the meantime, please enjoy the following Christmas-cracker-worthy jokes, japes and wheezes from that famous manual of mirth, the 1977 NSW Housing Commission Estates Management Field Officers' Handbook.









Ho ho ho. Plus, the sixpence in your pudding: some sage advice to housing officers from that same tome:


See you next year.

Saturday, December 12, 2009

Housing speculation culture studies: 'The Castle'

The boffins from the Brown Couch's Institute of Tenancy Culture Studies are still hard at work on the TU's submission on the draft Bill, so regret that their next eagerly-awaited study of tenancy culture has been delayed.

Instead, the Institute is very proud to host a very special guest lecturer, Prof Ross Garnaut, who will present some of his recent work in the allied field of housing speculation culture studies. Ladies and gentlemen, Prof Ross Garnaut.


(Prof Ross Garnaut)

And the subject of Prof Garnaut's study is: The Castle.

*

In 1997 a low-budget Australian movie dominated the national box office. The Castle cost $500 000 and took nineteen days to shoot. The movie's title was drawn from the platitude 'Each man's home is his castle'. Its major theme was an examination of the rights and value pertaining to home ownership.


(The Castle)

The lead character, Darryl Kerrigan, was an iconic figure of Australiana: working class, egalitarian, down-to-earth, someone who might have been described as 'a good bloke'. He was played by the lanky, laconic Michael Caton, whose moustachioed credulity encapsulated Australia's most adored self-image. The film held an ironic mirror up to Australia. On display were those dimensions of the nation that did not fit with with its self-image of giving everyone a 'fair go'.

The Castle's launch coincided with changes that curtailed the realisation of traditional, passionately held goals of home ownership. That great Australian (or American or British) dream was mutating into volatile and dynamic asset trading. There is no better symbol for this shift than the subsequent career of Michael Caton. After the success of The Castle, he was recruited to host a major television series called Hot Property. In a case of life ignoring art, the man behind Darryl Kerrigan, the embodiment of passionate owner-occupation, became the face of asset speculation. The program offered tips on how to buy, renovate and sell property. This theme grew so strong with passing seasons that in 2000 it was renamed Hot Auctions. This was the very opposite of the quaint owner-occupied culture venerated in The Castle.

What drove this transformation?

Anglosphere house prices had boomed before. They had surged in the late 1980s as corporate freewheeling stoked growth within economies that had experienced recent financial liberalisation. However, the rise in prices was soon brought to heal by high interest rates and then the early 1990s recession.

But the boom that emerged in the mid 1990s went much further. It was described by The Economist in 2005 as 'the greatest bubble in history'. The Economist estimated that from 2000 to 2005, global housing more than doubled in value to more than $70 trillion. From 1995 to the various peaks in 2006-07, median house prices grew by a total of 139 per cent in the United States, 261 per cent in the United Kingdom and 169 per cent in Australia.

The housing market was supercharged by a swing in perception away from home ownership for a roof over one's head, and towards home ownership as investment. The swing towards housing speculation was given a special boost when the US, UK and Australian governments altered capital gains tax laws within two years of one another. The changes made it much more advantageous to receive income from capital gains than from the sale of the services of one's brain or hands.

*

Thank you, Prof Garnaut. For further reading, see Ross Garnaut's very accessible and almost instant analysis of the global financial crisis and beyond, The Great Crash of 2008.


(from Melbourne University Press)


Wednesday, December 2, 2009

The draft Bill: a preliminary view from the Brown Couch


As promised, here’s the TU’s preliminary guide to what’s proposed in the draft Bill. (Please note: these are the TU's preliminary views only, and they might change as we continue to cogitate on the draft Bill... and as we hear the feedback from our colleagues and constituents – in other words, you).


Access to premises. The provisions for landlords accessing premises to show them to prospective purchasers are, in our view, probably the most disappointing and troublesome of the draft Bill. It envisages landlords and tenants making agreements as to the days and times for access, which is fine, but then undermines any negotiations by giving landlords everything they could want: access on 24 hours’ notice, without limit as to the number of visits, plus a big stick – fines of up $2 200 for tenants who refuse to give reasonable access. We think agreements as to access will only happen when landlords’ rights of access are restricted and they have a reason to negotiate for more. There’s a couple of other access provisions that could do with tightening up too.


Alterations. Tenants would still have to get their landlords’ written consent to make alterations and install fixtures, but where the alteration is minor or cosmetic, the landlord may not unreasonably refuse. Tenants would have to make good any damage or loss of value when they leave, and they would also lose their current statutory right to compensation for fixtures they’ve had to leave behind… but clever landlords know how to avoid that liability anyway. All in all, the draft Bill’s provisions are probably a little better.


Break fees. Tenants who break a tenancy early by moving out in the fixed term would be liable to pay a ‘break fee’ of four or six weeks’ rent (depending on how early they’re breaking) instead of the rent lost until a new tenant moves in, plus the landlord’s readvertising costs, reletting fee, etc. The break fee has the potential to deliver a windfall to landlords – particularly the six-week fee, which is too high – but a flat four week fee would be more straightforward than the current situation and, on balance, good for tenants.


Co-tenants. Big improvements for persons who are on tenancy agreements with one or more other tenants. Under current laws, a co-tenant who moves out cannot end their liability for rent and other costs; the draft Bill would fix this absurdity by allowing a co-tenant to give a termination notice to the landlord and the remaining co-tenants. The draft Bill would also improve the process for transferring tenancies when a new person moves in to replace a departing co-tenant and allow, in special circumstances, a co-tenant to apply to the Tribunal to terminate the tenancy of another of their co-tenants.


Domestic violence. Where a final Apprehended Violence Order excludes a person from premises of which they are a co-tenant, the draft Bill would automatically terminate their tenancy while leaving the tenancies of other co-tenants on foot. A very sensible reform that helps victims of domestic violence get their tenancy arrangements sorted out.


Exclusions. Those renters who are kept out of the current Act – for example, boarders and lodgers – are out of the draft Bill too. There’s one exception to this: educational institutions are excluded from the current Act, but not the draft Bill – though we anticipate they will be excluded later by regulation. The draft Bill would exclude some additional groups of renters too, such as residents of refuges and crisis accommodation, serviced apartments and sharehouses. In the case of sharehouse residents, only those who have written agreements or who have become tenants by transfer or Tribunal order are covered, otherwise you’re a lodger. The exclusions make more urgent the need for occupancy legislation that covers all marginal rental housing.


Holding fees. The deposit many prospective tenants pay in an attempt to hold or reserve premises to let will actually mean something under the draft Bill: if a landlord accepts a holding fee from a prospective tenant, it will be up to the prospective tenant as to whether or not to go ahead with the agreement. Makes good sense.


Long-term tenancies. Tenancy agreements with a fixed term of 20 years or more would be allowed to leave out many of the usual terms, like those relating to repairs. An interesting development, but of little practical importance: virtually no one – landlord or tenant – is interested in a 20-year fixed term tenancy.


Rent arrears. Landlords would be able to commence termination proceedings more quickly, but tenants would be assured that if they pay the arrears, their tenancy is saved – even if the Tribunal has already ordered termination. On balance, this is an improvement for tenants, and landlords too – at the moment, if they get a termination order, many tenants won’t pay the arrears and will use the money instead to move and set up their next tenancy. The draft Bill would see more tenancies saved and more landlords paid. Win-win.


Rent control. No, just kidding. We've searched high and low and there's nothing in the draft Bill that can justifiably be called rent control.


Rent payments and receipts. Some useful reform here: tenants would be able to request a statement of rent payments from their landlords, and landlords would have to provide at least one method of rent payment that does not impose a cost on the tenant – so tenants can say goodbye to those rent card companies that charge tenants for the privilege of collecting their rent.


Residential tenancy databases. Finally: legislated rules about tenant databases (sometimes known as tenant blacklists) that apply to landlords, agents and operators of databases, that set out how a persons may be listed, and that provide for resolution of disputes about listings through the Tribunal. These are some of the draft Bill’s most welcome provisions – but we know at least one tenant database operator cannot see a regulatory loophole without diving through it, so we’ll be suggesting a number of measures to tighten these provisions up.


Social housing. All the current special provisions relating to social housing are incorporated, virtually without change, in the draft Bill… except the drafters have omitted the grandfather clause that prevented pre-July 2005 social housing tenants from being given termination notices on grounds that they were no longer eligible. We think it’s an oversight and will be asking that it goes back in.


Terminations by tenants. Some useful new grounds for termination by tenants during the fixed term of a tenancy: the tenant has been offered social housing; and the tenant is to go into aged care. The draft Bill provides another new ground – that the premises are for sale, and the landlord did not disclose the sale before entering into the tenancy agreement – but this is too narrow to be useful: we think tenants should be able, without qualification, to give a notice of termination if the premises are put up for sale.


Terminations ‘without grounds’. One of the more disappointing aspects of the draft Bill. Landlords would retain their current ability to give notices ‘without grounds’, which makes renting unnecessarily insecure. Notice periods would be increased from the current 60 days to 90 days (and from 14 days to 30 days in the case of notices at the end of a fixed term), which is good for tenants, but the Tribunal loses its little-used but important power to refuse to order termination – that is, termination notices without grounds will always end a tenancy (one exception: the Tribunal retains its discretion where the tenant has been in occupation for 20 years or more). The law should be trying to get landlords away from using notices without grounds, not making them more attractive.


Uncollected goods. If you’re evicted, the draft Bill does not give you long to get your goods out of the premises – just 14 days before the landlord can dispose of them as they see fit (including dumping them at op-shops). Fortunately, personal documents must be stored longer – 90 days – and the draft Bill does give a former-tenant a right to compensation if the landlord disposes of goods unlawfully. We think the draft Bill’s protections for tenants’ uncollected goods should be backed up with some penalties, but overall it would help restrain some of the abuses that currently go on when goods are left behind after termination.


Monday, November 30, 2009

BS Shrapnel

Forecasters to the real estate industry, BIS Shrapnel, are in the media today with a prediction that rents will increase 20 per cent over the next three years.

At the Brown Couch we are not in the business of making predictions, but we are blessed with the power of hindsight. Let's look back to what BIS Shrapnel were predicting for 2009 this time last year...


"In Sydney, the number of new medium and high density dwellings being completed is forecast to fall to a 20 year low in 2009, pushing the vacancy rate to below one per cent,” explains [BIS Sharpnel Managing Director, Robert] Mellor. “Rental properties will remain in short supply, and the national average rental growth is forecast to rise to 10 per cent in 2009, up from the current rate of 8.2 per cent, according to the Australian Bureau of Statistics rental index.”

10 per cent. Over the year to September 2009, Sydney rents actually went up 6.6 per cent (the national figure is a little lower - 6.2 per cent). BIS Shrapnel was out by a factor of 50 per cent.

Tricky business, forecasting.



(Asterix and the Soothsayer.)

Thursday, November 19, 2009

Startling Steve and the draft Bill

While the Tenants' Union continues to pore over the details of the new draft Residential Tenancies Bill (I'll post some comments on it shortly), the president of the Real Estate Institute of NSW, Steve Martin, has today blitzed the media with his own analysis.



(Steve Martin. Yeah, a cheap shot, I know. As the namesake of another famous Martin, I'm allowed.)


Through this morning's Australian Financial Review, Steve startled the big end of town with his warning that the draft Bill was 'investment vandalism' that would 'deliver carnage to mum and dad investors and tenants across NSW.'

This is because, says Steve, the Bill would introduce 'rent controls.' Yes, RENT CONTROLS. I kid you not.

By the afternoon, Startling Steve was down the other end of town, accosting Sydney workers through the commuter organ mX with predictions that 'Sydney rents could jump 20 per cent in just one year' if the Bill is implemented.

This is because, says Steve, it would be so costly for landlords and agents to comply with the Bill's conditions. 'On an average rental of $500 per week, these new costs could be as high as $100, which is a 20 per cent increase', he said.

Perceptive readers may have spotted something of a contradiction in Steve's statements. Will the draft Bill punt rents through the roof, or freeze them where they stand?

It takes a special kind of analysis to come up with two contradictory propositions and get both wrong. Regarding the rent control nonsense – and it is nonsense – the draft Bill's provisions relating to rent increases are the same, almost to the letter, as those in the current Act. No rent controls there.

As for the rent increase nonsense – and it is nonsense, and they've tried it on before – Steve doesn't say how he came up with such extraordinary estimates of the costs of compliance. Unless he shows his workings (whether on the back of a napkin, or a coaster, or whatever), the rest of us are entitled to think that he's just making it up.

Thursday, November 5, 2009

New draft Residential Tenancies Bill

At last, the long-awaited draft Residential Tenancies Bill has appeared.

The draft Bill is the product of the review of current New South Wales residential tenancies legislation that began in 2005 (though those with long memories will recall that our legislation first came under review way back in 1998)... as well as the efforts of the Tenants' Union, the Tenants Advice and Advocacy Services, other housing advocates and numerous individual tenants to draw attention to the deficiencies in the current law.

First impressions of the draft Bill: mostly good. It would make numerous sensible improvements on the current law. Some of these improvements would be very significant: in particular, the provisions about residential tenancy databases would finally set out an effective set of rules about how a person might get listed on a database, and how they can get off the wretched thing.

There are, however, some less happy provisions: in particular, changes to restrict the discretion of the Tribunal in dealing with no-grounds terminations.

In the coming weeks, the TU will pore over the draft Bill and keep Brown Couch readers posted as to what we make of it.

The status of the draft Bill is that it is an exposure draft: that is, it is not law yet, and it has not even been introduced into Parliament. Fair Trading is seeking comments on the draft Bill until 18 December, before it goes to Parliament next year. You can make comments to Fair Trading online, but please also let us know what you think, through comments here as we discuss the draft Bill, or by dropping us a line at the TU.

Tuesday, November 3, 2009

Dine out... help out

The good people at StreetSmart, who raise funds to help homeless persons, have launched their 'dine out... help out' appeal for the coming festive season.



How it works: dine out at a participating restaurant between 9 November and 24 December, and add $2 to the bill to help the homeless. Bon appetit.

Tuesday, October 20, 2009

Child safety in rental housing

Brown Couch readers will probably be aware of the terrible story of the three-year old Sydney boy who died on the weekend after falling through the window of his family's third-storey flat. The family rent the flat, and it is reported that they had previously complained to the landlord that the windows were unsafe.

I make no comment here about the fault or liability of any party in this very sad case – just some general comments on how the safety of children is addressed in New South Wales renting laws.

There's a few provisions of the Residential Tenancies Act 1987 (NSW) that are relevant to child safety, but with a single notable exception, the Act makes no provision for particular safety devices to be installed or for particular safety standards to be met.

Those provisions are:

  • the habitability term. Under the Act, it is a term of every tenancy agreement that the landlord will provide the premises in a state fit for habitation.
  • the repairs and maintenance term: it is also a term of every agreement that the landlord will provide and maintain the premises in a state of reasonable repair (and just what 'reasonable' means depends on the amount of rent payable and the age and prospective life of the premises).
  • the locks and security term. It is also a term of every agreement that the landlord will provide locks and security devices sufficient to make the premises reasonably secure. (What's 'reasonably secure' depends on the circumstances, especially location. It also means that the landlord does not need to make the premises Fort Knox.)
(There's another term that's relevant too: the alterations and fixtures term, which provides that a tenant must not make an alteration or install a fixture – say, a window lock – without the consent of the landlord.)

These obligations are all generally stated - that is, they don't specify particular devices that need to be installed for the premises to be regarded as habitable, in a reasonable state of repair, or secure. That's all very well – it's good that our laws provide this general obligation – but it also means that if you want the landlord to install a specific safety device, you might have difficulty: for example, if you want a child-proof lock on the window, the landlord might reply 'no, the lock already on the window is sufficient to make the premises reasonably secure', or even 'no, the window is sufficiently high up that it does not need a lock to make the premises reasonably secure.'

This problem also arises in relation to residual current detectors (sometimes known as electrical safety switches), which switch off the electricity if they detect it zapping a person. RCDs were not required on electrical circuits before 1991, so many houses built before then don't have them. And if your house doesn't have them and you ask for them, be prepared for the landlord to reply 'no, the premises are habitable/in a reasonable state of repair without them.'

I mentioned a single exception to the no-specific-requirements approach of our renting laws. Smoke detectors are specifically required in all residential dwellings, and there's a term to that effect in every tenancy agreement. This requirement was inserted by the NSW State Government in 2005 and, to the TU's knowledge, has improved the safety of rental housing without any dramas.

It would be a good idea if our renting laws built on the general obligations they already provide with some new, specific obligations for landlords to improve their properties. Devices to promote child safety – in particular, child-proof window locks and electrical safety switches – would be an excellent place to start. (Western Australia and Queensland have each already moved to make RCDs specifically required in rental housing.) After that, some other types of specific improvements might be required – say, insulation and water efficient devices – in a rolling program to lift the standard of rental housing.

In the meantime, readers might be interested in the advice of Danny Cass from Westmead Children's Hospital, reported at the second link above.

Rather than wait for the government to pass legislation for better building design, Professor Cass urged parents to ensure windows accessible to children could not be opened by more than 10 centimetres.

A visit to a hardware store, he said, could enable parents to alter windows themselves at a cost of $10.

"So for the vertical ones, that's a Black and Decker and two drills and coach screws, and for the aluminium ones, a rod that just sits in the gutter or two little aluminium screws that screw down," he said.

Some home truths about property reviews...

Readers of the Brown Couch may be aware of an innovative new website where tenants can share news and views of their rental properties throughout Australia.

Home Truth: The online voice for the rental community looks great at first glance. Indeed an opportunity for disgruntled tenants to publicly vent some spleen is long overdue. But there are several things to consider if you're going to regard it as anything more than light entertainment:

  • The website will be of more use to those who are able to "pick and choose" where to live, than those who need to find a new home pronto. With this in mind, it represents good value for the socio-economically blessed, but it offers very little for the rest of us (especially when vacancy rates are low).
  • The website invites reviews of properties and real estate agents. It does not review landlords. It is therefore not on the same footing as a residential tenancy database which collects tenants' names, and holds them to ransom.
  • There is an inherent problem with reviewing properties and real estate agents, and that is the transient nature of both. With property, ownership can change, and so can its level of repair. With agents, a person's employment can change. The review of a property or agent may become inaccurate or irrelevant by virtue of such change. It follows that such reviews could be apt to mislead.
  • Reviews are likely to be made in response to a particular set of circumstances. While one person's experience may be defined in a certain way, it is unlikely that their story will resonate with others to the extent that a property or real estate agency will be boycotted.
  • There is no way to verify whether reviews are genuine. Anyone who makes a decision to rent a property based on a website review must have rocks in their head.
  • The website has potential as a pool of information to draw from while pushing the law reform agenda. But given the problems outlined above, tenants are better advised to take their grievances direct to the Office of Fair Trading. This can be done on a website too!

Thursday, October 8, 2009

Tenancy Culture Studies: Jimmy Olsen and 'The Secret Slumlord of Metropolis'

Today's subject of study comes from issue number 127 of that fine periodical, Superman's Pal Jimmy Olsen, in which our hero does battle with a foe more sinister than Lex Luthor, or Mr Mxyzptlk, or Gorilla Grodd... housing-related poverty.




(Superman's Pal Jimmy Olsen no 127)

It's March 1970. Superman's Pal and cub reporter for the Daily Planet, Jimmy Olsen, has moved into a derelict tenement to get the inside story on the slums of Metropolis. His neighbours endure leaking ceilings, rotting stairways and vermin infestations. When Jimmy asks old Mr Collins, who sleeps under old newspapers because there's no heating in the building, 'why do you people stand for such neglect? Why don't you move?', Mr Collins answers:

'Cough-cough! Because the Bond Company, which owns most of these houses, makes us put up three months rent in advance... and we lose the money if we break the lease!'

Jimmy hits trouble too. His article for the Daily Planet is kiboshed by corrupt editor Perry White when advertisers threaten to withdraw their business. Undaunted, Jimmy writes the story up as a book, but loses the manuscript out his broken window (it gets caught in Superman's slipstream, who had popped in for a visit.) His landlord, the mysterious 'Mr Squeeze', kidnaps Jimmy, imprisons him in a basement, shaves his head and threatens to kill him if he continues his expose.

But Jimmy has his day. Discovering Mr Squeeze's true identity, Jimmy and his fellow slum-dwellers march on Squeeze Manor and unleash hundreds of rats and cockroaches on the society-types there assembled. Superman hauls Mr Squeeze off to prison for the kidnapping caper. And, finally, the slum is redeveloped, by Superman at super-speed, into a public housing estate, 'Olsen Gardens'.


This comic would be secure in its place in the annals of tenancy culture studies for nothing other than that final image of Superman soaring into the sky carrying aloft a prefabricated public housing unit, but there is more to it than that.

The publication date – March 1970 – is important. This places Jimmy Olsen no 127 at the head of the new Realism movement in comics, a month before the publication of the conventional front-runner, Green Lantern no 76 (in which Green Lantern and Green Arrow team up against another slum landlord). It also places Jimmy Olsen amongst the wave of writers, researchers and, later, government inquiries investigating the persistence of poverty and poor housing at the height of that postwar 'golden age' of economic development and prosperity.

This wave began with Harrington's The Other America (1960) and included, in Britain, Abel-Smith & Townsend's The Poor and Poorest (1965) and, in Australia, Ronald Henderson's survey of poverty in Melbourne (1970), then Henderson's national survey, conducted as Commissioner of the Federal Government's Inquiry into Poverty (1975).

That inquiry included a special report by Adrian Bradbrook on Poverty and the Residential Landlord-Tenant Relationship (1975), which analysed tenancy laws in three Australian States and concluded:

'Unfortunately, a study of the existing legal principles shows that the law is sadly deficient in most of the areas of tenant needs. No advice or assistance is provided for a prospective tenant by any governmental agency in any State, there is no legislation to ensure that the tenant is not bound by onerous or oppressive terms in a lease, and the means of solving any dispute between a landlord and a tenant are far from fair and sensible...'

Bradbrook then recommended law reform to regulate security deposits, prohibit other non-rent charges, oblige landlords to do repairs, create a fair standard form of lease, and provide dispute resolution by specialist tribunals, amongst other things. It took a couple of decades, but eventually all Australian States and Territories implemented residential tenancies legislation that more or less reflect the Bradbrook principles. These pieces of legislation represent pretty mild consumer protection – and the speed with which they allow tenancies to be terminated suits landlords very well – but without them rental housing would be governed by the principle of caveat emptor, and many of the abuses inflicted on Jimmy Olsen would be allowed to be perpetrated by our own local Mr Squeezes.

Friday, October 2, 2009

Work disincentives in public housing

September turned out to be Social Housing Month here at the Brown Couch, but there was nary a chart nor graph to be seen. This cannot be allowed to stand, so here are a few about the rent rebate system in public housing, and how Housing NSW's policy for charging rent at a higher rate for so-called 'moderate income' tenants contributes to massive work disincentives.

A couple of explanations first. Work disincentives are costs or conditions that discourage persons from increasing their incomes through work – in other words, where you would keep so little of your increased income for yourself that it is not really worth the effort of increasing it. There's rather a lot of talk about work disincentives generated by the tax and social security systems, but they are generated by housing assistance too, particularly public housing, because public housing's income-related rents mean that if you were to increase your income, a bit of that increase would go to Housing NSW in rent.

One way of measuring work disincentives is to think of them in terms of effective marginal tax rates (EMTRs). EMTRs express, for a person on any given income, how much of an additional dollar of income would go to tax, social security withdrawal and, in public housing, rent and water charges. EMTRs of more than 60 per cent are considered high. It's worth remembering too that the top marginal income tax rate in Australia is 45 per cent.

As for the moderate income rents policy: as Brown Couch readers know, most public housing tenants pay rents that are rebated to 25 per cent of their household incomes. In 2005, Housing NSW introduced higher rates for tenants whose household income fell between two threshold amounts - Housing NSW set the amounts, and called the band between them 'moderate incomes'. These higher rates ranged, on a sliding scale, from a titch over 25 per cent at the bottom of the band, to 30 per cent at the top of the band (so, if your income was in the middle of the band, your rent rate would be 27.5 per cent).

That might not sound like a big deal, but those moderate income rent rates are not marginal rates, like the ATO's income tax rates: they apply not just to that portion of your income in the moderate income band, but to the whole of your income. If you expressed the moderate income rent rates as a marginal rate – ie how much of the portion of your income that falls in the moderate income band goes in rent – it is about 50 per cent. In other words, 50 cents in every additional dollar of income in the moderate income band goes to Housing NSW in rent.

Now the graphs, which show the combined effect of income tax, social security payment withdrawal, the Medicare levy and public housing rents and water charges in terms of EMTRs for three typical public housing households. (But, before we do, a qualification: these graphs are based on numbers crunched by the TU this time last year, and since then the tax and social security elements will have changed a bit. The general picture provided, though, is still about right.)

First, let's consider a single person in public housing (let's call him Andy) who has a disability and who works part-time (ie Andy's income is the Disability Support Pension plus wages). Here are the EMTRs Andy faces if he should increases his income through additional work. We're really interested in what happens in the moderate income band: here EMTRs range between 85 and 109 per cent. If it were not for the moderate income rents policy, he'd face lower EMTRs of 56 to 76 per cent.


(Click on the image for a better view)

We can make this clearer by embellishing Andy's story a little. Say Andy works 3 days per week as a caseworker in a community centre. At award rates these wages, plus his (reduced) DSP, will put him just below the moderate income band. The community centre offers Andy more hours and hence more wages, but this will put him in the moderate income band. If he does an additional 14 hours, he'd be paid an additional $320, but the additional tax, social security withdrawal and rent add up to an EMTR of 85-86 per cent on each of his additional dollars. (If he did even more hours, he'd hit an EMTR of 91 per cent, rising up to 109 per cent near the top of the moderate income range.) So Andy would get to keep about $48.50 for two days work. Thanks, but no thanks.

Next, the EMTRs for a single parent (Beth) with two kids. She faces EMTRs ranging from 81 to 103 per cent over the moderate income range. But for the moderate income rents policy, she would face EMTRs of 57 to 74 per cent.

(Click on the image for a better view)

To embellish again: say Beth receives Parenting Payment (Single), plus Family Tax Benefit A and B, plus wages from working casually three days per week in the local library. This income would place her in the middle of the moderate income band. Now say she's asked to work another day a week. At casual award rates, the additional wages are subject to EMTRs of 92-103 per cent. If she works the additional day, she'd end up being about one dollar worse off - and that's before you consider the cost of child care. Beth politely declines.

Finally, let's consider a young worker (Cass) in a household of multiple adults (mum, dad and brother). She faces EMTRs that bounce around between 43 per cent and 78 per cent – generally lower rates than our other two cases, but note that they cut in at much lower incomes than in the other cases. But for the moderate income rents policy, her EMTRs would be between 16 and 60 per cent.


(Click on the image for a better view)

To embellish: Cass has just left school, and works Thursday nights and Saturdays in a shop, while mum and dad care for her disabled brother. Cass's fortnightly wage is just $277 but, with her (reduced) Youth Allowance, and two lots of Carer Payment and Carer Allowance and the DSP, the family's household income is just under the moderate income band. Cass's boss wants someone to do another shift each week. If she picks them up, Cass proposes to pay the increased rent (strictly speaking, under the moderate income rents policy a young person's share of the rent continues to be calculated according to a concessional rate, and it is the other adults in the household who cop the higher rates, even though their own incomes have not changed. Cass is doing the decent thing here). This means she'll face EMTRs of 71-78 per cent on her additional earnings. This works out to an hourly rate of pay between $2.44 and $3.21. Cass decides not to ask for the additional shifts.

Two conclusions from all this. One is straightforward: the moderate income rents policy should be scrapped because of the way it contributes to some extraordinarily high work disincentives.

The second is more tentative: what are the implications of a work disincentive analysis for income-related rents generally? The usual 25 per cent rent rebate rate contributes to EMTRs too, but on the other hand, there is something fair about the proposition that those who earn more should pay more. Dr Henry has flagged that this is something he's thinking about in his review into the future of Australia's tax and transfers system - and those of us who are interested in the future of social housing should be thinking about it too.

Monday, September 28, 2009

Social housing stimulus slashed

Brown Couch readers will remember how pleasing it was when the Federal Government announced in February its $6 billion social housing stimulus.

Now it has been slashed by $750 million – about 12.5 per cent. This money will be redirected to the schools stimulus.

Unless the Scots College is proposing to rent out its newly refurbished drama rooms as housing for low-income families, this will not do.

Shelter NSW is organising the campaign to restore the cut funds. Follow that link for some ideas for your letter to the Prime Minister, the Treasurer, the Housing Minister, and your local MP.

Wednesday, September 23, 2009

The Housing Amendment (Registrable Persons) Act 2009

As foretold by N.C, the Brown Couch's resident soothsayer, the NSW State Government today introduced legislation to allow it to immediately terminate that much-reported public housing tenancy in Sydney's north-west. The Housing Amendment (Registrable Persons) Act 2009 was passed without amendment by both chambers of the Parliament this afternoon.

It is a bad law.

Essentially, the Act provides for the summary eviction of public housing tenants who are registered under the Child Protection (Offenders Registration) Act 2000. The Act provides that an order for termination and eviction may be made by the Director-General of the Department of Human Services, upon the recommendation of the Police Commissioner.

The Police Commissioner's recommendation is supposed to be based on the Commissioner being of the view that the tenant's presence places a neighbour or the tenant at risk of physical harm or injury (new s 58B(2)) – but don't mind the intricacies of the wording too much, because the decision to make a recommendation is not subject to any kind of review by the courts. Nor is the Director-General's decision to make the order. The Act precludes any independent scrutiny by either the courts or the Consumer, Trader and Tenancy Tribunal.

The tenant is entitled to no notice of the termination order, and no notice of their eviction. They may have no notice that the decision is being considered at all, and no opportunity to put their case as to why their tenancy should not end. The first they can expect to hear of these proceedings is when the police knock at the door and say 'right, you're leaving.' They are entitled to no compensation, though any rent in advance is to be repaid. The Director-General must ensure that alternative housing is made available, but not necessarily public housing.

The new legislation is the final, or nearly final, act in a drama that started at the beginning of last week with the Housing Minister's comments to the media about a certain tenant. Now, it's fine for a Housing Minister to question the decisions made by his department, including decisions relating to the housing arrangements of individual persons. But with due respect to the Minister, he was wrong to comment publicly on the housing arrangements of a client of his department, and he was wrong to give the impression to neighbours and the public at large that he could order a tenant 'be moved' 'by tonight'. The Act makes those statements the new legal reality.

*

In 2004, an aide to US President George W Bush explained his Administration's philosophy to a New York Times journalist with a quote that has become a by-word for hubris:

''We're an empire now, and when we act, we create our own reality. And while you're studying that reality -- judiciously, as you will -- we'll act again, creating other new realities, which you can study too, and that's how things will sort out."

I don't think the Housing Minister would personally identify with this awful philosophy and its authors. The Housing Amendment (Registrable Persons) Act 2009 is unworthy of him and his Government.

Monday, September 21, 2009

Public housing rent increases


We've noted here a couple of times that the recession has knocked off rent increases this year. For some public housing tenants, however, rents are going up – by a lot.



(Senior Client Service Officer, Vlad Tepes)

The tenants affected are those who are on one of Housing NSW's concessional rent rebate rates. (For Brown Couch readers who are not up on public housing rents: most public housing tenants pay rents that are rebated to 25 per cent of their household income, but there are some types of tenants, some types of household members, and some types of income to which lower 'concessional' rates apply.) These persons are:

  • pensioners on the 18 per cent rate. Their rent rebate rate will increase to 19 per cent this October, and a further one per cent each year thereafter, until they're on the 25 per cent rate.
  • 18-20 year-old household members on the 12.5 per cent rate. Their rate will increase to 13.75 per cent this October, and increase again to 15 per cent next year.
  • 21-24 year-old household members on the 20 per cent rate. Their rate will increase to 22.5 per cent this October, and increase again to 25 per cent next year.
Now, Housing NSW will say that these are increases of only one, 1.25 and 2.5 per cent. But that's if you measure rent increases relative to income, which no-one really ever does. Most people measure rent increases relative to what the rent used to be, so here's what these rent increases really look like:

  • 18 per cent pensioners: up 5.6 per cent this year
  • 18-20 year olds: up 10 per cent this year
  • 21-24 year olds: up 12.5 per cent this year.
Ouch.

To anticipate another objection: even after the increases, these people will still be paying afforable rents. Actually, I wonder about the 'affordability' of the 25 per cent rate. I don't think there's any great science behind it, and there's been other benchmarks. Until a few years ago, public housing's general rate was 20 per cent, and another, older rule of thumb was that a workingman's rent should be no more than one-sixth of his income. Research by Prof Terry Burke suggests that the 25 per cent benchmark of affordability is, for some low-income households, too high.

It's not good enough for Housing NSW to justify these steep rent increases by saying well, that's what we're getting out of the rest of our tenants. Housing NSW should instead go back and look at the budgets of its clientele and see if they really can afford these rents.

Wednesday, September 16, 2009

Housing backflip: person "cannot be forced to move"

Still on the subject of moving "undesirables" away from all that is good and decent (see Chris' previous post), it's reported by the ABC today that the tenant in question does not want to move, and the NSW State Government is not in a position to force him. (Please note that this link is provided for reference purposes only... The Brown Couch does not endorse the naming of the tenant in question).

The Minister for Housing, Mr Borger, has changed his tune somewhat. He now says that, although he cannot force this tenant to move, he "will do all that we possibly can do to encourage that."

"This is a very difficult situation, it's not simple - we'll do whatever we can do within the law."

This might come as cold comfort for those on the wrong side of the Minister's sensibilities.

Mr Borger is in the unique position of having direct access to parliament, the law making machine. The law covering renters in NSW, the Residential Tenancies Act 1987, is already riddled with special provisions that relate only to social housing tenancies, and in particular those managed by Housing NSW. Most of these provisions have been added to the law by amendment, usually in response to some specific "problem" or other that the Government wanted to be seen to be taking a hard line on.

With enough political will, it is entirely within the bounds Mr Borger's position to facilitate an alteration to the law which would enable Housing NSW to relocate a specified class of tenant "by the end of the day".

Let's hope it doesn't come to that...

In the meantime, Housing NSW already has a pretty big stick. Their "Relocating Tenants for Management Purposes" policy is sufficiently vague to allow for the transfer of a tenant for any "compelling reason relating to the management of a particular tenancy". It might not happen by tonight, but if it's the Minister who wants you moved, chances are it will happen soon enough.

Whether or not that is a the best solution to this particular "problem" remains to be seen.

Monday, September 14, 2009

Housing Minister orders: 'move this person'

The Herald reports today that the Housing Minister, David Borger, has ordered Housing NSW to move a tenant recently housed in public housing in Sydney's north-west. The tenant is notorious for being convicted of child sex offences. It is reported that the tenancy is 'near' a school, but that the location complies with legal restrictions on the person's proximity to schools. The Minister, however, says:

"As I parent, I can tell you that I do not think it is an appropriate location. He needs to be moved and I have instructed my department to get cracking on that and make sure he is moved as soon as possible.... My hope is that he will be moved by tonight.

"I've instructed my department to review all circumstances in this matter and, as soon as I became aware of this matter, I have instructed my department to move this person."


I'm not going to comment on the tenant in this case, but a couple of points about his landlord should be made.

First, Housing NSW, like other landlords, cannot simply 'move' people as it likes – at least, not 'by tonight'. If landlord and tenant agree on the move, of course, the tenant can go as quickly as they can find somewhere else to stay; but if the tenant does not agree, they are entitled to stay put until such time as their tenancy is terminated. To give any impression to the contrary is to give a false impression, and false expectations.

Secondly, while it does sometimes happen that Housing NSW makes poor decisions as to the allocations of properties, it may not have actually done so in this case – I should not be surprised if they actually took greater than usual care here, considering the notoriety of the applicant. But even if that's not the case, is Housing NSW really likely to make a better allocation decision in the present, highly pressurised circumstances? One of the questions in an allocation decision is the availability of services for a tenant's support, treatment and monitoring: will that question be resolved any better wherever it is that the tenant is moved to next? By tonight?

Friday, September 11, 2009

Congratulations, Mr Mallard

Readers of the Brown Couch may be aware of the work of Garry Mallard and the National Tenant Support Network. The Network is a valuable source of information on trends in housing ideology and practice (across Australia, New Zealand and beyond), with a particular focus on social housing. Mr Mallard sets a high standard in systems advocacy, working for better housing policy and recognition of the value of a properly resourced social housing system.

Mr Mallard has recently been awarded an "Order of Australia Medal" (OAM) for his work, in recognition of his continuing efforts for a better deal for social housing tenants.

The Brown Couch would like to join the chorus of well wishers, and offer our thanks.

Congratulations, Garry Mallard. Private person, public asset... Now it's official.

Thursday, September 3, 2009

NT Housing evicts girl, 14, after father dies

There's an appalling story on the Herald's website today: Territory Housing officers evicted a child after her father, the tenant of the premises, died. It's reported that the officers gave the child 10 minutes to pack before changing the locks and boarding up the premises.

Territory Housing has since admitted a 'serious error of judgment' and unreservedly apologised to the child, who will be allowed back in.

Could something like this happen here in New South Wales? Well, 'serious errors of judgment' can happen anywhere, and Housing NSW is not immune from making them. But such an action would be plainly unlawful under New South Wales law.

Here, when a tenant dies their tenancy does not end (nor does a tenancy end when a landlord dies); instead it continues until terminated, usually by a representative of the tenant giving a notice of termination to the landlord and removing the tenant's effects, or the landlord giving a notice of termination or applying to the Tribunal for a termination order (to be fair to Housing NSW, there's quite a few published cases where they have taken this course of action), or some other sort of arrangement by consent of both the landlord and the tenant's representative.

It's different in the NT: at s 82(1)(e) of its Residential Tenancies Act, a tenancy automatically terminates where:

a sole tenant dies without leaving in occupation of the premises a spouse, de facto partner, or dependants, of whose occupation and relationship to the sole tenant the landlord has been notified before the death.

More worrying still, there's a special provision for NT public housing at s 82(2), whereby 'the tenancy is terminated whether or not a spouse, de facto partner or dependant of the sole tenant is left in occupation of the premises.'

Another worry: in 2007, the NSW Office of Fair Trading proposed amendments to the NSW Residential Tenancies Act 1987 that would, amongst other things, provide for the automatic termination of a tenancy upon the death the tenant. The Tenants' Union objected to that proposal at the time; now, as the amending legislation is being drafted (for circulation later this year, we're told), let's hope that our legislators have thought better of that proposal and ensure that a tenant's survivors don't have to worry about summary eviction.

Tuesday, August 18, 2009

Freud on the Brown Couch

There's a couple of interesting pieces in the opinion pages of today's Sydney Morning Herald. Please do have a look.

First, Damon Young takes apart the cliche of the 'dream' of homeownership, observing that the high cost of owning is an oppressive nightmare for many. Life-long renter Sigmund Freud, who knew a bit about dreams, preferred to spend his money on things that made his home-life beautiful, rather than interest payments.


(Sigmund Freud, tenant)

Secondly, in a letter to the editor Marco Fante of Katoomba has put together just about the neatest critique of the Australian housing bubble - and recent comments on the problem by Reserve Bank Governor Glenn Stevens and Prime Minister Kevin Rudd – that you'll find expressed in less than 200 words.

The bubble is there, but it has been with us for nine years. The higher cash grants have merely sustained an already inflated market. As reassuring as it is to see these misgivings emerge among banks, it seems to be a case of too little, too late.

The concerns of Mr Stevens about land values are well-founded, but supply factors do not come close to accounting for the near trebling of house prices in the earlier phase of the boom (when the word bubble was rarely heard).

The bubble may eventually burst or slowly deflate, but the lasting improvement in supply and affordability Stevens wants to see will never eventuate as long as government policy encourages speculative investment in established homes.

In his recent 6000-word essay, Kevin Rudd promised a tax system "that encourages productive investment". His Government could begin by reconsidering the largesse that successive administrations have heaped on the housing market in the form of grants, negative gearing and capital gains tax concessions.

The least it could do is ensure that the bulk of these benefits are directed toward those who would build new dwellings rather than those who gamble on the price of existing properties.


Well said, Mr Fante!

Thursday, August 13, 2009

Furthermore...

Brown Couch reader and legendary tenants advocate, Robert Mowbray, has dropped me a line in response to last week's post about the Landlord and Tenant (Amendment) Act 1948. You'll recall that I mentioned that so-called protected tenants under that Act have great difficulty getting repairs done, and that landlords sometimes let their properties go to ruin in the hope of establishing one of the grounds for termination permitted by the Act (usually referred to as 'ground (m)'). Dr Mowbray and the Older Persons Tenants Service (OPTS) have recently been dealing with such a case. Here's a snap of the view from out of the tenant's ceiling.



(Used with permission of the tenant.)

In this case the tenant, 'Gladys', has occupied the premises for some 60 years, and lived on the same street for all of her 94 years. Because of its restrictions, premises subject to the 1948 Act ('controlled premises') are bought and sold at a significant discount, so Gladys has had a succession of landlords over the years, each, presumably, hoping that one way or another she'd shuffle off and thereby leave the owner with a handsome windfall. And, with the hole in the ceiling opening up and the need for reconstruction growing, 'ground (m)' looms.

I'll let Robert finish the story: he's written it up for the next article of 'Around the House', the newsletter of Shelter NSW. Do join up and get your copy. And if you or someone you know is a very long-standing private tenant (ie in the same place since before 1986), please consider getting in touch with OPTS to see if the 1948 Act might apply.

*

And further to another recent post – our study of Friz Freleng's 1950 Room and Bird and its significance for landlord-tenant-pet relations – readers of the Brown Couch will be pleased to learn that agent-baiter par excellence David Thorne has recently corresponded with his landlord's strata manager about an alleged dog. Not to worry, writes Mr Thorne:

I am currently soundproofing my apartment with egg cartons as I realise my dogs can cause quite a bit of noise. Especially during feeding time when I release live rabbits.

Do follow the link and read the whole correspondence. He should write for the cartoons.

Tuesday, August 11, 2009

Rent and Sales Report No 88: rents flat

The latest Rent and Sales Report is out and, like last quarter's report, it shows that median rents for new tenancies have more or less flattened.

For the June quarter:

Sydney, inner ring: up 1.1 per cent

Sydney, middle ring: no change

Sydney, outer ring: no change

New South Wales: up 1.5 per cent.

As usual, with the arrival of a new Rent and Sales Report (itself an excellent publication) comes silly reporting. Contrary to the analysts at Yahoo!7 News, I don't think these data 'signal the end of the affordability crisis.'

The flattening of rents is the achievement of the recession, and nothing's affordable if you don't have a job.

I think the recession has done this work on rents by moderating demand, and this has been done through a number of different mechanisms:

1. Not so much bidding up, and more bidding down. I think it's fair to say that applicants for new tenancies are, overall, less confident about their employment, so may be making lower offers for vacant properties, or at least not bidding up asking rents. I expect, too, that agents may be anticipating this and moderating their asking rents.

(I expect similar things are happening in established tenancies, too (remember, the Rent and Sales Report refers to new tenancies, not established tenancies): when landlords are serving rent increase notices, more tenants are negotiating them down (eg 'things are tight, not getting as many shifts, can't afford it'), and landlords are anticipating this.))

2. The 'Packed to the Rafters' solution. Would-be applicants who are even less confident about their employment are not applying for tenancies. Younger persons are staying home with their parents. Renters who are living in share-houses are not moving out on their own. Some who have been renting are moving back in with parents, or into share-houses, and this is freeing up rentals.




(Packed to the Rafters - the 7 Network's heart-warming hit show about the unaffordable housing crisis.)

I suspect there's also a factor at work on the supply side, too, but it's difficult to say anything confidently because of deficiencies in the short-run data about rental housing supply (ie the vacancy rate). At a guess:

3. Unoccupied dwellings coming onto the rental market. As previously observed, Australia has a huge reservoir of unoccupied dwellings. I expect the owners of a few of these dwellings are now thinking if they should do something productive with them – like rent them out and actually derive an income from them.

And finally, we can anticipate that another factor might be put forward on the supply-side: the First Home Owners Boost. But I don't think so – a lot of the Boost will have gone to purchases of existing properties that might otherwise have been on the rental market, so even as a new first home owner frees up a rental property (assuming they have not been practicing the 'Packed to the Rafters' solution), they also often take up another. To the extent that the Boost has gone to new dwellings, it could free up more rental properties, but plenty of those new dwellings would not yet be ready to be occupied and, as I say, I expect it is the smaller component of the Boost program.

Thursday, August 6, 2009

The Landlord and Tenant (Amendment) Act 1948

Submissions have just closed on the proposed Landlord and Tenant Regulation 2009. It sounds grand, but neither the Regulation nor its parent, the Landlord and Tenant (Amendment) Act 1948, will ever touch the very great majority of landlords or tenants in New South Wales.

The 1948 Act is the last remaining piece of rent control legislation in the State. Most people are aware of 'rent control' only through American TV shows, and over the past few years of painfully high rents I received numerous calls for journalists and others wondering if we too should implement such a system. In fact, New South Wales has had rent control, on and off, since 1912. The 1948 Act still stands, but over the years it has been amended to progressively limit its application, so that only a relative few long-standing 'protected tenancies' (no-one knows how many, maybe a couple of hundred) are still subject to its provisions. No new protected tenancies have been created since 1986.

The 1948 Act is based on national rent and price controls implemented in the Second World War, and for 'controlled premises' (strictly speaking, the Act applies to premises, not persons or tenancies), rents are limited to 'fair rents', as determined by a Fair Rents Board, which may be considerably less than the market rent. (It might be noted that this is much tougher on landlords than the rent increase reforms proposed by the Tenants' Union in relation to the Residential Tenancies Act 1987.)

The corollary of rent control is, so to speak, eviction control, which is another purpose of the Act (they go together: you can't keep rents down if landlords can readily replace a tenant with someone who'll pay more, and you can't keep tenants in place if landlords can increase the rent prohibitively). Protected tenants can be evicted only on certain prescribed grounds (again, this is generally much more restrictive on landlords than the reasonable grounds for termination proposed by the TU). The 1948 Act also provides additional protections for certain classes of protected tenants ('protected persons' – mostly persons with a connection to the armed forces, reflecting the wartime origins of the Act), who are even more difficult to dislodge than other protected tenants.

Landlords, of course, hate the 1948 Act. (In fact, the policy behind the Act is not so much pro-tenant as pro-owner-occupier: it was one factor – along with war service home loans, subsidies to building societies and public housing sales – for the strong increase in the rate of owner-occupation through the 1950s and 1960s.) And it's not entirely a picnic for tenants either. It's very difficult for protected tenants to get repairs done, and many landlords deliberately let their controlled properties go to ruin in order to establish one of the grounds for eviction (if the tenant has not moved out along the way). Protected tenants also often have to put up with landlords' attempts to oust them from the protection of the Act by trickery (eg getting the tenant to give possession back to the landlord on the pretext of having repairs done) or outright harassment (eg cutting off the power).

And anyone who cherishes clarity of legal drafting is going to have trouble with the 1948 Act too. Have a read of it, if you dare – it can permanently change you. The litigious landlord and outlaw lawyer Peter Clyne, having 'worked with it, sneered at it, ranted about it and begged a succession of governments to give it the coup de grace', confessed to having grown to like 'this exciting and damnable statute':

Like the dark lady of one's dreams, it is a stimulating statute, full of warm little corners of dark mystery where no amount of illumination will ever spread light – pulsating with mini-wars, an intellectual challenge to the confident, and a source of comfort to the underconfident. They can sharpen their teeth on the orgies of obscurity with which the courts, attempting to interpret my friend, occasionally enlighten us. After all, if you can understand the High Court's decision in Allen v Belmore Property Co Pty Ltd (114 CLR 454), you have passed your baptism of fire, and should be able to understand anything.

We don't hold it out as a model for contemporary tenancy law, but the TU likes having the 1948 Act on the books too, and for a proper reason. The persons to whom it applies made their housing arrangements on the basis of the Act long ago. They should not be disturbed now.

Anyway, back to the proposed Regulation. It's basically an update of the previous Regulation, so the TU supports it... except in one respect. The proposed Regulation omits a definition from the previous Regulations, and the effect of the omission is to remove from the status of 'protected persons' (ie those with additional protections against eviction) veterans of the Malayan Emergency of the 1950s, and their dependents. The TU, therefore, submitted that the definition should be retained, and any protected tenants who are veterans of the Malayan Emergency, or who are the dependents of Malayan Emergency veterans, should keep their status as 'protected persons' under the Act.

(As I said, the Act has a way of getting to you.)

Wednesday, July 29, 2009

The Great Race

We're now past half-way in the term of the present Federal Parliament, so the race to the next election is on.


(And they're off.)

Team Turnbull, having previously hoped to ride to an early victory on a second-hand Mazda Bravo ute, but which backfired spectacularly and veered off course so dramatically as to go backwards, has now taken the dust sheet off that faithful conveyance, the Debt Truck, which served the Coalition so well in 1996. (It is reported that Labor, in turn, has taken to the streets of Wentworth with its own 'Supporting Jobs' Truck.)



(Malcolm Turnbull, and the Debt Truck.)

The Debt Truck comes streaming charts and graphs, courtesy of Shadow Treasurer Joe Hockey, of the debt incurred by the Government as a result of its stimulus packages and reduced revenues.

If the Brown Couch had a debt truck, it might be festooned with the following charts and graphs. They depict what might be called, only a little unfairly, the Coalition's debt bombshell, from its most recent period in government. The explosive charge of this bombshell, however, is not government debt, but housing debt.

First, here's what Australian owner-occupiers came to owe their banks and other financial institutions over 1996-2007.


(RBA Statistical Tables D02: Lending and Credit Aggregates. Click on the image for a better view.)

Next, what Australian housing investors – or, better, speculators – owed over the period of the Coalition Government.


(RBA Statistical Tables D02: Lending and Credit Aggregates. Click on the image for a better view.)

Finally, let's put them together: here's the debts of owner-occupiers and 'investors' combined.


(RBA Statistical Tables D02: Lending and Credit Aggregates. Click on the image for a better view.)

From March 1996 to November 2007, total housing debt went from $177 billion to $908 billion - the Coalition's 'debt bombshell' of $731 billion.

Now, that's not government debt - it's debt owed by individual persons (and corporations) for the cost of housing. Government debt does not put at risk the roof over your head - at least, not in anything like a direct way. Housing debt, whether you're an owner-occupier or a tenant, does.

As I said, it is a little unfair to lay the blame for Australia's housing debt bombshell with the Coalition only. Individuals borrowed too much. Banks lent too much. The previous Labor Government provided the basic reasons why individuals borrowed too much: the capital gains tax-exempt status of owner-occupied housing encouraged owner-occupiers to throw money at housing; and as for investors, even though they had to pay CGT, negative gearing allowed them to invest not on the basis of the rental income generated, but gambling that an owner-occupier or speculator would throw a larger amount of money at them later.

Apart from the fact that it generally approved of all this, the Coalition's great claim on culpability for the housing debt bombshell comes from its turbo-charging of house-price speculation through changes to CGT – so that if you make your money speculating, you pay only half the tax you would if you make by actually earning it, or through rents, or interest.



(Peter Perfect and the Turbo Terrific.)

*

Meanwhile, Kevin Rudd has successfully thwarted the designs of blog-writers to shoehorn him into an over-extended Wacky Races metaphor by sitting down and crafting a thoughtful essay on the financial crisis. There's a lot in it with which we agree. As Rudd says of the causes of the crisis:

'in many Western countries the boom was created on a pile of debt held by consumers, corporations and some governments. As the global financier George Soros put it: "For 25 years [the West] has been consuming more than we have been producing and living beyond our means".'

And he continues, with particular reference to housing:

'these debts were racked up on the back of skyrocketing asset prices. In several countries, stock prices and house values soared far above their true long-term worth, creating paper wealth that millions of households used as collateral for their growing debts.'

I think he's onto something. The challenge now is for the Government to dismantle the house-price-bubble-making machine that previous governments have built into our tax and finance systems.

Wednesday, July 22, 2009

Rents moderate as recession bites

The ABS has today published its Consumer Price Index for the quarter ending in June 2009, including figures for rents.

Across the Australian capital cities, rents were up 7.2 per cent for the year, which is well above the rate of inflation generally (1.5 per cent). Sydney rents were up 7.1 per cent.

However, for the June quarter, rents moderated: up only 1.4 per cent (up 1.5 per cent in Sydney). This is still above the inflation rate for the quarter – a mere 0.5 per cent – but it still represents a significant moderation.

This is consistent with what we saw in the most recent Rent and Sales Report, which reported that rents for new tenancies in New South Wales had flattened.

Something to keep in mind if your landlord is still hoping for 10 per cent, as 'predicted' by BIS Shrapnel.