Thursday, January 29, 2009

Rent increases - CPI for December 2008

As mentioned last week, the Australian Bureau of Statistics has this week released its Consumer Price Index report for the December quarter, including CPI figures for rents. These figures relate to 'established rents' - that is, what tenants in established tenancies of all durations are currently paying - rather than the 'asking rents' that agents advertise and on which Australian Property Monitors draws for its reports.

And the results are: Sydney rents increased 1.8 per cent for the quarter, and 8 per cent for the year, to December 2008. This means established rents have risen more than the cost of living generally - which actually declined over the December quarter, for the first time in about a decade - but they have not risen by the rate indicated by APM.

I'm intrigued by the differences between 'asking rents', 'established rents' and, to throw another into the mix, the 'new agreement rents' that are the subject of Housing NSW's Rent and Sales Reports derived from Rental Bond Board data. More on that soon.

Mortgagors and mortgagees

A quick grumble - in today's Herald Jessica Irvine and Phillip Coorey write that:

MORTGAGE holders will be about $1000 a month better off in total next week

Leaving aside the problem of the assumptions underpinning this prediction, the use of the term 'mortgage holders' is wrong.

Irvine and Coorey mean to refer to persons who have borrowed money from banks. These persons are not mortgage holders. They are mortgage givers, or 'mortgagors'. It is the banks who are the mortgage holders, or 'mortgagees'.

A mortgage is an interest in property. It gives its holder certain rights over the property in certain circumstances. A property owner can, so to speak, carve out a mortgage from their own interest in the property, and give the mortgage to another person. Typically they will do so in return for the other person having lent them money.

  • mortgagee = lender
  • mortgagor = borrower
Boo to Irvine and Coorey, and double boo to their subeditors at the Herald.


Thursday, January 22, 2009

Rents are up again, but...

Rents are in the news, with Australian Property Monitors (APM) presenting its figures on movements in 'asking rents' for houses and units for the quarter and the year to December 2008. According to APM, the median 'asking rent' for Sydney houses was $450, up 4.7 per cent for the quarter, and a punishing 16.9 per cent for the year; for Sydney units, the median 'asking rent' was $400, which was steady over the quarter, and up 8.1 per cent for the year.

That makes 2008 a tough year for tenants (as if readers of the Brown Couch didn't know already). But let's consider a couple of qualifications. First, APM's figures relate to 'asking rents' (and to give credit to APM, they make this clear) which APM gets from 'to let' advertisements. These are the rents that persons entering into new tenancies might expect to pay. They do not relate to the rents that tenants in established tenancies pay. 'Established rents' are lower than 'asking rents', for several reasons:

  • 'asking rents' reflect that the landlord has, in many cases, just given the premises a coat of paint and made other repairs;
  • because of fixed term agreements, 'asking rents' also reflect that the landlord won't be able to increase the rent for six or 12 months;
  • 'established rents' reflect the discount that landlords tend to give tenants who are a known quantity, as opposed to unknown new tenants (this isn't out of the goodness of their hearts; it is putting a price on risk).

Secondly, not only is the dollar amount of 'asking rents' higher, their rate of increase has recently been higher too. The Consumer Price Index (CPI) from the Australian Bureau of Statistics (ABS) reports on movements in rents, and its data crome from established tenancies. The most recent CPI report is for the September quarter: according to it, Sydney rents were up 1.8 per cent for the quarter, and 7.5 per cent for the year.

The next CPI report is due out next week: we'll see what it says about rents then.

Wednesday, January 21, 2009

Tenancy Culture Studies: Sherlock Holmes

Welcome to the Brown Couch’s Institute of Tenancy Culture Studies, dedicated to research into representations of tenants, landlords, rental housing and tenancy in art, history and popular culture.

Our course of study begins with the perhaps most recognisable character in English literature, Sherlock Holmes. The great detective is also a tenant – or, more precisely, a boarder. His famous address, 221B Baker Street, London, is a rented flat.

(Sherlock Holmes, by Sidney Paget for The Strand Magazine)

What do we know of Sherlock Holmes, the tenant?

Mrs Hudson, the landlady of Sherlock Holmes, was a long-suffering woman. Not only was her first-floor flat invaded at all hours by throngs of singular and often undesirable characters but her remarkable lodger showed an eccentricity and irregularity in his life which must have sorely tried her patience. His incredible untidiness, his addiction to music at strange hours, his occasional revolver practice within doors, his weird and often malodorous scientific experiments, and the atmosphere of violence and danger which hung around him made him the very worst tenant in London. (The Dying Detective)

The description of Holmes as the very worst tenant in London comes from Dr John H Watson, who would know: in addition to being his chronicler and occasional assistant, Watson was, for most of Holmes’s career, also his flatmate at 221B Baker Street. As well as being an atrocious tenant, Holmes is not much of a flattie either. Here’s Watson again:

He was… in his personal habits one of the most untidy men that ever drove a fellow-lodger to distraction. Not that I am in the least conventional in that respect myself. The rough-and-tumble work in Afghanistan, coming on top of a natural Bohemianism of disposition, has made me rather more lax than befits a medical man. But with me there is a limit, and when I find a man who keeps his cigars in a coal-scuttle, his tobacco in the toe end of a Persian slipper, and his unanswered correspondence transfixed by a jackknife into the very centre of his wooden mantelpiece, then I begin to give myself virtuous airs. I have always held, too, that pistol practice should be distinctly an open-air pastime; and when Holmes, in one of his queer humours, would sit in an airchair with his hair-trigger and a hundred Boxer cartridges, and proceed to adorn the opposite wall with a patriotic V.R. done in bullet pocks, I felt strongly that neither the atmosphere nor the appearance of our room was improved by it. (The Musgrave Ritual)

Poor chap. He’s not done yet, either:

Our chambers were always full of chemicals and of criminal relics which had a way of wandering into unlikely positions, and of turning up in the butter-dish or in even less desirable places. But his papers were my great crux. He had a horror of destroying documents…. Thus month after month his papers accumulated, until every corner of the room was stacked with bundles of manuscript which were on no account to be burned, and which could not be put away save by their owner. (The Musgrave Ritual)

Further evidence of Holmes’s bad behaviour can be found throughout Watson’s record of their adventures, from which Holmes emerges as a truly appalling flatmate. Readers of the Brown Couch might recognise the type. Holmes smokes to poisonous excess. (‘“Caught cold, Watson?” said he. “No, it’s this poisonous atmosphere.” “It is pretty thick, now that you mention it.” “Thick! It is intolerable.”’ – The Hound of the Baskervilles.) He is also, infamously, a drug addict, and he attempts to induce the good doctor into the habit too. (‘“Which is it today,” I asked, “morphine or cocaine?” “It is cocaine,” he said, “a seven-per-cent solution. Would you care to try it?”’ – The Sign of the Four.) When Holmes is unemployed, ‘he would lie about with his violin and books, hardly moving from the sofa to the table’ (The Musgrave Ritual); when employed, Holmes commands the rooms at 221B so selfishly as to take over the place (when he takes on the case of The Hound of the Baskervilles, Holmes decides he needs some room to think, so poor Watson is ordered out and has to spend the day at the club). He’s at his worst in The Dying Detective, in which Holmes goes so far as to fake a debilitating terminal illness in order to deceive Watson into running an errand for him.

(Holmes feigns ignorance as to whom ate the last of Watson's wine gums)

Holmes may be a bad flatmate and a bad tenant, but it is significant that he is a tenant.

First, tenancy is the means by which we get to know Holmes and hear of his adventures. In making Holmes a tenant in a sharehouse, his creator, Arthur Conan Doyle, set up the basic narrative device used throughout all four novels and almost all of the 56 short stories about Sherlock Holmes: each is a study written and published by Watson who, as Holmes’s flatmate, is uniquely placed to report on the man and his methods. The first Holmes story, the novel A Study in Scarlet, begins with the establishment of this relationship. In its first pages (before it spins disconcertingly off into a tale of love and intrigue among the Mormons), it is a sharehousing story. Young Dr Watson is discharged from the army and left adrift in the private hotel rooms of late nineteenth century London; Holmes, busy establishing himself as a ‘consulting detective’, has found suitable rooms but cannot afford the rent; a mutual friend introduces them and together they take the rooms at 221B Baker Street. The reader is introduced to Holmes and his characteristic methods and eccentricities as Watson susses out his new flattie.

(It must be said, at this early point it looks like it is Holmes who is the unlucky one, and Watson the nightmare flatmate. Watson is, it must be said, decidedly creepy. Readers of the Brown Couch might recognise this type, too. The early Watson is, in his own words, ‘a lonely man’, leading ‘a comfortless, meaningless existence’. ‘My health forbade me from venturing out unless the weather was exceptionally genial, and I had no friends who would call upon me and break the monotony of my daily existence.’ He commences on an obsessive observation of Holmes (‘the reader may set me down as a hopeless busy-body, when I confess how much this man stimulated my curiosity’), to the extent that he compiles lists of the topics in which Holmes is interested. ‘I enumerated in my own mind all the various points upon which he had shown me he was exceptionally well informed. I even took a pencil and jotted them down. I could not help smiling at the document when I had completed it.’ This raises the question: is Holmes’s own awful behaviour retaliation against Watson’s? Further, are the numerous instances in which Holmes’s investigations lead Watson into real danger actually attempts by one flatmate to dispatch his other? Is the whole Holmesian canon actually the epic of a deadlocked sharehousing death-spiral?)

Secondly, and perhaps even more importantly, Holmes’s tenancy is relevant to Holmes’s method, which is the centerpiece of the Holmes stories and the principal cause of the enduring fame of the character. Holmes’s method is to construct astonishing artifices of reasoning on the most tenuous of foundations: a mote of tobacco ash (A Study in Scarlet; The Hound of the Baskervilles); a smudge of chalk on a fingertip (from which he deduces Watson’s investment decisions – The Dancing Men); a fragment of handwriting (from which he discerns not only that the fragment has two authors, but that the authors are father and son – The Reigate Squires); the imprint of a bicycle tyre (‘“I am familiar with forty-two different impressions left by tyres. This, as you perceive, is a Dunlop”’ – The Priory School). Upon such an insubstantial thing as an old hat Holmes constructs – accurately - the case for its owner being intelligent but dissipated, recently wealthy but now poor, unfit and sedentary, unloved by his wife, and that he has not had the gas put on (The Blue Carbuncle). The manner in which he performs these feats of deduction and inference is one of ‘detachment’: above all of Holmes’s other characteristics, it is his ‘power of mental detachment’ (The Devil’s Foot) that Watson most impresses upon the reader. Both the method and the manner in which Holmes practices it are represented perfectly in his tenure: as a boarder, Holmes has made his home on the basis of a contractual right of occupation, without foundation in the law of real property; he depends instead on that most insubstantial legal figment, a mere license; and he is free from the old feudal doctrines that implicate the holder of an estate in fee simple.

In Sherlock Holmes Conan Doyle established what would become a number of tropes of the detective genre: for example, Agatha Christie’s Hercule Poirot has, like Holmes, a strong, eccentric personality, a brilliant mind and a cerebral method, a less intelligent sidekick/chronicler (Captain Hastings), and is a tenant. The last of Conan Doyle’s Sherlock Holmes stories (The Adventure of Shoscombe Old Place) was published in 1927, forty years after A Study in Scarlet, and seven years after Poirot’s first appearance in The Mysterious Affair at Styles – a passing of the torch or, perhaps, the housekeys, from the first to the next of the great tenant-detectives.

Tuesday, January 20, 2009

It's the New Year

It’s the New Year, and real estate lobbyists’ minds turn to making predictions for the year ahead. And journalists whose brains remain on holiday serve up this self-serving rubbish as news.


Let’s have a look at a couple of examples.

‘Renters say buy buy: mortgages cheaper than rent’ was the headline on yesterday’s mX, the freebie rag handed out to afternoon train commuters. Matt Sun was reporting on the prognostications of the Property Council’s Caryn Kakas and RPData. According to Karkas, ‘renters this year will find the cost of rent will match what it costs to purchase and many will start making that homeownership decision.’ What’s more, ‘this will probably be widespread, especially if you don’t see new rental stock in Sydney, where the vacancy rate is below 2 per cent.’

Let’s see. The latest Rent and Sales report from Housing NSW gives the median rent for Sydney as $380 per week. The median sale price: $425 000. Assuming the purchaser borrows 90 per cent of that price on a 30-year mortgage, at current interest rates they’ll pay $572 per week. If - and it's a fairly big if – as the article reports, official cash rates are reduced by 1.5 per cent, and if – even bigger if – the interest rate on the loan is reduced by the same, they’ll still pay $487 per week – more than $100 a week more than the current rent. A not-insignificant amount.

Of course, that’s comparing current rents with current purchase prices. How much do prices have to fall, or rents rise, for rents and repayments to equalise? A crash in that $425 000 median price to $283 000 would do the trick – that’s a fall of 33 per cent in a single year, and I don’t think the Property Council is looking forward to that. No, their line is that prices will be ‘flat’, which suggests that the median rent will have to rise by almost 30 per cent to match the cost of purchase. Yes, thirty per cent. Even the Real Estate Institute of NSW would blush at such a prediction.

Another example, this time from the Sydney Morning Herald. It’s ‘Time to buy – if job is safe’, said Jessica Irvine in a piece of ‘analysis’ in last Thursday’s Herald. The Tenants’ Union has encountered Irvine before, spruiking the Real Estate Institute's notorious '20 per cent rent hike' prediction. Here’s what she’s said this time:

You can almost hear the sound of cheap champagne corks popping. A generation of would-be first-home buyers are getting ready to escape the clutches of the rental market…. The rapidly deteriorating economic outlook is shifting the long-running debate about "rent versus buy" in favour of "buy".

Actually, Irvine does get a few things right, but does not follow through on these insights. For instance, she notes that property prices remain high relative to wages, and lending to landlords has decreased. In other words, prices have a long way to come down, and the smarter speculators know it – which hardly makes it an auspicious time to buy. She also, rightly, observes that recent rent increases have ‘stretched some renters to their limit.’ But the implications of this for prospective rent increases are left unexplored.

I’m not about to make my own predictions for property prices and rents in 2009, but I will suggest a couple of questions that readers might ask when they see stuff like this in the media. First, about predictions of steeply rising rents: where is that extra money going to come from – especially if unemployment rises, and wage claims are reduced, and so much of the rental market is already in housing stress? Second, about it being ‘time to buy’: this supposes that prices are not going to get any better – and by that, I mean lower. But again, where is the money going to come from to support price increases – or even maintain current, still hugely-inflated, prices? Can Australian households really take on even greater debts, and devote even greater shares of their incomes to paying interest?

Better put the champagne back in the fridge, and one’s brain back in one’s head.