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.

Monday, July 20, 2009

Tenancy Culture Studies: 'Room and Bird'

Today's subject is the 1950 Warner Bros cartoon short film, Room and Bird, directed by Friz Freleng, and starring Tweety and Sylvester as their respective selves. See you in about seven minutes.

I must admit: the tenancy-cultural significance of Room and Bird is probably not nearly so great as, say, the adventures of the great detective and awful flatmate Sherlock Holmes, but it gladdens the heart to see a Warners Bros cartoon again (in this one, the dialogue between Tweety and the mouse riding the 'elevator' especially cracks me up). And if you're viewing this at work, I'm sure you enjoyed the frisson of momentary irresponsibility before you scrambled to turn down the volume of Carl Stalling's rambunctious theme music.

Room and Bird sees Tweety and his owner, Granny, taking up residence in an hotel, the Spinster's Arms, despite an express prohibition on the keeping of pets. Add another little old lady and her cat, Sylvester, and a bulldog, and an incompetent authority figure (the hotel detective), and the usual mayhem ensues.

It's timeless fun, but this cartoon is almost 60 years old, and so much of what is depicted belongs to another age. The word 'spinster'; the occupation of 'hotel detective'; the practice of taking up residence in an hotel; each of these things is now most uncommon. What has not much changed, however, is unreasoning antipathy of landlords and agents towards the keeping of pets in rental accommodation.

Pets and other animals are nowhere mentioned in the Residential Tenancies Act 1987 (NSW), but most residential tenancies agreements include an additional term prohibiting tenants from keeping any animal on the premises without the written consent of the landlord. In most cases, this additional term is inserted on behalf of landlords unthinkingly, through their use of the mass-produced form of agreement drafted by the Real Estate Institute.

Of course, the Residential Tenancies Act does have something to say about landlords refraining from interfering in tenants' quiet enjoyment and reasonable peace, comfort and privacy, which you might think would mean not interfering in such matters as responsible grown-ups deciding whether they might like to keep a bird, cat or dog. The latter-day authority figures at the REI, however, take that sort of interference for granted. As a result, agents and landlords find themselves assuming the role of Room and Bird's bumbling hotel detective, while tenants continue to make like Granny and smuggle their pets into their rented homes.

It really is a stupid, pointless prohibition. Landlords' interests are already protected by the standard terms that make tenants liable for any damage they cause to the premises, and any nuisances caused to neighbours. And tenants' dogs do not bark any louder than property owners' dogs.

Tweety and Sylvester may not be the best advertisement for pets in rental housing, but then again no tenant's pet that I know of has ever actually lit a stick of TNT, or successfully discharged a gun, or sawn a circular hole in the floor of the premises.

Sunday, July 19, 2009

The Adventures of the SCSSHBCDAC: in Opium's Thrall!

Previously, the intrepid investigators from the Sydney City and Suburban Sewerage and Health Board's Crowded Dwellings and Areas Committee encountered some of the children of late-nineteenth century Sydney's slums, including two who were removed to the relatively salubrious accommodations of the police sheds. Now their investigations take them where all innocence is truly fled (and the casual racism of the day has free licence)...

Seventh day - Tuesday 25 November 1875.
Burke Ward - along Pitt-street, commencing at Queen's Place.

Met at the Volunteer Club at 3 pm on Thursday 25 instant and commenced our round of visits by calling upon Ah Loon, a Chinaman, known in the neighbourhood as 'Lousy Charley', who occupies a three-roomed stone cottage off Queen's-place, for which he pays 10 s a week - the agent for the property to which this tenement belongs is M'Kenzie. It is 37 feet long and 11 ft high, and divided into three rooms, in each of which is an opium bench, with all the appliances necessary and ready for use at once. Charley is a seller of opium and an inveterate smoker as well, or his appearance greatly belies him. J. E., a white woman, aged twenty-two, who lives with him, also indulges in this demoralizing habit, and their place is an accommodation house of the worst order, for it is impossible to say what diabolical offences are not committed through the agency of this pernicious drug. Of this more hereafter. The woman told us that sometimes their customers were so numerous that they had to wait their turns to enter the room. The unfortunate creature appeared to be completely under the bondage of opium, and the woman assured us, and she herself admitted, though her paramour stoutly denied it, that other white women frequent the place, and that the most revolting and immoral scenes are of frequent occurence. In corroboration of this statement, she mentioned among the names of her visitors some of the most disreputable prostitutes in Sydney. If half the stories we heard were true, it is more than time that this and similar other foul dens of Chinese depravity should be cleared of their occupants and thoroughly purged, for their existence is a blot upon the character of a city like Sydney.

We next visited Ah Toy's workshop in Queen's-place, where there is a large loft over the workshop, about 60 ft x 30 ft, in which nineteen persons sleep - at least so we were told - but the numbers given us were probably incorrect in most cases, for we never found the beds to correspond. The bedroom of a Chinaman is a square compartment with room for two occupants, in which he keeps all his belongings, and which serves him as a smoking-room, sitting-room and bedroom. The rooms are generally boxed off in this way into compartments which represent so many separate dwellings under one roof. No attempt seemed to have been made to clean the place, nor could we see any lavatories or appliances used in other houses: if these people ever wash themselves they do it by stealth. The attic room in Ah Toy's house, fronting George-street, the owner of which is Mr Redman, is 7 ft high, and as near as we could guess about 14ft x 10 ft; it is divided into elevent compartments, is without ventilation, and very dirty. The closet attached to the house was in a frightful state. The attention of Insurance Societies and Fire Brigaes should be called to this place, for if a fire were to take place in this part of Sydney the result would be disastrous, and the loss of life and property great. The closets in all these houses were in a horrible state; they discharge into an opening over the same drain probably a tributary of the Tank Stream - as in almost every case the tenants complain that the landlord will do nothing.

This day's inspection was not performed without serious fatigue and risk to health to Dr Read and myself. For the next forty-eight hours, and that of the previous night, the horrible sickly smell of opium smoking which pervades all the Chinese quarters seemed to adhere to us, to say nothing of the fear of infection, which is not a pleasant sensation. We have witnessed in the several visits we have made a great many disgusting scenes, the existence of which in such close contiguity to our main thoroughfares we could not have otherwise credited - and we may fairly state that since we undertook the duty entrusted to this sub-committee we have not been able to enjoy a single meal. We concluded the day's work at 6 pm.

Friday, July 10, 2009

Budget ’09-’10: The second take – housing the homeless

In addition to the already discussed “Housing Construction Acceleration Plan”, the guts of the State Housing budget are all about building new social housing properties and providing new accommodation options for disadvantaged people, thus relieving pressure on homeless persons’ support services.

The investment is substantial – around 9,500 new homes are to be built for social housing in New South Wales over the next three years. Much of this will be paid for by grants from the Federal Government’s Nation Building Economic Stimulus Plan, with the State Government kicking in about $1 billion extra for good measure.

The Governments – both State and Federal – are onto a winner here, as they’ve identified two very large and important birds to taunt with the one stone: a faltering economy, and a social housing market in disarray. I say taunt, because it remains to be seen if this investment can deliver a knockout blow on either of these.

It’s great news for the housing and construction industry, as it will ensure the continued employment, at least in the short term, of many who rely on the industry to earn a crust. It is also great news for the social housing sector, which has been trying to survive on mere scraps for so long that it might have even forgotten how to provide a decent “housing service” to the people of New South Wales.

I hasten to add, from the rather cynical perspective afforded to me by this cozy spot on the Brown Couch, that it appears any benefit to the homeless or to social housing providers is a mere by-product of the economic stimuli. Keeping people gainfully employed is the main game… What a handy coincidence that we just happen to need houses for poor unfortunates as well!

Now, having paid some attention to various comments made by the Federal Housing Minister, The Hon. Tanya Plibersek, over the last couple of weeks, it seems the reasoning is this: “if we build them, they will come”.

Building more social housing provides improved exit strategies for users of crisis accommodation, which means a higher turnover, and better outcomes for users. But let's not forget the restrictive nature of crisis accommodation, which is usually targeted to a particular type of need and thus not generally available to all who would use it. Let us also remember the very narrow criteria applicants must meet before they will be urgently housed by the social housing system, or the finality of loss of social housing if for some reason a tenancy ends on bad terms.

While the need for housing options of last resort continues to increase (see the Australian Institute of Health and Welfare’s recently released “Counting the Homeless 2006” report), providers of housing of last resort continue to operate with a general policy of exclusion. It is, after all, much harder to get into a social housing tenancy than it is to get kicked out of one.

Building more homes is a step in the right direction. But building a social housing system that works will take more than just bricks, mortar and money in the coffers…

Monday, July 6, 2009

It's tax time

It's the new financial year, and the thoughts of many Brown Couch readers will turn to the task of completing their tax returns. Actually, such is the complexity of the Australian tax system that about 70 per cent of the population regard the task as altogether too hard and place it in the hands of a tax agent. But while our thoughts are on the topic, let's have a look at one of the by-products of tax time: the Australian Tax Office's annual Tax Stats report and, in particular, what it says about the affairs of the nation's landlords.

The Tax Stats for 2006-07 have been out for a couple of months now, but as far as I can tell their publication passed with nary a mention in the media. That's odd, because they make an interesting read – or even better, an interesting handful of charts – on the conduct of rental property investment in the last days of the boom.

First, the Tax Stats show that the number of landlords (measured by the number of persons declaring rental income) grew by almost 50 000 over 2006-07, to just over 1.6 million persons. As chart 1 shows, growing numbers of persons had been piling into the market for more than 10 years.

(Chart 1: ATO, Tax Stats 1994-95 to 2006-07. Click on the image for a better view.)

And chart 2, below, shows the total gross rental income they enjoyed. Over the 12 years, it grew substantially, from just over $8 billion to almost $21 billion. No wonder so many people wanted to get into the market, right?

(Chart 2: ATO, Tax Stats 1994-95 to 2006-07. Click on the image for a better view.)

Actually, no. In net terms, most landlords over the declared a loss in 2006-07 – in fact, 69 per cent of them. And the proportion of losers had grown over the preceding six years or so.

(Chart 3: ATO, Tax Stats 1994-95 to 2006-07. Click on the image for a better view.)

The poor things. More than anything, the reason why these landlords lost money was because of their interest payments. In 2006-07, the nation's landlords paid more than $16 billion in interest on getting into the rental market, this amount having climbed steeply since 2001. (These payments are, of course, tax deductible – the magic of negative gearing.)

(Chart 4: ATO, Tax Stats 1994-95 to 2006-07. Click on the image for a better view.)

So how did they do over all, in net terms? Chart 5, below, shows the sorry state of the rental business. The nation's landlords haven't collectively turned a buck since 2000-01, and 2006-07 plumbed a new low: total net rental losses of $6.4 billion.

(Chart 5: ATO, Tax Stats 1994-95 to 2006-07. Click on the image for a better view.)

And this is the system of housing investment that governments and the housing industry want to kick start again?

One of the objectives of Ken Henry's current review of Australia's tax system is to reduce the complexity of the tax system. That's the least it should do. Let's hope the Henry Review sets its sights higher and proposes to deal with the madness of a tax system that encourages house-price speculators to such profligate borrowing and unproductive 'investment'.