Tightening of the mortgage belt.
The Australian dream of home ownership crushed
by Bob Briton Social change is gathering pace in Australia. Nowhere is this more visible than in the housing sector. As housing affordability slips to its lowest levels on record, the great Australian dream of home ownership is under threat for broad strata of people who used to take this ambition for granted. Many working class Australians — particularly since WW2 — managed to save a deposit, get past the first few difficult years of their mortgage repayments and eventually wind up with a secure place to live. For those who did not wish or could not afford to go down the mortgage path there was the option of private sector rental or public housing. The home could be sold to fund nursing home costs in old age or to provide a boost to the finances of subsequent generations. This pattern was at the heart of the widely held belief that Australia was the "lucky country", spared many of the worst excesses and insecurities of capitalism. The fact that working class families became small stakeholders in the system of private property served to damp down disquiet at many of the inequities and injustices in Australian society. These "certainties" are evaporating and dreams are being crushed. The Reserve Bank, which usually restricts itself to commenting in its brief on the broad-brush aspects of monetary policy, has felt obliged to comment on the crisis and some of the remedies that have been suggested to overcome it. The Federal Government has sought to release some of the pressure on it by establishing a Productivity Commission inquiry into housing affordability for first homebuyers. It is due to report this month. The scale of the problem Most of the widely expressed concern about the housing market is for the future of "Generation X" — young people aged 25 to 39 years. In 1989, 64 per cent of this group owned their own homes. Today the figure is 54 per cent. Greater numbers than ever of this age bracket are renting in the private rental market where insecure three, six and 12-month leases are the rule. Growing numbers live with their parents to reduce living costs. Low, stagnating or fluctuating incomes and factors such as casualisation have reduced their purchasing power. The major cause behind the statistical shift, however, has been the skyrocketing price of housing throughout Australia in recent years. Paul Willey is manager of the South Australian Government's Housing Management Council Secretariat. At the start of SA's inaugural Housing Week, he was asked in the media whether housing was affordable in Adelaide, which still has the cheapest properties of all the mainland capitals: "For low-income earners — the bottom 40 per cent of income earners who get paid less than $632 a week — clearly not. We have done some assessment that showed people in the lowest 40 per cent of the income range were only able to purchase less than 5 per cent of the housing available for sale. Part of the challenge is that affordability is hitting the next income percentile — those who are typically middle-income earners. For essential workers like police officers and teachers, affordability is becoming a problem as well." Twenty years ago in Adelaide a house in the median price bracket would sell for three times average annual income. Today it is six or seven times that figure. In other capitals the situation is worse, particularly in Sydney where house and land packages have risen by 31 per cent in the last year alone. In response, the NSW Government tries to set aside part of every new far-flung development they undertake for middle-income earners in the $44,000 to $64,000 bracket. With that income, the would-be homeowner can only borrow between $210,000 and $270,000. The tracts of land being released are themselves worth over $300,000 and the house and land package is usually priced at over $400,000. With rents and other costs like utilities taking bigger and bigger chunks out of the typical pay packet, the deposit gap becomes virtually insurmountable for the targeted group. Of course, established homes closer the city centre are even further out of reach. Unfortunately, the beleaguered Generation X-ers' problems do not end with the signing of the mortgage documents. There is then the problem of the repayments. It now takes nearly 40 percent of average household income to support repayments on the median priced Australian house — selling for $339,400 in June 2003. One repayment away from homelessness It has been said that many Australians are just one mortgage repayment away from homelessness. There is now an additional problem that could see all the trappings of the Australian dream repossessed. Housing-secured debt has risen dramatically. People are also adding cars and even holidays onto their mortgages. When major segments of "middle-income" Australia become marginalised and dispossessed of their small stake in the system, a crisis of credibility becomes inevitable. Government politicians are doing the maths. If home loan interest rates get pushed up to 7.05 per cent following the 0.25 percent rise in official interest rates last week, 33 electorates throughout the country will move into the "housing stress" zone. This means that most households in the electorates will be spending more than a quarter of their income on housing. These people will be asking questions: What went wrong? Who is to blame? What can be done? What went wrong? What could possibly have gone wrong? Interest rates, even with the recent increases, are at a 40-year low and the economy continues to grow. Since July 2000, the Commonwealth has given first homebuyers grants of $14,000, recently reduced to $7,000, to help overcome the inflationary effects of the GST. Unfortunately, spiralling costs have swallowed the benefit of the first homebuyers' grant and then some. The numbers applying for it have slowed. In Queensland, for example, only 6681 people received the grant in the June quarter this year compared to a similar quarterly period 12,577 just 18 months ago. Some people, Federal Treasurer Peter Costello included, like to put the major blame on the shortage of land available for development. The resultant price increase, it is claimed, accounts for our housing woes. Opening up more land, even land previously "locked up" in national parks, will bring relief. It is true that land values have surged. The problem is acute in Sydney but is a problem in other parts, as well. In Brisbane in the 1970s land accounted for 21 per cent of the cost of a land home package. It has since soared to represent 49 per cent of the cost. However, housing affordability is a problem throughout Australia, even in regional centres where land availability is not an issue. Many others — like NSW Liberal Party Opposition leader John Brogden — have singled out stamp duty as the major fly in the ointment. It is true, particularly since the introduction of the GST, that the family home has gone from being the lowest taxed domestic item to the highest. Housing taxes are an $11 billion a year cash cow for federal, state and local governments. On its own, stamp duty adds $5494 to the cost of a $300,000 house in NSW. Brogden is suggesting a 10 percent reduction in this rate over the next four years. Clearly this is not going to have the required impact on housing affordability. Federal Labor wants low-income earners to become part of a "savings culture". Mark Latham has proposed granting families $500 at the birth of each child and other payments into a "nest- egg" account that are conditional on the family making savings of its own. At age 18, it is hoped the young adult can then invest the $10,000 "nest-egg" on higher education or as part of a deposit on a house. The cost of a modern-day university degree — let alone that of a family home in Sydney — makes a mockery of this Blair-esque proposal. Others blame current levels of immigration. NSW Premier Bob Carr is the most prominent of this theory's backers. While the argument might have relevance to Sydney where most migrants still tend to settle, it goes nowhere towards explaining the Australia- wide problem of affordability for new homebuyers. Even in Sydney, it would be senseless to blame newly arrived migrants for pressures on the home-buying market. The overwhelming majority of recent arrivals are renters and in Sydney the vacancy rate has risen in recent months to 2.9 per cent for rental accommodation. "Stable population" advocates are playing a low card in the debate. These are only some of the more notable of the suggestions being made in response to the crisis in housing affordability. There have been over 200 submissions made to the Productivity Commission's inquiry into the predicament of Australia's first homebuyers. Enter finance capital, stage right The Reserve Bank has come off the sidelines to give the clearest indication of what is part of the problem behind the present crisis. Governor Ian Macfarlane told a parliamentary committee in June that, compared to several other countries with similar economies, Australia has a tax regime very favourable to property speculation. He pointed to negative gearing — by which the interest on borrowings for investment can be claimed as a tax deduction — as an example of the breaks given to the forces behind the speculative boom. Banks and big non-bank lenders have exploited fears among the post-WW2 "baby boomers" over the security of their retirement. They have arranged loans for these anxious mum and dad investors with no deposit or low deposit for second third or even fourth investment properties. Purchase the property and let the income from rent fund the interest and loan repayments. Along with the big investors, these small players have left the non-performing share and cash markets and moved into "bricks and mortar" with a new dream of multiplying assets. Borrowing for investment housing grew by 36 per cent in the year ended last June. It grew by 8.4 per cent in the month of June alone! In September only 13.3 per cent of loans went to new homebuyers. Loans to investors now account for 45 per cent of total funds made available for housing from lending institutions. These "baby boomers" are themselves now very exposed to higher interest rates, any periods without a tenant or decline in rental, as well as to any downturn in house values that may occur due to interest rate hikes. Any such developments would be added to the underlying risks associated with illness, a decrease in wages, unemployment or divorce. Some may end up with "negative equity" — more debts than the sale of their assets can cover. Unfortunately for first homebuyers, any slight downturn in house prices that might accompany the expected interest rate hikes is unlikely to benefit them either. Expensive housing at low interest rates is the equivalent of cheaper housing at dear rates of interest. What is more, housing prices will most likely plateau at a level still out reach for the sorts of buyers that used to have realistic expectations of becoming homeowners. Cheap public housing, once a realistic option, is now in a state of crisis. State governments have wound back public housing, leaving thousands of people without adequate shelter. Winners and losers Mortgage House Australia was a home loan broking firm that has morphed into a funds provider. Its managing director Ken Sayer was interviewed in May by Melbourne's Sunday Herald Sun and asked, among other things, how he would invest $20,000. "I would take out a $20,000 margin loan and buy $40,000 of blue chip shares. You can claim the interest as a tax deduction", he replied. Mr Sayer's response encapsulates the spirit of the times and the sort of attitude fostered by governments in this neo- liberal age. For some time even Centrelink encourage "baby boomers" to attend seminars where the benefits of various speculative schemes were promoted Shares and property are portrayed as the means by which people will become self-funded and cease to be a "burden on the taxpayer" in old age. School children manage dummy shares portfolios to get the feel of managing their personal financial affairs in this new age. A combination of greed and fear caused many to sign up to schemes promoted by get rich quick gurus like Henry Kaye. The collapse of his National Investment Institute left many out of pocket for amounts of up to $55,000 to attend seminars concerning his dubious property investment schemes. Investors that took his advice have been badly burned. Other schemes still operate. Investors and desperate first homebuyers have taken on unregulated and expensive "vendor finance". Some have fallen victim to loan "wrappers" who buy houses for the would-be homebuyer, then sell them on to the purchaser at a new, inflated price. The property deed remains in the name of the "wrapper" until fully paid off. Any failure to meet the payments sees the purchaser on the streets with no equity and no right of appeal whatsoever. Common to all of these cases is that it is the lender — and in particular big finance capital — that wins at every turn at the expense of ordinary working people. Even the irrepressible Mr Kaye saw to it that he would be paid as a creditor to his failed company while its 80-odd sacked employees wait their turn. The people want answers, Howard urges inaction None of these developments appear to faze our Prime Minister. In fact he congratulates himself on overseeing conditions in which the assets of better-off Australian families have grown in value. The only pressure-relief valve that he has shown any interest in investigating is the possible reduction of fees and stamp duties. The government appears set to ignore the Reserve Bank's warnings about negative gearing and has happy memories of the strike by finance capital that afflicted the construction sector the last time the then Federal Labor Government implemented the policy. It is not likely that many of the submissions to the Productivity Commission inquiry will be thinking outside the capitalist square. Welfare agencies and the ACTU support a variant of Labor's deposit-building strategy. They want first homebuyers to have access to $10,000 of their anticipated superannuation nest egg ahead of retirement to help them get into the housing market. Real alternatives with real chances of controlling the turbulent housing situation and making housing affordable are not on the agenda. The reinvigoration of public housing to act as a brake on rents and prices in the private market will not be pursued. The re-regulation of the finance sector and the bringing of its institutions under social control will also be out of bounds. Big money need not fear an end to the movable feast of speculation coming from the Federal Government's inquiry into housing. Access to affordable housing may yet provide one of the strongest drives for the forming of a government of people's unity, a government of left and progressive forces committed to the use of the country's resources to meet the needs of the people. The time to start getting active in the building of such a coalition is now!