Category: Social Trends

Rental Stress, The Hidden Problem

There is much discussion of mortgage stress, some of which we highlight by our ongoing research into the growing numbers of households under financial pressure. The results for July will be out soon.

But rental stress is less discussed, but in our mind is equally significant, so today we explore some of the data in our Core Market Model to July 17. In fact there are more households in rental stress than in mortgage stress according to our analysis. We know their financial confidence on average is lower.

First, we need to define rental stress. Whilst some will use a “30% of income to pay the rent” as a benchmark, we do not think it is an adequate measure – not least because we see large numbers of households renting where more than 30% of income is paid away on rent, yet they are not in financial difficulty. Others pay less away, but are in stress. 30% is too arbitrary!

So we look at net cash flow. If households, once they pay their rent, tax and other outgoings have close to nothing left, or a small deficit, at the end of the month, they fall into our mild stressed category. Those with a severe cash deficit at the end of the month, are in serve stress.

We start by looking at the causes of rental stress. Using data from our surveys, we find that costs of living, under employment and flat incomes are the main causes of rental stress.

Those renting tend to hold less financial assets, so are more exposed, especially where they are also responsible for bills (electricity, council rates etc). Those in difficulty will be more likely to hold multiple credit cards, and also access short term loans to get by. Those in the stressed categories will be less likely to spend at the shops, and so are a brake on economic activity.  One strategy some use is to move to cheaper rented accommodation, with poorer facilities to reduce outgoings. The migratory nature of renters, especially those in stress are not well understood. The current tenancy regulations in Australia are pretty weak. Much of this movement is not reported, nor recorded.

So, lets look at some of the numbers, remembering one third of households are renting, in round numbers that is 3 million households.

Looking by state, more than half of renters in NSW are in rental stress (on our definition), and the highest proportion of any state here are in severe rental stress. The proportion of households in stress fades away as we look across the other states and territories. But the three most populous states have the highest rental stress levels.

Looking across our segments, we see that older households are more under stress, and a significant proportion in severe stress.  Whilst wealthy seniors may hold some savings, stressed seniors do not. Many are reliant on Government support.

Looking across the geographic zones (a series of concentric rings around our main urban hubs) we see significant levels of stress in the urban centres, as well as on the urban fringe. The former is being created by high rents – especially in the newly constructed high-rise blocks being thrown up across the eastern states, often occupied by young affluent households; whilst in the urban fringe, it is more about depressed incomes. We see stress rolling out into the regions, but is less apparent in the more rural and remote areas.

Finally, here is list of the regions across the country. Greater Sydney and the Central Coast have the highest representation of stressed renters as a proportion of all households renting.

All this highlights the issues we have due to the combination of flat incomes, and rising costs. It is also the obverse of the picture we revealed yesterday, where we showed rental growth is very low (causing more investors to have a net cash-flow problem).

Once again we see the outworking of poor public policy over a generation. With an internationally high proportion of property investors and a high proportion of people who are likely to never own their own property, rental stress provides another important perspective of the issues we face.

We have very granular data, down to post code, but that will get too detailed for this post.

 

 

Giving you more say in your super? Not likely with these changes

From The Conversation.

The government is introducing a raft of changes to the regulation of superannuation in a bid to give consumers more power over their retirement funds. But, in fact, consumers are unlikely to use these new powers and the changes might not improve super fund performance.

The headline change introduces annual general meetings (AGMs) for superannuation funds. Previously these weren’t commonplace, as they are with companies. The government proposes these meetings will help fund members hold superannuation fund trustees and executives to account.

But many of us barely glance at our own superannuation account balances when the six-monthly statement appears in our inbox, so it’s reasonable to predict that, of the 15 million or so superannuation fund members in Australia, only a tiny fraction are likely to go to an annual meeting.

And why would we? One reason shareholders attend listed company AGMs is so they can vote on appointments of directors and remuneration of managers. However, superannuation funds are trusts, not public companies, and members won’t have the same rights even if they attend.

These AGMs will instead offer members the chance to quiz the executives, auditor and actuary, but no votes on material decisions. So this is nothing new: superannuation fund members have virtually no influence over trustee appointments, executive remuneration or other decisions.

Even the industry fund trustees, who are representatives of member organisations in super funds (such as trade unions), are not usually elected by fund members but are appointed by their sponsoring organisations.

If members are consigned to tea and biscuits with the fund chairman, where is the consumer “power” in Financial Services Minister Kelly O’Dwyer’s reforms? It rests mainly with the regulator, the Australian Prudential Regulation Authority (APRA).

The key changes intend to give APRA more responsibility for protecting the interests of superannuation fund members. This is particularly in relation to MySuper – the standardised default superannuation product.

Because superannuation is mandatory for most employees, the system captures many people who don’t have the will or the skill to make active choices about what fund manages their retirement savings. This includes decisions on where their savings will be invested, and what level of life insurance cover they take. Passive members don’t “shop around” for efficient providers, to their own cost.

Following the paternalistic reasoning of the Cooper Review, successive governments have shepherded passive superannuation fund members into MySuper options. MySuper products must have a single diversified investment strategy, are allowed to charge only a limited range of fees and must offer a standard default cover for life and total and permanent disability.

MySuper funds also have to report their investment goals and performance on a dashboard that is supposed to help people make comparisons between similar products. Employers must choose a default fund for their employees from the list of MySuper products.

Even so, MySuper product fees and investment performance vary widely. APRA quarterly superannuation statistics (2017) report that, in 2015, after MySuper was “up and running”, annual fees and costs on a A$50,000 account balance in fixed-strategy MySuper products ranged from $265 per year to $1085 per year (with a median of A$520 per year).

The investment performance of MySuper products also varies considerably. In the same year, the mean annual investment return (gross of expenses) for single-strategy MySuper products was 8.45%, the bottom 10% receive less than a 5.5% return and the top 10% receive more than a 10.9%.

While some variation in returns is due to intentional differences in the design of default investment products, some is related to differences in manager skill or efficiency.

These latest reforms, if passed into law, will mean APRA can refuse or cancel a MySuper authority, at a much lower threshold than applies currently. If APRA has reason to think that a superannuation entity that offers a MySuper product may not meets its obligations, that is grounds to refuse or cancel an authority. Since the default superannuation sector is large, such a decision would be extremely costly to the fund in question.

Under this legislation, trustees of MySuper funds will be obliged to write their own annual report card. Each year, trustees will have to assess the “options, benefits and facilities” offered to their members and the investment strategy (target risk and return). Trustees will also be required to report on the insurance strategy for members, including whether (unnecessary) insurance fees are depleting balances; and to evaluate whether the fund is large enough to do all these at a reasonable cost.

In each case, trustees are required to show that they are promoting members’ financial interests. They will have to compare the performance of their MySuper product to that of other MySuper products.

Even though the trustees score their own card, APRA will also examine these, under the threat that the MySuper authority could be cancelled. It’s not clear how much discipline these rules can impose on trustees, but there are some obstacles to implementation and some possible unintended consequences.

Most superannuation funds know very little about their members. Usually these funds only collect a member’s age, gender, some indication of income, and sometimes their postcode. To show that a financial service, investment or insurance product promotes (or fails to promote) the financial interest of a member will be very difficult on this little information.

For example, two 25-year-old men in the same profession will have very different needs for life insurance if one is single and the other has a non-income-earning partner and a child. But they will look the same to the MySuper trustees.

Also, having an annual peer comparison of investment performance by MySuper trustees will focus on short-term results rather than the long-horizon outcomes needed for a secure retirement.

So the governments’ claim that these changes will “give consumers more power” and strengthen regulation of this large sector are stretching the truth.

Author: Susan Thorp, Professor of Finance, University of Sydney

‘Generation Rent’ and the ruinous rule of unfair and unjust laws

From The New Daily.

Shadow Treasurer Chris Bowen gave a good speech on Tuesday, promising to super-size Labor’s planned banking royal commission.

Originally intended to flush out illegal and deceptive activity in the banks, a royal commission should, he says, spring clean their legal activities too because that’s where the real damage to the economy is occurring.

Actually, Labor doesn’t need a royal commission to address the problem Mr Bowen described – namely, the hodge-podge of regulations being used to deal with the housing-credit bubble. A bit of well-written legislation would do the job just fine.

He is right, however, that we have a problem.

The key regulators who influence bank behaviour – the Reserve Bank, the Australian Prudential Regulatory Authority and the Australian Securities and Investment Commission – are discharging their duties admirably, but are still somehow allowing the banks to gobble up more and more of Australian life.

Australia’s growing private debt to GDP ratio, he points out, is second only to Switzerland’s, at 123 per cent.

Mr Bowen spoke about the need for banks to be “unquestionably strong”, complained about the “composition of the property market, investors versus owner-occupiers”, and repeated regulators’ concerns that household debt is making the economy less resilient.

Well that’s all true. But if he wants to sharpen his rhetoric, he’d should reframe those comments from the perspective of young Australians.

Intergenerational wipe-out

In the space of just 70 years Australians climbed a home ownership mountain, only to find themselves sliding down the other side.

After World War II, only half of private sector homes were owned, either with or without a mortgage, by their occupants.

That climbed rapidly to peak at 71.4 per cent in 1966 – a level that fluctuated a bit, but was essentially maintained until the turn of the millennium.

But as the housing-credit bubble inflated, and prices sky-rocketed, the home ownership rate started sliding – from 69.5 per cent in 2002, to 67 per cent at the 2011 census, and to 65.5 per cent last year.

This is a direct result of the debt bubble that Mr Bowen acknowledged in his speech, and which he rightly points out has been inflated by the property-investor tax breaks of negative gearing and the capital gains tax discount.

But wait, it gets worse. It is the younger generations – new entrants to the housing market – where all the damage is being done.

Twenty- and thirty-somethings are either being locked out of the market forever or taking on budget-crushing mortgage repayments.

Some among those age groups may eventually receive large inheritances from their property-owning parents – assuming, that is, that today’s sky-high valuations do not tumble in the years ahead.

But for those that do not, one of two dismal economic futures awaits.

Firstly, the members of ‘Generation Rent’, on present settings, will face an under-funded retirement.

That’s because Australia’s superannuation system, and the complementary state pension, were calibrated in the early 1990s for a nation in which most people did not have to pay rent in retirement.

Secondly, the young Australians ‘lucky’ enough to secure huge mortgages will wave goodbye to a proportionally larger chunk of their household budget each month over the next 25 or 30 years, if they wish to actually pay off their homes.

Low interest rates, remember, only reduce the interest bill. The principal repayments not only stay the same in nominal terms, but in a low interest-rate environment they are ‘eroded’ more slowly by inflation.

Get to the root of the problem

So the problem, as Mr Bowen defines it, is the overlap and confusion of “ad hoc” attempts by regulators to head off disaster – particularly APRA’s attempts to slow mortgage lending.

But surely it’s better to remove the cause of those policy contortions than to unscramble the omelette.

As it happens, Labor last year pledged to reduce the wealth-redistributing and bubble-inflating tax incentives of negative gearing and the capital gains tax discount.

That policy should go further, but at least it’s a good start.

So, yes, let’s have a royal commission into the illegal practices of the banks.

But as for ending the perfectly legal attack on the finances of young Australians, Labor only has to deliver what it’s already promised.

Understanding Banking from the Ground Up

From The St. Louis Fed On The Economy Blog.

Weak U.S. family balance sheets have driven more Americans to the “fringe” of the American banking system. But is this necessarily a bad thing?

The Federal Reserve’s Board of Governors recently released a shocking report showing that, if confronted with an unanticipated $400 expense, nearly half (44 percent) of Americans would have to sell something, borrow or simply not pay at all.1

Other surveys have been equally concerning:

This balance sheet fragility, especially illiquidity, is fueling the demand among Americans—and clearly, as the above data suggest, among middle-class Americans—for “alternative” financial services, including those from payday lenders, auto title lenders, check cashers and the like.

But should we be too critical of their financial choices? Is patronizing an alternative provider necessarily a poor or irrational choice? And do we ban payday lenders and the like because of annual percentage rates that are often in excess of 300 percent?

A Conversation with Lisa Servon on Unbanking

I wrestled with these questions following a recent St. Louis Fed event titled “The Banking and Unbanking of America”—featuring Lisa Servon, author of The Unbanking of America: How the New Middle Class Survives—and I think the answer to these questions is no.

Servon wondered: If these services are so bad, why have check-cashing transactions grown 30 percent between 1990 and 2010 while payday lending transactions tripled between 2000 and 2010?

According to Servon, it turns out that banks (with a growing number of encouraging exceptions) haven’t been serving these customers well, including charging more and higher fees for account opening, maintenance and overdrafts. Meanwhile, struggling consumers are turning to alternative providers (as well as to community development credit unions) because they value:

  • Greater transparency (with actual costs clearly displayed like signs in a fast-food restaurant)
  • Better service (including convenient hours, locations and friendly, multilingual staff)

What I really liked is that Servon—an East Coast, Ivy League academic—didn’t just arrive at these conclusions by only reading reports and talking to experts. She actually became a teller at both a payday lender in Oakland, Calif., and a check casher in the South Bronx, N.Y.

Mapping Financial Choices

I also like that several of my Community Development colleagues here at the St. Louis Fed have embraced this community-driven understanding of financial decision-making as well through a “system dynamics” research study, which maps the actual factors that influence the financial choices consumers make.

Like Servon’s work, the forthcoming version of this study will focus less on the narrow “banked/unbanked” framework and more on the broader, CFSI-inspired idea of “financial health.”

Other Areas to Address

Beyond adopting the financial health framework, Servon also suggests rethinking the government/banking relationship and supporting smart regulation so financial innovation or risk taking can thrive with some protections.

Most importantly, in my view, she recommends addressing the macro problems—for example, flat or declining real wages, less full-time and stable employment, and weaker unions—that underlie the demand for the immediate cash that alternative providers offer so well, albeit not so cheaply.

But it’s also true that weak balance sheets—the micro—contribute to the macro problem: Strapped consumers just don’t spend as much. So, we really must address both.

Notes and References

1 “Report on the Economic Well-Being of U.S. Households in 2016.” Board of Governors of the Federal Reserve System, May 19, 2017.

2 Gutman, Aliza; Garon, Thea; Hogarth, Jeanne; and Schneider, Rachel. “Understanding and Improving Consumer Financial Health in America.” Center for Financial Services Innovation, March 24, 2015.

3 “The Precarious State of Family Balance Sheets.” The Pew Charitable Trusts, January 2015.

Author: By Ray Boshara, Senior Adviser and Director, Center for Household Financial Stability

Mortgage Rate Warnings Get More Strident

More people are now saying that households need to brace for mortgage rate rises. Among the crowd is Malcolm Turnbull who warned households to prepare for interest rates to climb.

It is all a bit late given the level of debt which we have across Australia. As we discussed before, the debt quagmire will really hurt.

It is not that employment is too bad, but incomes are static, costs are rising, and underemployment is the spectre at the feast.

But lets be clear, it is not a financial stability problem, yet. It is highly unlikely the banks will see their mortgage defaults rise that much, because currently many households are still protected by lofty capital gains sufficient to repay the lender. They also have tremendous pricing power, as has been demonstrated in the past few months, with a litany of out of cycle rate hikes. Expect more to come. Their capital base is strong, and rising (and APRA has been light on them).  As a result, banks profits will rise – this explains recent stock market moves.

No, the real impact is among households. We think here are three groups of households who should be taking great care just now.

There are some amazing offers around for first time buyers, and lenders are falling over each other to try and attract them. This is because banks need new loans to fund their growth. But these buyers should beware. They are buying in at the top of the market, when rates are low. Banks have tightened their underwriting standards, but still they are too lax. Just because the bank says you can afford a loan does not mean it is the right thing to do. Any purchaser should run the numbers on a mortgage rate 3% (yes 3%) higher than the current rates on offer. If you can still afford the repayments, then go ahead. If not, and remember incomes are not growing very fast – best delay.

Second, there are people with mortgages in financial difficulty now. Well over 24% of households do not have sufficient cash-flow to pay the mortgage and other household expenses. The temptation is to use the credit card to fill the gap – but this is expensive, and only a short term fix. Households in strife need to build a budget (less than half have one) so they know what they are spending, and start to cut back. Talk to your lender also, as they have an obligation to assist in cases of hardship. And be very careful about refinancing your way out of trouble, it so often does not work.

Third there are property investors who are seeing rental incomes and mortgage repayments moving in opposite directions. As a result, despite tax breaks, the investment property looks a less good deal. Of course recent capital gains are there – and some savvy investors are selling down to lock in capital value – but be careful now. New property investors are in for a shock as mortgage rates rise further. And multiple investors, are most at risk. Should property values decline, then this will mark the real turning point; but we think the investment property party may be over.

This will play out over the next couple of years, but the bottom line is simply, mortgages will be more expensive, and households need to prepare now. Turnbull is right.

The banks and pollies have conned a generation

From The New Daily.

While a lot of things are ‘unknown knowns’ in finance, there’s an awful lot of ‘known knowns’ too – and one of those is about to hurt mortgage holders.

The Australian Prudential Regulatory Authority (APRA) has announced it will require big and small banks to hold more capital in reserve as a buffer against financial shocks.

That has forced the government to adopt APRA’s view that the effects of such a tightening are unknown, but probably benign.

Treasurer Scott Morrison said on Wednesday that the change “should not significantly impact loan pricing or consumers’ ability to access finance” and shouldn’t affect “business growth plans, dividends policies or [require the banks to undertake] equity capital raisings.”

Actually, the effects are more certain than that. Like a balloon squeezed at one end, the cost of holding extra capital has to bulge out somewhere else – either as lower profits and dividends, or higher borrowing costs charged to customers.

The other option is for banks to raise capital through new share issues, which effectively dilutes the earnings per share – analysts say the Commonwealth Bank is in the most likely to take this route.

The big four banks have a long tradition of passing on new costs to borrowers, and although not large in this case, the APRA change will be exacerbated by increases in the banks’ offshore borrowing costs plus changes to the way they are required to calculate the risk of their loan portfolios.

A double blow

The APRA move comes just a day after the RBA reminded borrowers that it considers its ‘neutral’ cash rate – the rate at which it is trying neither to slow nor stimulate the economy – to be 200 basis points higher than today over the longer term.

Mortgage rates are not determined solely by the short-term borrowing rates the RBA has control over, but as a rough proxy for future rates it is warning mortgage holders to add a ‘2’ to the first part of their home-loan rate.

Current standard variable rates – or, rather, the more accurate ‘comparison’ rate which includes all fees – are sitting at about 5.3 per cent, so households need to ask themselves if they can afford 7.3 per cent in a couple of years time.

This is an inevitable change that many lending managers have glossed over with customers in the past couple of years.

It’s also what former Treasurer Joe Hockey failed to mention when he said there had “never been a better time to borrow” in 2013.

In the midst of an expanding credit bubble, only a few voices were pointing out that when record-low interest rates normalised due to global forces, or if local macroprudential measures put the squeeze on home loan rates, our record private debt would become a problem.

Well we’re on a one-way trip to realising that problem now.

For a very long time Australian banks got away with soaking up too much of the nation’s working capital. The big four banks shares make up a monstrous 25 per cent of the value of the ASX200, while the nation’s biggest employers, Wesfarmers (owner of Coles) and Woolworths are worth just 5 per cent.

For too long the banks have lent at levels that could only be made ‘safe’ by an implicit government guarantee of their liabilities.

And for too long politicians in Canberra told voters to disregard the common-sense notion that huge debts were a problem.

The APRA tightening is just a small step towards returning banks a more traditional role – not stoking a credit bubble, but sensibly leveraging the savings of some households and businesses, to allow other households and businesses to expand.

That more subdued role should, eventually, start to ease Australia’s private debt problem.

But that’s little comfort for the generation that took on eye-watering debts at record low interest rates – the generation that will be hurt most by the ‘balloon bulge’ of rising bank costs.

The Household Debt Quagmire

We know that household debt has never been higher in Australia, but I do not think the true impact of this, especially in a rising interest, low income growth environment is truly understood.  We have to look beyond mortgage debt.

The latest RBA E2 – Households Finances – Selected Ratios shows that the ratio of household debt to annualised household disposable income , rose to 190.4, the ratio of housing debt to annualised household disposable income rose to 135, and worryingly the ratio of interest payments on housing debt to quarterly household disposable income has risen to 7.0, thanks to the out of cycle rate hikes and flat or falling incomes.  Of course failing cash rates helped households out, but the lending standards were not adjusted until too late.

But, here is the really scary picture of total debt value held mapped by debt to gross income ratio (DTI), aka Loan-to-Income (LTI). DTI or LTI is a good measure of potential risk in the system.

This first chart shows the distribution of debt value – of all types, including mortgagee, (owner occupied and investment), personal loans, credit cards, SACC borrowing, and all other loans – relative to gross income in debt-to-income bands.  We are using date from our household surveys.  It also shows the distribution of households, with more than half having low, or no debt, but with a long tail of highly indebted households.

Across Australia, more than 45% of all household debt (not just households with mortgages, but those mortgage free or renting) sit with households who have an LTI of more than 4.5 times annual income. I used 4.5 times because this is the ratio the Bank of England uses, and they say that higher LTI’s are more risky.

The second chart shows the relative distribution across the states and territories.

The third chart shows the proportion of households in each state and territory with a DTI of more than 4.5 times.  NSW holds the record, with more than half of all households above this, compared with 26% in ACT and 9% in NT.

This is a big deal, especially in a rising interest rate environment.  It means households have little wriggle room, and granted many will be holding paper profits in property which has risen significantly in recent years, this does not help with servicing ongoing debt repayments.

The effect of the debt burden is to reduce the ability of households to spend, and in effect it is a drag anchor on future economic growth.

The traditional argument that “most debt is held by those who can afford it” is partly true, but bigger debts require bigger incomes to service them, and the leveraged effect in a rising interest rate environment is profound.

 

 

Australia’s retirement system on collision course with property market

From The New Daily

Australia’s retirement income policy is on a collision course with trends in home ownership and the result will be more older Australians struggling to support themselves in retirement. It will also make the superannuation system more inequitable.

The housing price boom is causing a major social change in Australia and the results of it are not being factored into policy making.

The latest figures from the 2016 census show that home ownership dropped markedly. Households renting rose to 30.9 per cent of the total, compared to 29.6 per cent in mid-2011. In the late 1980s, only 26.9 per cent of households rented.

Households owning outright dropped most markedly, from 32.1 per cent to 31 per cent while those owning with a mortgage dropped from 34.9 per cent to 34.5 per cent of households.

That is bad news for retirees because it means that more people will find themselves renting as they give up work.

“It’s a big thing because the family home is exempt from the pension assets test,” Grattan Institute research fellow Brendan Coates said.

“If you don’t own a home you will have to put aside more money to support yourself in retirement because of rental costs.”

The Association of Superannuation Funds of Australia recently found that to afford a comfortable retirement in a capital city a couple would need more than $1 million saved. That’s almost double needed by a couple who owned their home.

The trouble with saving large amounts like that is that it puts you outside the limits of the age pension assets test.

“Now most people in retirement get the pension,” Mr Coates said.

Holding a lot of assets outside the home means your pension will be discounted once you trigger the assets tests limits. And recent changes have made the situation worse.

In January this year, assets test limits for part pensions were cut by around $200,000. For single non-home owners the new limit is $747,000 and for couples $1 million, compared with $943,250 and $1.32 million previously.

So retiring without a home means many people will get less from the pension while they run down their retirement assets and will face rising rents as time goes by.

As this table from the Grattan Institute shows, renting leaves people far more vulnerable to financial stress.

While many renters on a pension may be be eligible for Commonwealth rent assistance, it maxes out at $132.20 per fortnight for a single and $124.60 for couples. Rents for a two-bedroom apartment average between $593 a week in Sydney and $329 in Adelaide (less in the regions), and have grown at around 1.6 times the rate of inflation over the past 30 years.

So being a renter will increasingly squeeze your income as your savings diminish and welfare won’t bridge the gap.

The toughening of the assets test and the rise of renting retirees “brings into stark contrast the treatment of home owners and non-home owners”, Mr Coates said.

Currently about half of age pension payments go to people with more than $500,000 in assets and 20 per cent to those with more than $1 million, most of whom are home owners.

It will also widen the gap between home owning and non-home owning superannuants as those without homes will struggle to build balances and have to spend what they have quicker to pay their housing costs.

Market-driven compaction is no way to build an ecocity

From The Conversation.

As Melbourne hosts the Ecocity World Summit this week, we might ponder the progress of Australia, a “nation of cities”, toward achieving sustainable urbanism.

Australian metropolitan planning has long subscribed to what urban geographer Clive Forster called the “compact city consensus”. This is a commitment to consolidated, well-designed, low-energy cities with high usage of public and active transport. But after decades of halting pursuit, we seem no closer to this ideal.

The 2016 State of the Environment report makes critical findings on metropolitan development. It casts these trends, at least in part, as market-driven compaction rather than planned consolidation. Leanne Hodyl’s much-reported 2014 study showed that:

High-rise apartment towers are being built in central Melbourne at four times the maximum densities allowed in Hong Kong, New York and Tokyo – some of the highest-density cities in the world.

She concludes that Australian regulation of high-rise development is uniquely weak.

Market prevails over planning

The compact city vision that has guided Australian metropolitan strategy for at least three decades was intended to realise sustainability in a form that departed from the extensive, car-dependent monocentrism of the post-war metropolis.

Yet planning has not been the principal directional force for urbanisation during this period. Instead, it has been dominated by a far more powerful political consensus, neoliberalism.

Whatever one thinks of the compact city ideal – and it is contested among urbanists – its realisation required a commitment to planned urbanisation. But that was never likely during an era of relentless hollowing-out of state capacities, including those needed to manage cities.

Instead, other forces have shaped the course of urban change. These include national policies (especially immigration, taxation and financing), technological innovation, cultural shifts, political economy (notably neoliberal governance) and increasingly unrestrained market power. This set of transformational “furies” can be grouped under the rubrics of intensification and pluralisation.

These forces have undeniably produced many welcome and stimulating changes in our cities. However, our current course, if left uncorrected, will potentially drive Australian cities further away from the ideal of sustainable urbanism.

The increases in “bad pluralities” – notably social polarisation and poverty – betray this ideal as much as physical failings do. Rising social ills, especially the ice plague and family violence, are markers of this betrayal.

‘Urban fracking’ undermines the city

Market-driven intensification has in many places permitted a fracturing and ransacking of urban value and amenity, and of human wellbeing, by development capital that has worn the thin robe of legitimacy provided by the compact city ideal.

We might summarise this as “urban fracking”: a new means of blasting through accumulated layers of material and symbolic value to extract profit.

Miles Lewis observed in 1999 that much redevelopment in Melbourne’s middle-ring neighbourhoods was parasitic. That is, it draws on (and thus depletes) existing amenity without adding to it.

More generally, this dispossession of urban value, from public (or communal) to private, takes myriad forms: amenity and infrastructure mining through overdevelopment, transfer of public housing stock to private investors in redevelopment, the continued non-taxation of unearned land value increments, privatisation of assets and services, and fast-tracked and favourable development approvals.

Ill-prepared for climate change

These various plunderings and injuries also potentially reduce the sustainability and resilience of our cities at a time of clear threat, especially the “climate emergency”.

Reducing green space and open space ratios in redevelopment areas raises particular risks for rapidly rising inner-city populations.

Consider that Melbourne City Council has prepared a Heatwave Response Plan, which will evacuate city residents to the Melbourne Cricket Ground, Etihad Stadium and the Convention and Exhibition Centre. The council recognises that 82% of residents now live in buildings “without passive ventilation”. That’s code for the air-conditioned towers that have done little for the cause of sustainability.

New modelling reveals that sea-level rise is likely to flood many inner-city high-rise redevelopment areas in Australian cities. This includes the zones identified for evacuation in Melbourne’s Heatwave Response Plan.

Governance must be restored

As the 2016 Census confirms, our rapidly growing core metro regions are evolving into ever more complex landscapes, which defy simple description. It could be tempting to conclude that the sources of their problems resist identification. But this is not true. At the core of our urban failing is governance in all of its necessary forms – economic, social and spatial.

Our cities appear increasingly unsustainable, chaotic and frankly ungovernable only because we allow this to happen. Long historical stretches of firm urban governance, notably in Brisbane and Melbourne, produced much more balanced and agreeable patterns of urbanisation than we are now experiencing.

The ever-mounting costs and failures of the “long night” of neoliberal governance are resonating ever more strongly within national politics. Economist John Quiggin believes this is feeding a new, if nascent, appetite for public intervention and ownership.

We must hope this desire for restoration of state capacities extends to the cities whose rapidly deteriorating development trajectories threaten national wellbeing.

The first necessity is to reinstate capacities for public economic governance. The need is especially great in the areas of infrastructure and urban services, which powerfully shape the general course of urbanisation.

After decades of relentless privatisation and deregulation, however, there is little to govern and little to govern with.

To improve metropolitan functioning, there will be no escaping the necessity of what the late ANU academic Peter Self described as “rolling back the market”. This will require nationalisation of key assets, especially infrastructure, and stronger regulation of urban amenities, especially energy, transport and hydraulic services.

This is the first, urgent step towards resetting our urban course for sustainability. State governments could do so without delay.

Unfortunately, most cannot yet conceive of a true break from neoliberal urbanism. The New South Wales government recently privatised its land registry. South Australia and Victoria plan to do the same.

If this mindset can be changed, the next imperative is to establish strong planning governance for our metropolitan regions so our freewheeling development furies can be steered towards more sustainable ends. Renewal of governance is the key to surviving let alone thriving in the urban age.

Author: Brendan Gleeson, Director, Melbourne Sustainable Society Institute, University of Melbourne

It’s official. Regular Australians are getting poorer

From The New Daily.

Of all the measures of wellbeing of Australia’s workers and families, one has reliably increased over the decades. That is despite droughts, floods, recessions, changes of government, jobless rises and falls, and housing booms and busts. Until now.

‘Household gross disposable income’ quantifies the cash families and individuals receive from all sources – jobs, investments and other income streams – after taxes and the Medicare levy are paid.

So it is a handy guide to how much national income goes to regular working people. It is measured quarterly by Australia’s statistics bureau in the series on the nation’s finance and wealth.

Since records have been kept, the amount of money Australian families have been free to spend has increased steadily almost every year.

In the past 30 years, there have been only four 12-month periods when money available to spend has declined compared with the previous year.

The first was in the year to December 2002 when Australia – and the world – was whacked by the early 2000s global recession.

The second was the year to December 2009, when all developed economies were in turmoil brought about by the global financial crisis.

Both times, the indicator returned to strong positive growth in the following quarters.

Disturbingly, however, the last two losses of disposable income were in 2015 and 2017, during periods of strong global recovery, robust trade, excellent business revenue and record corporate profits.

‘Household gross disposable income’ fell in the year to December 2015, the transition year from prime minister Tony Abbott and treasurer Joe Hockey to Malcolm Turnbull and Scott Morrison.

There is no obvious explanation for this drop apart, perhaps, from Mr Turnbull’s observation that his predecessor had “not been capable of providing the economic leadership our nation needs”.

The latest figures show that ‘household gross disposable income’ fell again in the March 2017 quarter.

The amount Australian families were free to spend declined between January and March to $278.6 billion for the nation overall. That followed a significant fall the quarter before, down from $299 billion to $296.7 billion.

Hence, the decline over six months was a staggering $20.4 billion. That is the largest dollar decline in history and the steepest percentage drop since the 2002 recession.

Quarterly drops are not uncommon, but four quarterly declines in the space of six quarters – which has just happened – certainly is. Outside global recessions, it is unprecedented.

The figures are better interpreted over a full year, and when matched against the number of households.

Using ABS household numbers, disposable income is now $29,640 per household per year. That is down from $31,960 six months ago. It is well below the $31,650 at the end of 2013.

Allowing for the effects of inflation, earnings peaked in 2011, 2012 and 2013, despite the impact of the global crisis.

Households now, however, are earning about the same as in 2007, towards the end of the Howard years. Since then, of course, executive pay packages, MPs’ salaries, professional incomes and company profits have all risen spectacularly.

The same ABS data showed household net savings increased by a puny $7.69 billion in the March quarter. That is the lowest rise since June 2008.

The total increase in savings for the 12 months to the end of March was just $57.94 billion, the lowest since 2008-09, when the GFC was starting to take its toll.

Why?

As The New Daily has regularly reported, wages have been depressed in the past three years, the tax burden has shifted from corporations and high-income professionals to wage and salary earners, and both unemployment and underemployment remain entrenched.

To economists, this shift of income from the poor and middle to the rich is not just a matter of fairness, it is also a serious drag on the economy.

When household disposable income declines, so does revenue in retail, wholesale, cafes and restaurants, entertainment, the arts, tourism and transport.

These are all key areas for jobs and growth – which everyone agrees are the priorities.