Social Trends – Page 152 – Digital Finance Analytics (DFA) Blog

Nearly 2M Households Locked Out Of Property Market

The latest data from our households surveys highlights the core problem facing many Australian households at this time. There are nearly 2 million households who are unable to purchase their own home.

Across the states, 33% reside in NSW, 26% in VIC, 20% in QLD and 11% in WA.

We can segment these households using our core analytics. Around 8% of these we classify as “first time buyers”, who are actively seeking and saving to purchase; 28% we identify as “want to buy”, who are saving with the hope to buy in the future; and 64% as “property inactive”, who for all intents and purposes are not actively seeking to enter the market at the moment. This inactive group continues to grow relative to the general population. All three groups are likely to be renting, living family or friends, or in other less permanent housing options.

We can also split these down across the states. From example, in NSW there are 228,000 households actively trying to get into the market, 185,000 in VIC, 158,000 in QLD and 85,000 in WA. This provides important insights into the size of the housing problem in the country.

This is an critical additional perspective, which we need to bear in mind as we consider the 20% of existing households with a mortgage who are in some degree of mortgage stress at the moment and the 30% of households who hold investment property.

Once again, this is a big, systemic issue which needs mature and joined up policies to address the core elements that have combined to make such an intractable problem. Changing settings at the margins will not be sufficient to rectify an inter-generational emergency.

Households who do not hold property are significantly less confident finally speaking, as results from our household finance confidence security index show.

Mortgage Stress Grinds Higher

We have just rerun our mortgage stress models, incorporating data to 1st March 2017. Household budgets remain under pressure, thanks to flat incomes and rising living costs – and some lifts in mortgage rates. You can read more about our approach to measuring mortgage stress here. Our current analysis concentrates on owner occupied mortgages.

Overall, 21.78% of households are in some degree of mortgage stress. We look at mild stress, meaning they are managing to meet repayments, but are doing so by cutting back on other expenditure, putting more on credit cards, and seeking to refinance or restructure to reduce monthly payments. 19.08% of households fall into this group. An additional 2.7% of households are in severe stress, meaning they are likely to miss repayments, or are in default, or are looking to sell. We look at household cash flow, not a set percentage of income going on the mortgage.

Here are the postcodes across Australia with the highest levels of stress.

Harristown, QLD 4350, which was the highest count in December 2016, still is first, followed by Leumeah NSW 2560. Leumeah is a suburb of Sydney, Macarthur/Camden, about 40 kms from the CBD. The average age of the people in Leumeah is 35 years of age. Around 37% of households there have a home loan mortgage.

Third is Frankston VIC 3199, which is a suburb of Melbourne, Bayside, It is about 39 kms from Melbourne. Frankston is in the federal electorate of Dunkley. The median/average age of the people in Frankston is 38 years of age. Around 30% of households here have a mortgage.

Fourth highest is Merriwa 6030, a suburb of South Western, Heartlands, WA. It is about 35 kms from Perth in the electorate of Pearce. 41% of homes here are mortgaged. The average age of the people in Merriwa is 35 years of age.

Once again, remember interest rates are very low, and are expected to rise, so the OECD warning about the risks in the housing sector seem well placed.

Editors Note. We updated this post to reflect the total of mild and stress, when it first appeared, we sorted only on mild stress, which changed the results slightly – and we also added back the latest probability of default metrics as well.

The Future Is… Uncertain

Australians and businesses overwhelmingly think our country is a great place to live and have a business. However, Australian consumers and businesses are anxious about what the future holds.

National Australia Bank (NAB) today released a new report which asks consumers and businesses to explore life, work and running a business in Australia – now and in the future.

“Nine in 10 Australians told us our country’s open spaces, people and lifestyle and access to affordable and quality healthcare are the biggest contributors to liveability and their choice to call Australia home,” NAB Chief Economist Alan Oster said.

“There are some clear differences between states. Consumers in SA/NT are much more positive in relation to travel time, living costs and housing – and in Victoria, a love of sport means entertainment options feature more prominently for liveability than any other state.”

Businesses too are optimistic, with 8 in 10 (82%) surveyed viewing Australia as a great place to have a business.

“Australian business people see the economy, our close proximity and strong connections to Asia and the growing population as some of Australia’s key strengths,” Mr Oster said.

“Making the most of these strengths is vitally important for Australia, to support more growth opportunities for businesses and the millions of Australians they employ.”

But despite their current optimism, the report found only 1 in 2 people and 60% of businesses think Australia will be a great place to live and have a business in 10 years’ time.

“There is a clear message of anxiety in the future coming from Australian consumers and businesses,” Mr Oster said.

“Australians identified access to social welfare, living costs, tax levels, jobs and housing affordability as the key factors they expect will deteriorate the most in the next 10 years. Consumers are saying they expect very little progress in the areas already holding Australia back now.

“While a person’s income didn’t affect current perceptions of liveability, there was a large future disconnect between high income earners (earning over $100,000) and those earning under $35,000 a year.”

Businesses are slightly more optimistic.

“Australian businesses expect the things that make our country great now to continue to make us great in the future – this includes our population, proximity to Asia and our innovative and entrepreneurial economy.”

“These insights on how Australians feel about our country may be able to help businesses and governments discover what we’re concerned about, and prompt discussion on how to tackle some of the big issues,” Mr Oster said

About 2,300 consumers and 500 businesses took part in the survey, and full findings can be viewed here.

Why Trusting Experts Is Dissipating

In her final speech as Deputy Governor for Markets and Banking, before becoming Director of the London School of Economics, Minouche Shafik sets out an agenda for rebuilding the trustworthiness of experts. She says, “getting this right is vital for determining whether our futures are shaped by ignorance and narrow-mindedness, or by knowledge and informed debate”.

Addressing the Oxford Union, Minouche explores the backlash against experts after the financial crisis, Eurozone crisis, Brexit, and election surprises. As well as being seen to have “got it wrong”, the growing influence of social media and online news has made experts just one of many voices in a cacophony. “A person like yourself” is now seen as credible as an academic or technical expert, and far more credible than a CEO or politician.

However, the application of expert knowledge has improved life expectancy, tackled diseases, and reduced poverty. These achievements have led to many decisions being delegated to experts deliberately insulated from the political process, including the creation of independent central banks as a means to maintain low and stable inflation. Minouche stresses, however, the importance of experts being subject to challenge and rigorous processes to differentiate quality and reduce the risk of getting it wrong.

The changing landscape of information, opinion and trust

The digitization of freely available knowledge has been hugely democratizing and empowering. Young people are particularly reliant on social media, with 28% of 18-24 year olds saying it is their main source of news, putting it ahead of television.

But there has been a downside – “people can be overwhelmed with information that is difficult to verify, algorithms create echo chambers of the like-minded who are never challenged; fake news distorts reality; “post-truth” fosters cynicism; anonymity bestows irresponsible power onto individuals who can abuse it; a world in which more clicks means more revenue rewards the most shrill voices and promotes extreme views,” Minouche argues.

All releases are available online at www.bankofengland.co.uk/news 2
We need expertise more than ever. But confidence in experts is at an all-time low. Transparency is not good enough if information is inaccessible and “unassessible”. Instead, we should focus more on increasing trustworthiness.

An agenda for rebuilding trustworthiness

Societies can set standards and empower individuals to assess trustworthiness for themselves. There are many elements to such an agenda:

Experts should embrace uncertainty – Minouche argues that “rather than pretending to be certain and risk frequently getting it wrong, being candid about uncertainty will over the long term build the credibility of experts.” Coupled with the need to get their often complex messages across in today’s shortform world, this means “the modern challenge for experts is how to communicate with brevity, but without bravado.”
Good practices often found in academia (like declaring conflicts of interest, peer review, and publishing underlying data and funding sources) need to become more widespread to the world of think tanks, websites and the media.
Consumers of expertise need better tools to assess quality – Minouche highlights the importance of people being given the tools to “differentiate facts from falsehood”. The e-commerce world has developed an array of tools to help consumers determine quality. We need something similar for the world of ideas. Good examples are the growth of fact-checking, authoritative websites and the FICC Markets Standards Board, which are designed to enhance trustworthiness in areas where trust has been eroded.
Listen to the other side – Minouche states that “we can all make an effort to engage with views that are different from our own and resist algorithmic channeling into an echo chamber.”
Manage the boundary between technocracy and democracy carefully – Minouche stresses that “technocracy can only ever derive its authority from democracy.” And for that reason there must always be clarity about the boundaries and accountabilities between experts and politicians.
Minouche concludes, “so what have the experts ever done for us? The application of knowledge and the cumulation of that through education and dissemination through various media and institutions are integral to human progress. So the challenge is not how to manage without experts, but how to ensure that there are mechanisms in place to ensure they are trustworthy.”

Australia needs to reboot affordable housing funding, not scrap it

From The Conversation.

Federal government ministers have cast a cloud over funding for social housing and homelessness services, leading to speculation that the National Affordable Housing Agreement (NAHA) may not survive the 2017 budget.

Treasurer Scott Morrison and Assistant Treasurer Michael Sukkar point to the recent Report on Government Services, which shows the number of public housing properties has fallen, as evidence of the NAHA’s “abject failure”. Sukkar said:

We believe it’s crucial that every dollar of spending on affordable housing programs increases the number and availability of public and social housing stock. Clearly, this objective has not been met.

It should be no surprise that Australia’s social housing has been largely static for 20 years. Everything we know about the system tells us it is not funded to even cover the costs of its ongoing operation, let alone growth to meet the needs of an expanding population. Aside from a one-off boost under the 2009 federal economic stimulus plan, social housing has been on a starvation ration for decades.

The whole system system is effectively being run at a loss. So, from the perspective of state governments, building a new public housing dwelling is just one more way of losing money.

The federal government has also long lamented the lack of transparency about how states and territories spend their NAHA funds – about AS$1.5 billion a year. And there are glaring gaps in the evidence about the operations and performance of public housing authorities.

In failing to act on a 2009 commitment to modernise and enhance the Report on Government Services metrics, the states and territories have placed themselves in a weak position to rebut claims of ineffective financial management.

That said, everyone who has any contact with the public housing system knows it to be grossly underfunded. One-off studies occasionally illuminate the scale of the issue. For example, a 2013 New South Wales Audit Office report found a $600 million annual operating deficit for that state’s public housing. But no-one can easily quantify the extent of the problem using routinely published data.

A snapshot of social housing in Australia

Around 320,000 of Australia’s approximately 428,000 social housing dwellings remain under public housing authority control. This stock was amassed through a long series of funding agreements between federal and state and territory governments. These were known as the Commonwealth-State Housing Agreements until their 2009 NAHA rebranding.

Australia has had federal-state housing agreements since the Labor government of Ben Chifley initiated the first one in 1945. AAP

From the first Commonwealth-State Housing Agreement in 1945, the basic arrangement was that the federal government would lend funds to state housing authorities to build houses. The states would cover the ongoing costs from the rents paid by working-class tenants.

And, at least to begin with, the housing authorities did build. They made a significant contribution to housing supply, amounting to roughly one in six houses built between 1945 and 1965.

From the early 1970s, the housing authorities were directed, justifiably, to provide more housing to low-income households unable to pay full “market” rents. However, their capital funding also went into a long decline. With the exception of a brief period in the mid-1980s, housing authorities never again built at their earlier rate.

A number of interlocking problems set in. Social housing’s declining share of the housing stock became more tightly rationed to the lowest-income households. This eroded the system’s rent base. At the same time, its ageing buildings and households with greater support needs increased its costs.

Two landmark studies by Jon Hall and Mike Berry charted the implications of these developments for the finances. At the end of the 1980s, all but one of the housing authorities ran an operating surplus. By 2004, all but one ran an operating deficit.

Various attempts to improve the situation have been made. The 1989 Commonwealth-State Housing Agreement switched federal funding from loans to grants; the 1996 agreement allowed federal funds to be spent on recurrent expenses. In the early 2000s, rebates on social housing rents were reduced, slightly increasing revenue.

Modest amounts of public housing have also been transferred into the hands of not-for-profit community housing providers. Partly, this is to take advantage of the eligibility of community housing tenants for Commonwealth Rent Assistance. But although this often enables these providers to run a small operational surplus, it isn’t enough to fund stock replacement or any significant expansion.

Meanwhile, the overall stock has been eaten away, through market sales of public housing, and run down, through skimping on repairs and maintenance. Both are unsustainable strategies.

Running a system without good data

If the broad outlines of the problem are clear, there are major deficiencies in the data as to the details. The Hall and Berry analysis is now dated. There is no current evidence base that shows transparently and consistently what the social housing system in each state and territory costs, and how these costs are met.

For example, the Report on Government Services purports to show the “net recurrent cost per dwelling” for each state and territory. But this does not differentiate between distinct expenditure components such as management and maintenance.

Our 2015 research found that this metric was a “black box”, subject to implausibly large variations across jurisdictions. These reflected the vagaries of departmental restructures, rather than a sound accounting of social housing operations.

There is little doubt that all public housing authorities are now in deficit. However, the Report on Government Services provides no data on the relative scale of these funding shortfalls. Nor do governments routinely reveal the scale of system costs still met by tenants’ rents, nor through stock sales.

What should a rebooted NAHA do?

Although the NAHA does it inadequately, an enduring program of federal funding for operational expenses is essential to sustain the social housing system. Such funding cannot be “replaced”, as Morrison has suggested, by a government-backed aggregated bond financing model.

The bond aggregator model depends on social housing providers having a durable subsidy from government that pays the difference between their ongoing costs and the revenue from rent that low-income tenants can afford.

Instead, NAHA should be rebooted to deliver three things:

capital funding for new social housing stock, distributed according to an assessment of current and projected needs in each state and territory;
recurrent funding, distributed according to the number of social housing dwellings in each state and territory and an assessment of reasonable net recurrent costs; and
clear accounting by social housing providers for costs of provision and the contributions of tenants, government funding and other sources of income towards meeting these costs.

Many in the social housing world would agree the NAHA framework is far from transparent and that there is no certainty that NAHA money is optimally spent. But a ministerial focus on these issues while ignoring the system’s chronic underfunding smacks of re-arranging deckchairs.

Rather than scrapping the NAHA, the system should be rebooted, to properly fund both the growth and ongoing operations of social housing. This must be done on the basis of clear targets for the level of need to be met and the reasonable costs of providing the service.

Authors: Chris Martin, Research Fellow, Housing Policy and Practice, UNSW; Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW

Baby Boomers digging into retirement savings to help their kids buy houses

From StartsAt60.

We’ve all heard stories about some Baby Boomer parents helping their kids out to buy their first home.

But as a new report, released by Digital Finance Analytics, has revealed, it’s becoming a growing trend across the country.

The report shows a growing number of Baby Boomer parents are giving their adult children money a leg up to get into the property market.

In fact, 54% of first home buyers who entered the property market in the last quarter of 2016 had financial help from their parents.

According to the report, in the last quarter of last year, the average amount given by parents to help their children buy property was $85,000.

Digital Finance Analytics principal Martin North said many Baby Boomer parents were bringing forward their children’s inheritance, using rising equity in their property to fund their kids first home deposit.

“Some are making a loan, others a gift,” he told Starts at 60.

“This is clearly eroding savings and equity for retirement. It’s replacing guarantees.”

While many parents are more than happy to give their children the money, Mr North said it could create some issues for parents down the track – particularly at retirement age.

“If it’s a gift, then the capital is gone. If it’s a loan, this can lead to difficulty later, especially if the terms are not clear, or the kids decide not to repay,” he said.

“Given that many Baby Boomers will not have sufficient super to funder their longer than expected retirement, this could put more pressure on the pension budget and create hardship for some in the future.

“I’m not sure many really understand the potential implications, but they also want to help their kids.”

This chart shows the ages at which parents are giving money to their kids. Source: Digital Finance Analytics

The report found that parents aged between 55 and 60 were most likely to give their kids money for a home deposit, followed by those aged between 60 and 65.

Interestingly, that number drops once parents retire after the age of 65.

The children receiving the money are aged mostly between 30 and 35 (41.2%) and 35 and 40 (33.6%).

So, what do the Baby Boomers think of the report’s finding?

Well, we put the age old question of “would you give money to your children to help them buy their first home?” to Starts at 60 readers and the response was varied.

Several SAS readers shared stories of how they gave money to their children.

Joanne Tonkin-Bride said she gave more than double the average of $85k to each of her children.

“My ex was a very good provider and therefore were fortunate enough to be able to do so,” she said.

“l would rather see my children happy now, than after l’m dead and gone.”

Fellow SAS reader Lorrain Lidston also provided for her daughters’ home deposits.

“When our parents passed, we sold their property and split it with our two girls, having 1/3 each,” she said.

“Better they enjoy it now than when we are gone.”

Some other readers loaned money to their children, while others acted as guarantors.

Unfortunately, as some readers pointed, many Baby Boomers can’t afford to give their kids help.

Many of you wish you could help them, but as you would know, a lot of Boomers are struggling.

“I wish we had been able to have that opportunity, we have been frugal all our lives but did not have the money to put into Super, gave them a private school education instead,” SAS reader Pamela Sanders said.

And then there are some Baby Boomers who pointed out that their parents didn’t help them out, and that their kids need to work hard and save for themselves.

“I had to work for my first house. No one helped me.” SAS reader Ruth Hourigan said.

“I personally believe that is a major problem with todays generation. They can’t be bothered doing it for themselves.”

You might be wondering what is driving the trend in Baby Boomers helping their kids buy their first home?

Well, it all comes down to the very topical issue of housing affordability.

Mr North said that housing affordability was “shot” for purchasers without parental help, and he’s pointing the finger at high house prices, banks demanding larger deposits and a reduction in first home buyer grants.

“With parental help they may be able to buy (either for OO or investment purposes), but this does not help affordability in the longer term as it will continue to push prices higher, alongside ongoing demand from investors,” he said.

“Regulators may be pressing the banks to curtail lending growth a bit, but demand, especially down the east coast is rabid.

“Savers of course get lower returns on deposits which makes savings for the house deposit more challenging without a circuit breaker like the ‘Bank of Mum and Dad’.”

Interestingly, another report released this week shows the majority of Australians across all ages believe the Great Australian Dream is becoming harder to achieve.

The Evolving Great Australian Dream report, released by Mortgage Choice, has found an increasing number of us don’t believe the Great Australian Dream of “a free-standing house on a quarter-acre block in the suburbs” is achievable.

The report found 85% of Australians over the age of 50 don’t believe the Great Australian Dream is achievable, compared to 91.6% of Australians under the age of 30.

Mortgage Choice CEO John Flavell said Australians struggling to get a foot on the property ladder needed help to achieve their dream of home ownership.

“To date, we have heard a myriad of suggestions from both sides of parliament in relation to what should be done to address the issue of housing affordability,” he said.

“Home ownership should be achievable for all Australians, and as a nation, we should do what it takes to make that a reality.”

And the trend of housing affordability is only set to get worse, with more first home buyers set to rely on their parents to make home ownership a reality.

Mr North pointed to the UK, where more than 70% of first home buyers were getting help from the “Bank of Mum and Dad”.

“For as long as housing affordability is out of kilter with flat or falling incomes, many won’t be able to enter the market without help,” he said.

“My point is these intergeneration issues are not well understood. There are risks for both parties, and creates an additional divide – those wanting to buy with affluent parent can, those without this benefit are excluded.It is a symptom of a failed housing market. And failed Government policy to say nothing of poor RBA judgement.”