Social Trends – Page 153 – Digital Finance Analytics (DFA) Blog

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.”

Rental insecurity: why fixed long-term leases aren’t the answer

From The Conversation.

The insecurity of rental housing and unsatisfactory condition of many properties are receiving much-deserved media attention following the release of a national survey of tenants.

However, the stock response to the insecurity this revealed – longer fixed-term agreements – is not the answer. The solution to the failure of existing legal protections must take into account the structural features of the rental market, including the mobility of tenants.

The survey, commissioned by Choice, National Shelter and the National Association of Tenant Organisations, presents evidence of a widespread sense of worry, dissatisfaction and injustice on the part of tenants. According to respondents:

75% feel that competition for rental properties is “fierce”;

50% are concerned about being “blacklisted” on a tenancy database;

50% have experienced some form of discrimination;

30% live in properties requiring non-urgent repairs, and 8% require urgent repairs;

11% experienced a rent increase; and

10% reported an angry response after requesting repairs.

Residential tenancy laws cover many of these problems. That tenants are not successfully exercising their legal rights indicates a deeper problem of insecurity in renting. This problem is both structural and legal.

Small landlords and mobile tenants

Small landlords dominate the Australian rental sector: 72% own a single property each. Most (62%) make a net rental loss, so it is important to them that they can switch out of the sector when it suits them.

Research for the Australian Housing and Urban Research Institute (AHURI) indicates that 21% of landlords exit the sector within their first 12 months. By five years, 59% will have exited.

When landlords exit, they might sell to another landlord or an owner-occupier. Older research indicates that the transfer of rental housing into owner-occupation is a significant feature of the Australian market.

These dynamics cause structural insecurity for tenants. They also mean many landlords do not willingly tie up their sole asset in a long fixed term.

Despite the legal and structural insecurity of the sector, most moves by tenants are for their own reasons.

The ABS Housing Mobility and Conditions survey shows that tenants generally are very mobile: 81% have been in their current premises for less than five years. About half of moves between rental premises were for “personal reasons” (including family and employment reasons); 20% were to get more suitably sized housing; and 15% because of a termination notice from the landlord.

This degree of mobility suggests it is not in most tenants’ interest to enter into long fixed terms and the rental liability it entails. That’s not to mention the risk of being tied to a small landlord who is an unknown quantity and has no business reputation to protect.

Residential tenancies law in Australia

Each state and territory in Australia has its own Residential Tenancies Act. These differ in the details but are broadly similar in outline. All provide standard terms for tenancy agreements, processes for rent increases and terminations, and relatively accessible dispute resolution and eviction procedures.

Most do a decent job, on paper at least, when it comes to repairs and maintenance. Generally speaking, landlords are obliged to ensure rented premises are provided fit for habitation and maintained in a reasonable state of repair.

This means tenants are entitled to repairs even if the premises were in bad condition to begin with, and even if they pay relatively low rent. Tasmania is an exception: there, landlords are obliged to maintain premises in the condition in which they were first provided.

Similarly, each state and territory prohibits landlords from interfering in tenants’ quiet enjoyment of their premises. Most expand this right to protect tenants’ “reasonable peace, comfort and privacy”.

These are important protections, even though there may be scope to improve them – for example, by adding specific standards for safety devices and fixing particular legal defects like Tasmania’s. The great problem is that the ability of landlords to give notices of termination without grounds undermines the existing protections in every state and territory.

Without-grounds termination notices give cover to terminations by landlords for bad reasons, such as retaliation and discrimination. This means the prospect of receiving such a notice hangs over tenants when repairs and other issues arise.

What’s the solution, then, to high insecurity?

The legal insecurity of tenants might be improved in several ways.

Under the current laws of each state and territory, a fixed term prevents the landlord from terminating without grounds, and on other grounds such as sale or change of use of the premises, for the duration of the fixed term. It also prevents the tenant from lawfully terminating without grounds.

The idea of long fixed-term tenancy agreements is occasionally raised in the media and has caught the attention of the New South Wales and Victorian governments in their reviews of residential tenancies laws. Both those governments are considering how to facilitate long (five-year) fixed terms, including by altering other aspects of their laws – such as the protections about repairs.

But this approach presents problems of its own. Long fixed terms are unwieldy for landlords and tenants. Trying to make them more useful also threatens other valuable legal protections.

The present structures of the Australian rental sector call for different reforms.

We can reconcile the mobility of tenants with their sense of insecurity if we think of “security” as more than just the legal right to occupy. AHURI researchers have conceived of “secure occupancy” to encompass a person’s ability to make a home of premises and exercise housing autonomy. This includes the ability to confidently get repairs done in one’s premises, or keep a pet – and to freely decide to make a new home elsewhere.

This conception points towards a stronger reform agenda for improving security. Instead of long fixed terms, we should abolish without-grounds termination by landlords.

The law should instead provide a comprehensive set of reasonable grounds for termination, with notice periods and exclusion periods appropriate to each ground. This accommodates our present lot of small landlords, and can be done immediately.

Over a longer term, we should set our housing tax and finance policies to get a more stable sort of landlord. That would be one who operates at greater scale, has a reputation to protect and is less interested in switching out of the sector than in receiving a steady trickle of rents from secure tenants.

Author: Chris Martin, Research Fellow, Housing Policy and Practice, UNSW

Bank Switching Is A Pain

According to the Customer Owned Banking Association, Australians are willing to switch home loans but believe the process is too painful, there’s too much paperwork and it’s not worth the effort.

These are some of the key findings of a national poll of 1000 Australians by BLACKMARKET Research on what drives competition in the banking market.

“This poll shows Australians want competitive home loans, but they’re being let down by the switching system,” COBA CEO Mark Degotardi said.

“Polls like this tell us there’s a problem – people want to switch but find it too hard to do so, so they simply give up. That’s not genuine banking competition.

“We believe one of the reasons is the amount of time between a consumer asking to switch and their current home loan provider completing the paperwork.

“All stakeholders need to have a closer look at this issue to see if switching can become more efficient.

“If people want to switch from a major bank to a customer owned banking institution, we find it hard to understand in 2017 how it can take up to three months in some cases.”

The BLACKMARKET Research poll of 1000 Australians found:

36% of people say are they are fairly/very likely to change home loans in the next 12 months

More than one-third of people say they haven’t switched because the process is painful

One in five gave the reason of paperwork or it not being worth the effort for not switching

The poll also found many customers were happy with their current provider, including four out of five customer owned banking customers.

“Customer owned banking is doing well, with market leading customer satisfaction and net promoter score ratings,” Mr Degotardi said.

“Part of the reason is our highly competitive and award winning products, including our home loans that have average standard variable home loan rates 0.64%* lower than the big four banks.

“If consumers shop around they will see there’s real value in switching to a customer owned alternative.”

*14 February, 2017: Comparison calculated using data sourced from the Canstar Online Database for standard variable rate products, which are available to owner occupiers borrowing $400,000 at an 80% LVR. Package, basic, and introductory rates are excluded.

More First Time Buyers Open An Account At “The Bank of Mum and Dad”

We have updated our analysis of assistance first time buyers are getting from their families in a desperate effort to get into the housing market at a time when the entry barriers in terms of price and affordability are as high as ever they have been. In addition, high loan-to-value loans are less available, so first time buyers need a larger deposit, and first owner grants are harder to access. Savings interest rates are also very low.

We released analysis a few months back, which caused quite a stir as it highlighted the inter-generational issues in play. We have now updated the quarterly analysis with data to December 2016.

First, more first time buyers are getting help from parents – up to 54% in the past quarter. This help varies from a loan for a deposit, a cash present, help with transaction expenses, or ongoing assistance with mortgage repayments or other household expenses. Parental guarantees are falling out of favour.

Parents are able to assist, thanks to the wealth effect created by home price appreciation, which is still occurring in the eastern states, though more patchily elsewhere.

Just under half the assistance is going towards first time buyers in NSW (mainly Greater Sydney), where the affordability issues are most difficult, and home prices the highest. But other states are also, to some extent, also in the game. Ignoring the volume growth, the percentage mix has been relatively stable.

But here is the volume picture, which shows the relative number across states (note the small counts in some states are less statistically robust), but the trends are clear.

Another cut on the data is looking at the type of property being purchased. In 2015, more investment property was is the mix, but now the growth is among owner occupied purchasers.

In terms of the value of the financial contribution, it varies. But for those making a loan or payment direct to assist in a purchase by way of a deposit, the average amount is now north of $85,000.

If parents bring forward payments to assist their offspring, it is worth asking whether this act of kindness may have unintended consequences.

First, are parents giving away some of their future financial security?
If it is a loan, is the basis of repayment clear, and documented?
When a bank assesses a mortgage application do they consider the source of the deposit – receiving a “seagull” lump sum is not the same as demonstrating a history of saving, and the risk profiles down the track are different.

It also raises complex questions around equity between siblings, and a whole raft of questions relating to inter-generational finance.

It is also worth remembering that more first time buyers are going to the investment sector before purchasing their own home for owner occupation, as our first time buyer tracker shows.

Australia Post salary scandal highlights our nation’s growing wage inequality

From The Conversation.

How much more than an average worker should a CEO earn? Research shows Australians believe CEOs should earn eight times more. It is perhaps unsurprising, then, that revelations about the salary of Australia Posts CEO Ahmed Fahour have caused a public furore this week.

Fahour’s pay is estimated at up to 119 times that of a postal worker, and 73.5 times that of the average earnings in the transport, postal and warehousing industry.

In 2015-16, he earned A$5.6 million – made up of A$4.4 million in salary and superannuation, and a A$1.2 million bonus. This has – at least for now – rightly put wage inequality on the national political agenda.

Questions of transparency

It’s not just that it’s a lot of money. Australia Post has, until this week, been able to keep Fahour’s salary top secret. It adamantly did not want us to know, even trying to gag the Senate committee it was required submit the information to in 2016.

Australia Post protested that revealing the size of the managerial swag-bag might mean people would “become targets for unwarranted media attention”. It also griped that making the bulging pay packets public could “lead to brand damage for Australia Post”.

This is corporate double-speak writ large. Brand damage for sure. But the reason is that the top-six Australia Post executives earn the same as half of the business’ total profits. Customers and citizens might rightly think this is just wrong – and, in the end, the customer is the one who is paying.

Executive pay comparisons

There is a rule of thumb in business ethics called the “New York Times Test”. It states that a business should not do anything that it would not want to see reported on the front page of the newspaper. Australia Post has not only failed this test, but it has deliberately tried to avoid being subject to it by its insistence on secrecy.

Australia Post is especially sensitive because it is a government-owned corporation. So, while it can still earn profits, there are no shareholders it is accountable to. Ultimately, Australia Post is answerable to the government.

Overindulgent executive salaries are usually rationalised with vague arguments that eschew responsibility. Managers and their PR minions harp on about the need to compete for global talent. Australia Post joined the chorus, very specifically defending the salaries of its chiefs because they were “in line with market practice”.

The poverty of this argument is palpable. Australia is leading the way internationally on this executive salary creep. And top postal executives in other countries earn a fraction of what is paid here. Britain’s postal boss does well, earning the equivalent of A$2.5 million. Fahour’s US counterpart takes home just A$543,616. In Canada, the salary is A$497,000.

The public has responded to news of Fahour’s salary with justified indignation. Even Prime Minister Malcolm Turnbull chimed in, saying he thinks Fahour’s salary is excessive.

As exorbitant as Fahour’s salary might be, it is just the tip of the iceberg when it comes to executive pay in Australia. It even looks relatively modest when compared to the sums taken home by CEOs in the corporate sector.

Peter and Steven Lowy at Westfield share A$25 million in realised pay. Seek’s Andrew Bassat yields just under A$20 million, and Nick Moore at Macquarie Group scrapes in over A$16 million.

These salary extravagances seem tame if you think that the top 1% of Australians have as much wealth as the bottom 70%. Gina Rinehart and Harry Triguboff alone own more that the bottom 20%.

Missing the broader point

The real point of all of this has been totally missed in the rush to side-step political accountability.

For Turnbull, it was just another “not my job” moment. The Australia Post board responded in a similarly dismissive way, with a promise to have “a discussion” the best it could muster.

At least the Senate had the nerve to call Australia Post chairman John Stanhope to publicly justify its executive wage bill at Senate Estimates later this month.

Meanwhile, the cost of living for average Australians and its relationship to wages and penalty rates remain key political issues. This is quite right, given the way that people are rewarded by corporations is a key determinant of income inequality.

No doubt the earnings of Australia Post’s top brass will fade from the headlines. What won’t fade so quickly is the way the gaps between the earning of those executives and rest of the Australian population keeps getting bigger.

This cannot be dismissed with facile arguments about the “politics of envy”. Instead, we need to take heed of research that clearly shows inequality is continuing to widen in Australia, and that this rising inequality is harmful to economic and social stability.

Author: Carl Rhodes, Professor of Organization Studies, University of Technology Sydne

Pension age rises will mean later super access

From The NewDaily.

The age at which you can receive the age pension is on the rise, up to 65.5 from July 1 and it could be as high as 70 within two decades.

There’s a big unanswered question related to that which the politicians don’t seem to want to touch; will that push up the superannuation preservation age?

The pension age will move to 67 by 2023 under a measure introduced by Labor back in 2009. The government has it slated to move to 70 by 2035 although PM Turnbull and Social Services minister Christian Porter side stepped the issue when Labor brought it up in parliament this week.

Labor, for the record, opposes the move and has done so since it was first introduced.

The measure was originally recommended to start in 2053 by the Abbott Government’s Audit Committee chaired by Tony Shepherd. But the Abbott budget in 2014 brought this back to 2035.

But even if the move to 70 were to come off the agenda in the medium term, there is still currently a mismatch between the age you can take super and the age you get the pension.

A few years ago you could take your super at 55. Now it’s 56 and it is moving towards 60, a point it will reach for those born from mid 1964 in 2021.

Supernatants are getting older. Source: ATO

The point of raising the preservation age was to keep it within five years of the pension age. Allowing the gap to widen would “encourage people to take their super, spend it and live off the pension,” said Ian Yates, CEO of lobby group Council on the Ageing.

Robert Curley, a director of Association of Independent Retirees, said his organisation would support a move. “The super preservation age should be maintained at five years below the pension age.”

Australia’s super pool outstrips Canada becoming world’s growth leader

But some take a much harder line than this. Brendan Coates, a researcher with the Grattan Institute, told The New Daily that he “supports an increase in both the pension age and the super preservation age to 70.”

“It would help reduce the budget deficit and increase GDP quite significantly.”

Mr Coates said research done by Grattan in 2012 had shown that those two measures would “cut the budget deficit by $12 billion in today’s dollars and increase GDP by at least 2 per cent”.

The economic benefit would come from “pushing people to work for longer”, Mr Coates said. The budget benefits would come from lower pension payments and higher taxes on super savings.

Of course not everyone takes what many would see as such a hard line approach. Mr Curley said “if you take the preservation age to 67 or 70 it negates the idea of super”.

“There needs to be a reasonable period for people to access and enjoy their superannuation.” Keeping too big a gap between preservation and pension age would also negate the idea of super by encouraging people to spend it early, he said.

Mr Coates said any increase in both benchmarks would have to be done gradually and adequate arrangements put in place to allow older people who could no longer work to be get the disability pension (which pays the same as the age pension).

“Otherwise there would be be a risk that people who couldn’t work any more would be forced onto Newstart [unemployment benefits],” Mr Coates said.

A spokesman for Labor’s superannuation shadow minister
Katy Gallagher said the opposition “did not have a view” on raising the preservation age. Financial Services Minister Kelly O’Dwyer did not respond to questions on the issue from The New Daily.

Mr Yates said resources would have to be put in place to help older people transition to new roles and jobs that matched their capabilities if working lives were to be extended to 70.

“If people are working longer we can’t expect them to have the same career path from 25 to 70.”

Extending working lives is a big issue through the OECD. As the following chart shows, Australia currently sits around the average of its peers.

OECD retirement ages in 2014. Source: OECD

Canadian Prime Minister Justin Trudeau was elected on a platform of reversing a retirement age rise from 65 to 67. But recently an economic advisory committee recommended a rise and measures to encourage people to work beyond 70.

So Just How Sensitive Are Property Investors To Rising Interest Rates Now?

Having looked at changes in investment loan supply, and the motivations of the rising number portfolio property investors, today we use updated data from our rolling household surveys to look at how property investors are positioned should mortgage rates rise. In fact, for many, rates have already been raised, thanks to lender repricing independent of any RBA cash rate move, some as much as 65 basis points. We think there is more to come, as loan supply gets tighter, international financial markets tighten and competitive dynamics allows for hikes to cover capital costs and to bolster margins.

To assess the sensitivity we model households ability to service mortgage debt, taking into account their other outgoings, and rental income. We are not here looking at default risk, but net cash flow. How high would rates rise before they were under pressure? Where they also have owner occupied loans, or other debts, we take this into account in our assessment.

The first chart is a summary of all borrowing investor households. The horizontal scale is the amount by rates may rise, and for each scenario we make an assessment of the proportion of households impacted, on a cumulative basis. So as rates rise, more households would feel pain.

The summary shows that nationally around a quarter of households would struggle with a rate hike of up to 0.5%, and as rate rose higher, this rises to 50% with a 3% rate rise, though 40% could cope with even a rise of 7%.

So a varied picture. But it gets really interesting if you segment the analysis. Those who follow DFA will know we are a great believer in segmentation to gain insight!

A state by state analysis shows that households in NSW are most exposed to a small rate rise, with 36% estimated to be under pressure from a 0.5% rise (explained by large mortgages and static rental yields), compared with 2% in TAS.

Origination channel makes a difference, with those who used a mortgage broker or advisor (third party) more exposed compared with those who when direct to a lender. The pattern is consistent across the rate rise bands. This could be explained by brokers knowing where to go to get the bigger loans, or the type of households going to brokers.

Households with interest only loans are 6% more exposed to a small rise, and this gap remains across our scenarios. No surprise, as interest only loans are more sensitive to rate movements. We have not here considered the tighter lending criteria now in play for interest only lending.

Our master segmentation reveals that it is Young Affluent and Young Growing Families who are most exposed, followed by Exclusive Professionals. Some of the more affluent are portfolio investors, so are more leveraged, despite larger incomes.

Finally, we can present the age band data, which shows that those aged 40-49 have the greatest exposure as rates rise, though young households are most sensitive to a small rise. Note this does not reveal the relative number of investor across the age groups, just their relative sensitivity.

This all suggests that lenders need to get granular to understand the risks in the portfolio. Households need to have a strategy to prepare for rate rises and should not be fixated on the capital appreciation, at the expense of cash flow management, especially in a rising rate environment.