First Week of August Returns a Preliminary Auction Clearance Rate of 71.5 per cent

From CoreLogic.

The first week of August saw fewer auctions held across the combined capital cities, with 1,846 held, down from the 1,987 auctions held the previous week, however higher than the 1,540 auctions one year ago. The preliminary auction clearance rose to 71.5 per cent, after the previous week saw the final auction clearance rate fall slightly to 68.7 per cent (revised lower from a preliminary clearance of 70.7%).

Over the last month, auction volumes have remained relatively steady and while clearance rates have shown a softening, final results have been consistently in the high 60 per cent range since the first week of June. Across the two larger auction markets, Melbourne continues to show resilience to softening conditions relative to Sydney, with Melbourne’s clearance rate sitting in the mid-high 70 per cent range for another week (75.7 per cent), while Sydney’s preliminary auction clearance rate increased over the week (71.5 per cent). Last week Sydney recorded its lowest rate of clearance so far this year (65.4 per cent).

2017-08-07--CapitalCityAuctionResults

ANZ Job Advertisements continue to trend up

ANZ Job Advertisements continue to trend up, rising 1.5% m/m in July in seasonally adjusted terms. Total job ads are now up 6.5% since the beginning of the year. Annual growth picked up from 10.5% in June to 12.8% this month.

In trend terms Job Advertisements were up 1.0% m/m in July following a 1.3% rise in the previous month. The trend growth rate has averaged 1.1% m/m over the first seven months of the year, compared to 0.3% m/m over the same period a year ago.

ANZ said:

“Recent data has shown a clear improvement in labour market conditions consistent with elevated business conditions, profitability and capacity utilisation.particular, the strength in full-time employment and a solid increase in hours worked (near 3.3% y/y) are quite encouraging. Among other things we think this strength has contributed to the lift in consumer
confidence from its recent low point in April.

That said, several challenges remain and we expect the pace of improvement to moderate over the medium term. First, the level of underutilisation remains high and business surveys suggest
that it is likely to fall only gradually. Second, the drivers of growth over the next few years look to be less labour intensive given the slowdown in housing construction and the expected
contribution of labour-lite LNG exports to growth. We also don’t expect the recent strong pace of public sector jobs growth to continue. Lastly, despite the improvement in labour conditions,
wage growth is sluggish and is expected to remain so.

Broadly, forward indicators and survey based measures point towards near-term jobs growth in the order of 15-20k per month. Given the importance of the labour market and wage growth to the course of monetary policy, we will be closely watching the Q2 Wage Price Index number, out on August 16.”

zipMoney and Westpac Enter Strategic Relationship

In an announcement today, zipMoney has secured a $40m strategic investment from Westpac at $0.81 per share (a 14.1% premium to the last closing price).

The purpose of the investment is to allow Westpac to explore the rollout of Zip’s products and services across Westpac’s payment network.

The deal is expected to close on on 10th August 2017.

zipMoney is an ASX-listed company, which offers point-of-sale credit and digital payment services to the retail, education, health and travel industries. Zip’s platform is entirely digital and leverages big data in its proprietary fraud and credit decisioning technologies to deliver real-time consumer responses.

They provide a variety of integrated Retail Finance solutions to small, medium and enterprise businesses across numerous industries, both online and in-store.

zipMoney offers a 100% cloud-based platform that leverages its proprietary technology and Big Data to enhance the proven fundamentals of promotional finance, in particular interest-free.

zipMoney is focussed on acquiring prime, near prime and emerging prime borrowers by providing those customers with a revolving line of credit to finance their retail purchase. zipMoney does not target sub-prime or payday borrowers. zipMoney is acutely focused on simplicity and delivering transparent, responsible, and fairly priced consumer credit products.

zipMoney is a licensed and regulated credit provider managed by a team with over 35 years’ experience in providing finance solutions at point of sale.

 

Household Finance Confidence Continues To Fall

Digital Finance Analytics has released the July results from our Household Finance Confidence Index, which shows a further fall, with momentum decaying.

The average score was 99.3, down from 99.8 last month and below the neutral setting. However, the average score masks significant differences across the dimensions of the survey results. For example, younger households are considerably more negative, compared with older groups.

This is strongly linked with property owning status, with those renting well below the neutral setting (and more younger households rent these days), whilst owner occupied home owners are significantly more positive. We also see a fall in the confidence of property investors, relative to owner occupied owners.

Across the states,  we see a small decline in confidence in NSW from a strong starting point, whilst VIC households were more confident in July.

The driver scorecard shows little change in job security expectations, but lower interest rates on deposits continue to hit savings. Households are more concerned about the level of debt held, as interest rate rises bite home. The impact of flat or falling incomes registers strongly, with more households saying, in real terms they are worse off. Costs of living are rising fast, with the changes in energy prices, child care costs and council rates all hitting hard. That said, the continued rises in home prices, especially in the eastern states meant that net worth for households in these states rose again, which was not the case in WA, NT or SA.

Sentiment in the property sector is clearly a major influence on how households are feeling about their finances, but the real dampening force is falling real incomes and rising costs. As a result, we still expect to see the index fall further as we move into spring, as more price hikes come through. In addition, the raft of investor mortgage rate repricing will hit, whilst rental returns remain muted.

By way of background, these results are derived from our household surveys, averaged across Australia. We have 52,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

 

Major bank mortgages to go digital

From The Adviser.

With the 1 August deadline looming for paperless refinancing, one major lender has explained how technology is reshaping the way it delivers home loans.

Mortgage providers from across Australia are in the process of digitising their back-office operations. The migration to e-conveyancing has been a significant event in the evolution of the Australian mortgage market. More than 120 lenders have now signed up to exchange property online through PEXA’s network, where almost $58 billion worth of property has transacted to date.

From 1 August in NSW and Victoria, commercial standalone mortgages will need to be lodged electronically by ADIs, while in NSW and Victoria, refinance transactions will have to be lodged electronically where both mortgagees are ADIs.

According to Marielle Yeoh, PEXA’s chief financial services officer, the best way for brokers to prepare for the change is to ask lenders if the transaction will be settling on PEXA and to share with customers and borrowers that there is now a new way of settling electronically.

NAB is at the forefront of these changes and sees the property industry moving towards 100 per cent digital settlements. The group’s general manager of customer lending operations, Gary Howard, said that digital settlements have a number of benefits for NAB and its customers.

“It gives us greater flexibility to deliver outcomes quickly for our customers,” Mr Howard said. “It also results in less duplication and cost. Leveraging technology will give our people the opportunity to focus on more personalised service, and for our customers it means increased security and real-time access to funds.”

Improving turnaround times and delivering a better customer experience in home lending are key competitive advantages in a market where rate matching is common.

NAB believes that digital allows for a wide range of opportunities. “Certainly, there are a number of layers and legacy systems and processes within the mortgages process, and many of these processes are geared towards paper,” Mr Howard said.

“To digitise the entire mortgage process, end to end, we need to think differently and look for opportunities to innovate . . . and we are,” the chief said. “PEXA is a great example of what is possible and how we can progress towards delivering a better customer experience by going digital.”

Traditionally, some mortgage brokers have considered elements of digital processes a threat. This appears to be changing, with more and more brokers integrating digital solutions into their own businesses to drive efficiencies and improve productivity.

While NAB remains focused on delivering digital solutions in the mortgage space, Mr Howard recognises that not all areas need an electronic touch.

“We’re focused on delivering digital solutions that are driven by customer needs,” he said, “but that doesn’t mean everything is going to be digitised, particularly where relationships and human advice counts.”

NAB recently strengthened its partnership with REA Group by announcing the sale of Choice Home Loans to the ASX-listed real estate listings giant. A fresh line of white-label mortgages has been tipped to hit the market as part of the NAB/REA deal.

But brokers are firmly on the group’s radar. Speaking at NAB’s Knowledge is Everything road show in Sydney back in April, EGM of broker partnerships Anthony Waldron said that he expects broker market share to exceed 70 per cent over the coming years.

Mr Waldron explained how consultation on the ASIC remuneration review, for example, could further boost third-party share by improving trust.

“It’s the opportunity for more people to understand what brokers do; it’s the opportunity to build trust even further in what you do. And if we can do that then we won’t be talking about 53 or 54 per cent of mortgages going through the broker community. We will be talking about more like the numbers in the UK where it is already in the 72 or 73 per cent.”

Nevertheless, big banks acknowledge that the digital age is here, and NAB’s Mr Howard is confident that the property industry is moving towards “100 per cent” digital settlements.

Mr Howard said: “Within a few years, we expect the majority of transactions will be performed electronically.”

Updated 09 August. Note the statement from WA’s Landgate.

Taking into consideration industry feedback, the Registrar of Titles has revised the information published in CIB289.

The Registrar will now require the move to electronic lodgement of land transfer documents via an Electronic Lodgement Network Operator (ELNO) by regulation.

The regulations are expected to be in place during Q4 2017.

From 1 December 2017, all eligible mortgages, discharges of mortgages and refinances must be lodged electronically.

From 1 May 2018 all eligible, stand-alone transfers, caveats and withdrawal of caveats and any lodgement case consisting of eligible discharges, transfers, mortgages, caveats and withdrawal of caveats must be lodged electronically.

The Registrar of Titles and the Minister for Lands are in agreement that this approach is fair and clear, and provides the necessary legal clarity for government and industry.

With current market conditions, and the extra time allowed to prepare for the changes, the Minister and Registrar encourage all settlement agents to inform themselves on e-conveyancing, register and begin transacting electronically as soon as possible.

Landgate has provided considerable information to industry on the nature of the changes, and has sponsored the Australian Institute of Conveyancers, Western Australian branch to provide its electronic conveyancing accreditation program.  There has also been a series of roadshows presented by Property Exchange Australia (PEXA) to take interested settlement agents through the electronic lodgement process and answer any questions.  Landgate will continue to support industry through this transition.

More Households Worry About Saving For Retirement

An increasing number of Australians believe they will fall far short of being able to fund their retirements, which may be leading to a greater focus on paying down debt and putting more aside in savings, according to the latest research from MLC.

Between the fourth quarter of 2016 and first of 2017, the MLC Wealth Sentiment Survey Q1 2017 recorded an increase in Australians who think they will have “far from enough” in retirement, up from 24 per cent to 32 per cent of respondents.

The research also identified a significant disconnect between the retirement Australians want and the one they expect to have. Most respondents described their ideal retirement with words like “relaxed”, “comfort” and “travel”, while one in five used words like “stressful”, “worried”, and “difficult” to describe how they expect their retirement will be.MLC Wealth Sentiment Survey Q1 2017

“While economic indicators are quite strong, at an individual level it’s apparent that Australians aren’t feeling confident about their finances, and this may be causing anxiety about retirement,” MLC General Manager of Customer Experience, Superannuation, Lara Bourguignon, said.

“What’s interesting is that respondents said they need over $1 million to retire on, but even small super balances help in retirement, so instead of being worried and fearful, people should feel motivated and empowered to take the little steps that make a big difference.”

More Australians paying off debt, saving

The survey also shows Australians are now taking debt and saving more seriously.

Overall, 21 per cent of Australians plan to pay off more debt in the next three months, outweighing those who intend to pay off less debt (13 per cent) than they were previously. Further, 26 per cent intend to save more and 19 per cent save less.

“With people reporting they are concerned about having enough in retirement, it may be that Australians are taking a closer look at debt and implementing savings strategies that will help improve their overall financial position,” Ms Bourguignon said.

“While the catalyst may be a lack of confidence about funding retirement, getting in control of your finances is very empowering, and so we may see people feeling a lot better about their money in the long run.”

Australians don’t feel wealthy enough to seek financial advice

Another key insight from the research was that Australians believe they need to be wealthy in order to seek financial advice, a finding that may be holding many back from reaching their financial goals, Ms Bourguignon said.

“Many respondents said they would visit a financial adviser if their needs were more complicated, or if they earned more or had money to invest. But tackling debt or implementing a savings plan is actually the ideal time to engage a financial adviser.

“We certainly need to start changing our view around advice being only for the wealthy; it’s for all of us.”

Other key findings:

  • Women are more pessimistic than men about having enough for retirement – 62% don’t expect to have enough to retire on, compared with 52% of men.
  • Despite concerns about funding retirement, three in four Australians haven’t seen a financial adviser in the last five years.
  • Only three in ten Australians are comfortable borrowing to invest, with a third of these preferring investing in property.

About the MLC Quarterly Australian Wealth Sentiment Survey

The MLC Quarterly Australian Wealth Sentiment Survey interviews more than 2,000 people each quarter. It aims to assess the investment environment by asking questions related to current financial situation, investment intentions, level of concern related to superannuation and other investments, change in life insurance, and distance to retirement and investment strategy.

Allegations against the CBA show the need for a Royal Commission into the banks

From The Conversation.

The Commonwealth Bank is facing another scandal as the Australian Transactions Reports and Analysis Centre (AUSTRAC) launches civil proceedings accusing the bank of being complicit in money laundering.

This exposes a deeply worrying prospect, that the Australian public are vulnerable to crime and terrorism directly funded through the Australian banking system.

AUSTRAC alleges CBA breached the Anti-Money Laundering and Counter-Terrorism Financing Act (2006) 53,700 times since 2012, where transactions were not reported by the bank, or reported too late. The bank faces a potential penalty of A$18 million per breach, which could amount to billions of dollars.

According to AUSTRAC, criminals deposited cash, amounting to tens of millions of dollars, over a period of two years in intelligent deposit machines where it was automatically counted and credited instantly to the nominated recipient account. The funds were then available for immediate transfer to other accounts both domestically and internationally.

In their evidence AUSTRAC details how four identified criminal syndicates were able to readily use CBA ATMs to breach the A$10,000 transaction threshold on 1640 occasions amounting to A$17.3 million. A total of A$625 million of suspicious transactions flowed through these CBA ATMs.

CBA’s response to these serious allegations is that it reports 4 million transactions to AUSTRAC per year contributing to the effort to “combat any suspicious activity as quickly and efficiently as we can.” The bank insists all key personnel have been trained in compliance with the Money-Laundering Act. The CBA acknowledges there was a software fault with a number of their ATMs which allowed these transactions to take place, but apparently this took several years to fix.

Unfortunately this response in the circumstances only provokes further questions.

Regulators asleep at the wheel

What this really shows up is the government’s “light touch” regulatory approach which translates into soft touch regulation. It seems regulators in Australia are too frightened to take action even when there is mounting evidence of illegality.

AUSTRAC itself did not launch any proceedings under the Anti-Money Laundering and Counter-Terrorism Financing Act until 2015. This followed a lengthy report of the Financial Action Task Force which concluded:

[AUSTRAC’s] graduated approach does not seem to be adequate to ensure compliance.

Since then AUSTRAC has taken action against Tabcorp on a money-laundering case which reached a A$45 million settlement in February 2017. This contrasts with far larger fines imposed on international banks for money laundering including a US$1.2 billion fine for HSBC and a US$262 million fine for Standard Chartered in 2012 from the US Justice Department.

At a US Senate hearings in 2012, a HSBC chief compliance officer famously quit his post on the spot in answering money laundering allegations, implying he could not defend the indefensible.

The Australian banking industry has faced minimal pressure to reform compared to other countries, where the restructuring of the banks is progressing. Australia has seen a succession of inquiries however each has focused on particular aspects of the banks functioning and proposed specific reforms.

It will require a Royal Commission into the Australian banks to examine the structural and systemic failures of the banks. The banks have become the main providers of not only retail but investment banking, insurance, superannuation and financial advice, and this deserves critical scrutiny.

If the AUSTRAC allegations against the CBA are proven in the Federal Court, this matter is of a different order of magnitude to earlier problems. It suggests a degree of irresponsibility which is unacceptable in major financial institutions.

It also suggests it’s deeply embedded in the banks cultural and operating processes, which undermines the security of Australian citizens. This would demand a substantive inquiry into the management, integrity and culture of the banks that only a Royal Commission could provide.

In the meantime, the CBA needs to provide firm evidence to the Australian public that none of its ATM machines can continue to be used for money laundering. It also needs to prove there are procedures in place for ensuring all suspicious banking activity by potential criminals or terrorists is fully reported to the Australian authorities as soon as the CBA has any knowledge of such activity.

Author: Thomas Clarke, Professor, UTS Business, University of Technology Sydney

Heads You Lose, Tails They Win – The Property Imperative Weekly 05 Aug 2017

The latest data suggests mortgage delinquencies are rising, as the number of mortgaged households increase. Yet the RBA is bullish about future growth prospects, despite anemic retail spending, a stronger dollar and home lending reaching another new record. So what’s going on?

Welcome to the latest Property Imperative weekly to 5th August 2017.

We released our mortgage stress and default modelling for Australian mortgage borrowers, to the end July 2017.  Across the nation, we estimate more than 820,000 households are now in mortgage stress (compared with last month 810,000) with 20,000 of these in severe stress. This equates to more than a quarter of borrowing households.  We also estimate that nearly 53,000 households risk default in the next 12 months.

We have been tracking the number of households in stress each month since 2000, and since a small easing in February 2016, the number under pressure has been rising each month.  The RBA cash rate cuts provided some relief, especially directly after the GFC, but now mortgage rates appear to be more disconnected from the cash rate as banks seek to rebuild their margins.

There were more mortgage rate changes this week, with Virgin Money increasing the standard variable rates for owner occupied and investment interest only loans for new and existing customers and also increasing the fixed interest only rates for both owner occupied and investment loans. The increases ranged from 15 basis points, or 0.15%, up to 50 basis points for a 3 year lower LVR owner occupied fixed loan.

Teachers Mutual Bank increased the interest only variable rate by 20 basis points to 5.66% p.a. Interest only rates for the Solution Plus Home Loan rose by between 30 and 50 basis points depending on the LVR. Rates span between 4.49% p.a. and 4.67% p.a. They decrease rates for the principal & interest Home Loan by 15 basis points to 4.39% p.a for those borrowing between $240,000 and $499,999 where the LVR is greater than 80% and less than or equal to 90%.

CBA doubled the waiting period for customers seeking to switch to an interest-only repayment loan from 90 days to 180 days. This is a further move to try to reduce the proportion of IO loans held, following regulatory pressure to meet the 30% limit.  CBA has already lifted interest rates, tightened lending criteria and throttled back applications via mortgage brokers.

Once again we see a differential shift, with interest only loan rates being lifted, whilst rates on some owner occupied principal and interest loans below specific LVR’s and value are reduced. This underlines the current behaviour where specific types of “low risk” borrowers are being recognised. Expect more of the same from other market participants.

A new report by the Australian Housing and Urban Research Institute (AHURI) revealed than an estimated 1.3 million households  – around 14% of Australian households –  are in housing need, whether unable to access market housing or in a position of rental stress. This figure is predicted to rise to 1.7 million by 2025. This includes 373,000 households in New South Wales, where the number is expected to increase by 80% to more than 670,000 by 2025.

The newly released Household, Income and Labour Dynamics in Australia (HILDA) data showed that home ownership among 18 to 39-year-olds has fallen from 36 per cent in 2002 to a new low of 25 per cent. On top of that, between 2002 to 2014, the average mortgage debt of young homeowners increased by 99 per cent in real terms, from $169,000 to $337,000.  In fact, the decline in home ownership has been greater than the decline in owner-occupied households. This is largely because adult children are living with their parents for longer.

More broadly, HILDA also highlighted growing inequality, something which we have been discussing for some time. It is parents passing wealth down to their children that are once again starting to define who gets into property and who doesn’t – we’re going back to a 1950s-style class division. Our research suggests the average hand-down from the Bank of Mum and Dad is more than $85,000.  This rising inequality was also confirmed by the latest ME Bank Survey. They say the overwhelming majority of Australian households (68 per cent) saw their incomes stagnate or fall. Only 32 per cent got pay rises – the lowest in three years.

There are other barriers to property purchase. Data from the HIA suggested that the average stamp duty bill paid by an Australian owner-occupier increased by 16.4% to $20,725 over the past 12 months. And that’s nationally with the average cost in Sydney and Melbourne — Australia’s most expensive housing markets where just under 40% of Australia’s population live — substantially higher at $29,105 and $26,870 respectively. The median dwelling prices in both those cities has more than doubled since the start of 2009, according to CoreLogic. The HIA says recent changes to stamp duty in NSW mean that foreign investors now pay almost $100,000 in transaction taxes to acquire a standard apartment in Sydney – almost four times as much as local buyers.

Fitch Ratings says Australia’s mortgage arrears increased by 12bp QoQ to 1.21% at end-1Q17, due to seasonal Christmas/holiday spending and possible difficulties faced by consumers because of low real-wage growth.

Suncorp, underwhelmed the market with their FY17 annual results. Their housing portfolio now sits at $44.8 billion (up from $44.27 billion in 2016), with 66 per cent coming from the “Brokers”. The results were helped by overall lower provisions and the repricing of mortgages, but despite this, bank NIM fell. Past due home loans rose from 0.79% last year to 0.85% in FY17, and they have significant portfolio concentrations in QLD and WA.

Genworth, the listed Lenders Mortgage Insurer (LMI) released their 1H17 results, and as a bellwether for the mortgage industry, we see continued pressure on mortgage defaults, up 5 basis point, to in WA 0.86% and QLD 0.72%, and a fall in higher LVR lending leading to lower volumes of new premiums being written, but at higher prices.  The average original LVR of new flow business written in 1H17 was 82%.

The latest credit aggregates from the RBA to June 2017 shows continued home lending growth, up 0.5% in the month, or 6.6% annually. Business lending rose 0.9%, or 4.4% annually, and personal credit fell 0.1% or down 4.4% over the past year. However, they changed the seasonally adjusted assumptions, so it is hard to read the true picture, especially when we still have significant reclassification going on. The net value of switching of loan purpose from investor to owner-occupier is estimated to have been $55 billion over the period of July 2015 to June 2017, of which $1.3 billion occurred in June 2017.

In original terms housing loans grew to $1.69 trillion, another record. Investor home lending grew 0.5% or $3.13 billion, but this was adjusted down in the seasonal adjusted series to 0.2% or $1.13 billion. Owner occupied lending rose 0.9% or $9.83 billion in original terms, or 0.7% or $7.34 billion in adjusted terms.

APRA’s latest monthly banking statistics for July 2017 reconfirms that growth in the mortgage books of the banks is still growing too fast. The value of their mortgage books rose 0.63% in the month to $1.57 trillion. Within that, owner occupied loans rose 0.73% to $1,017 billion whilst investor loans rose 0.44% to $522 billion. Investor loans were 35.18% of the portfolio. The monthly growth rates continue to accelerate, with both owner occupied and investor loans growing (despite the weak regulatory intervention).  On an annual basis, owner occupied loans are 6.9% higher than a year ago, and investor loans 4.8% higher. Both well above inflation and income growth, so household debt looks to rise further. The remarkable relative inaction by the regulators remains a mystery to me given these numbers. Whilst they jawbone about the risks of high household debt, they are not acting to control this growth, do not seem worried.

Indeed, the latest RBA Statement on Monetary Policy released today appears to be very upbeat. Despite forecasting growth down a bit in the near term, they are still holding the view of growth of 3% plus later, supported by and improving international economic outlook, a rise in business investment, strong exports and low unemployment. If this is correct, then it seems to me conditions would be right to lift the cash rate towards the neutral position (which as we saw recently they hold to be 2% higher than current levels). That said, many economic commentators think the RBA is overly bullish, given high household debt, flat income growth, and risks in the property market.

Within the statement they acknowledge that slow real wage growth is likely to weigh on consumption, especially if households expect the slow growth to continue for some time and  ongoing expectations for low real wage growth remain a key downside risk for household spending. The recent sharp increase in the relative price of utilities poses a further downside risk to the non-energy part of household consumption to the extent that households find it hard to reduce their energy consumption; this is likely to have a larger effect on the consumption decisions of lower-income households.

They also make the point that some households may also feel constrained from spending more from of their current incomes because of elevated levels of household debt. This effect would become more prominent if housing prices and other housing market conditions were to weaken significantly. Household debt is likely to remain elevated for some time: housing credit growth overall has been steady over the past six months, but has continued to outpace income growth.

That said, the composition of that debt is changing, as lenders respond to regulators’ recent measures to contain risks in the mortgage market. Investor credit growth has moderated and loan approvals data suggest this will continue in coming months. Also, new interest-only lending has declined recently in response to the higher interest rates now applying to these loans and other actions by the banks to tighten lending standards.

They held the cash rate again on Tuesday, and said rent increases remain low in most cities, but Investors in residential property are facing higher interest rates. There has also been some tightening of credit conditions following recent supervisory measures to address the risks associated with high and rising levels of household indebtedness. Growth in housing debt has been outpacing the slow growth in household incomes.

The latest Australian Bureau of Statistics (ABS) Retail Trade figures showed that the trend estimate for Australian retail turnover rose 0.4 per cent in June 2017 the same rate as in May. Compared to June 2016, the trend estimate rose 3.6 per cent. The trend by state shows Tasmania and ACT ahead of the average, with Western Australian and NT, continuing to trail.

So standing back, we have a mixed picture, but one where household debt is still rising, income remains under stress, and costs rising. As a result, we think the drag on growth is stronger than the RBA suggest. Pressure on budgets will constrain spending.  But, here’s the thing, if they are right, we should expect cash rate rises sooner, adding more pressure on household budgets. Looks like its heads you lose, tails they win – borrowing households will remain under the gun for some time to come, and the property market is at the centre of the storm.

And that’s the property imperative weekly to August 5th 2017

Auction Results 05 Aug 2017

The preliminary results from Domain are in, and they show a slowing of the volume of auctions on offer. Clearance rates though remain quite healthy.  Melbourne at 73.7% leads the charge, with 420 sold. Significantly higher than Sydney. Nationally 738 were sold, compared with 946 last week and 789 last year.

Brisbane cleared 55% of 98 auctions, Adelaide 67% of 31 auctions and Canberra 67% of 52.

Affordable housing shortfall leaves 1.3m households in need and rising

From The Conversation.

A new report by the Australian Housing and Urban Research Institute (AHURI) reveals, for the first time, the extent of housing need in Australia. An estimated 1.3 million households are in a state of housing need, whether unable to access market housing or in a position of rental stress. This figure is predicted to rise to 1.7 million by 2025.

To put it in perspective, 1.3 million is around 14% of Australian households. This national total includes 373,000 households in New South Wales, where the number is expected to increase by 80% to more than 670,000 by 2025 under the baseline economic assumptions of the modelling.

The first graph below shows the average annual level of housing need to 2025. The second, showing the percentages of households, permits a direct comparison by state. NSW and Queensland are in the worst position. The ACT is calculated to have the lowest proportional level of need.

What does this mean for households in need?

Housing need is defined as:

… the aggregate of households unable to access market-provided housing or requiring some form of housing assistance in the private rental market to avoid a position of rental stress.

This includes potential households that are unable to form because their income is too low to afford to rent in the private rental market. These households would traditionally rely on public housing and community housing to meet their needs. However, more and more are being forced into the private rental market, paying housing costs they are unable to afford without making significant sacrifices.

To 2025, on average 190,000 potential households in NSW will be unable to access market housing in a given year. The graph below is the most revealing as it illustrates the gap between affordable housing demand and supply.

The lack of social housing and subsidised rental housing prevents such households forming under affordable conditions. Many will manage to form but will have to spend well over 30% of their income on housing costs to do so, putting them in a position of financial stress.

The results also reveal the increasing pressure the affordable housing shortfall places on the housing assistance budget, notably Commonwealth Rent Assistance.

The absence of a significant new supply of affordable housing – there has been no large-scale program since the National Rental Affordability Scheme (NRAS) began in 2008 – has left state governments trying to find ways to plug the affordability gap.

Responses have been largely on the demand side, such as first home buyer concessions recently announced in NSW. But such incentives are no use for low-income households. To help them, intervention needs to be on the supply side.

How does Australia compare?

The AHURI research built on ideas emerging from research into housing need in the UK. It revealed interesting differences between the two countries.

UK government policy prior to 2010 emphasised the role of the planning system in helping to substantially increase affordable housing supply. This reflected evidence from England and Scotland that found a link between low levels of new housing supply and higher and rising house prices.

In this project, we found plenty of evidence of deteriorating housing affordability in Australia. But we did not find a particularly strong relationship between housing supply and price growth. This might reflect how other drivers of deteriorating housing affordability are more important in Australia – such as tax incentives for investors.

These findings suggest we need to look more closely at how new supply and investment demand interact, and in what circumstances boosting new supply is likely to improve affordability.

From our analysis of individuals’ labour market circumstances and incomes, it was also clear that the Australian workforce has not escaped the erosion of secure, full-time employment opportunities seen in other countries.

The combination of widespread insecure, part-time employment opportunities, high housing costs and low supply of rented social housing means the housing of many working Australians is extremely precarious.

How was the research done?

The research modelled housing need at the state and territory level to 2025 using an underlying set of economic assumptions and interrelated models on household formation, housing markets, labour markets and tenure choice.

The models were underpinned by data from the Housing, Income and Labour Dynamics in Australia (HILDA) Survey, the Australian Bureau of Statistics (ABS) and house price and rent data.

This research delivers, for the first time in Australia, a consistent and replicable methodology for assessing housing need. It can be used to inform resource allocation and simulate the impact of policy decisions on housing outcomes.

The intention is to further develop the model to assess housing need at the level of local government areas.

So, what are the policy implications?

The scale of the affordable housing shortfall requires major action from federal and state governments.

NRAS had its problems but at least delivered a supply of below-market housing. Australia cannot rely on the private sector to deliver housing for low-income households without some form of government subsidy as it is simply not profitable to do so.

The question is what government is going to be prepared, or even able, to spend big to close the affordable housing supply gap?

 

Authors: Steven Rowley, Director, Australian Housing and Urban Research Institute, Curtin Research Centre, Curtin University; Chris Leishman, Professor of Housing Economics, University of Adelaide