housing affordability – Page 7 – Digital Finance Analytics (DFA) Blog

For renters, making housing more affordable is just the start

Deloitte Access Economics’ Chris Richardson recently suggested that young Australians would be better off renting than trying to buy a house. He argued:

… rents today make a lot more sense than housing prices.

This may be true. However, the situation for renters is far from clear-cut. Rents continue to increase in Australian cities, and are out of reach for low- and very-low-income earners.

Renters also face substantial housing insecurity. In Australia, 50% of renters are on a fixed-term one-year lease; 20% are on a month-to-month “rolling” lease.

For renting to become a truly viable, long-term alternative to home ownership, greater rental affordability and security is needed.

Rental affordability

Longer-term structural changes to tackle housing affordability, including boosting the supply of social housing and increasing tenure diversity, will be essential. There are some promising moves, including the recently announced proposal for a bond aggregator model to fund social and affordable housing.

Failing a substantial increase in affordable housing, there will be a need to increase rent assistance payments, particularly in high-cost regions.

This acknowledges that housing costs differ across the country and that many low-income earners need to remain in high-cost regions. This includes older people whose social and family networks are in these regions, and people who work in these areas.

Many industries in high-cost cities are dependent on people who earn low and very-low incomes. These people have a right – and need – for affordable, secure housing – and a house that is a home.

Affordability is the thin end of the wedge

For renting to become a true alternative to home ownership, greater rental security is needed.

To move toward secure rentals we need to reward long-term investment. One example might include encouraging institutional investors, including superannuation companies and other businesses that invest in large amounts of rental housing, who are in it for the long haul.

However, there is no reason to assume that institutional investors will offer more affordable rental properties, or be any better landlords than so-called “mum and dad” investors. We therefore need to pursue changes to rental laws to ensure renters, including the growing generation of long-term renters, can experience a secure sense of home. Specific changes include:

Removing no-grounds eviction. The perceived risk of eviction leads to stress for renters. And the right to no-grounds eviction can lead to retaliatory eviction by landlords when tenants exercise their rights, including rights to maintenance and repairs.

The Tenants’ Union of NSW has called for a balancing of landlord and tenant interests through tenancy laws that specify reasonable grounds for termination.

Such laws could follow the German example. In Germany, rental laws ensure security of tenancy while retaining the right of landlords to terminate a lease in certain circumstances, such as if a tenant violates the lease agreement (for example, by not paying rent) or if the landlord requires the property for personal use.

Rent increases are sometimes a “backdoor” way of evicting tenants. In a recent survey, 11% of renters reported receiving a “rent hike after requesting a repair and 10% said that their landlord or agent became angry”. We need stronger regulation of rent increases and stronger penalties for unreasonable increases.

There are precedents for this in other jurisdictions. Germany again provides a great example. There, rent increases are allowed less frequently. And they:

… must be based in the rents of three similar dwellings or a database of local reference rents and rents may not increase more than 20% over three years.

Ensuring the right to make a home. Rental laws need to ensure the right of tenants to make their house into a home, including making cosmetic changes to a property, ability to keep pets, and allowing alterations that would allow an older person or person with a disability to live there.

Some older renters I have interviewed recently have had to move after these types of adjustments were rejected by landlords who thought age-related modifications were not attractive.

In New South Wales, the right to make changes that would ensure a property is liveable for people with different housing needs is being considered as part of the current residential tenancy law review. However, the right to make cosmetic changes is excluded.

Popular wisdom often suggests that tenants and landlords have different interests. In fact, they have very similar interests. Both benefit from secure tenancies and a property that is well maintained and cared for.

Failure to ensure rental affordability and security will require a raft of policy changes in other areas, including pension income calculations that assume home ownership. It will also condemn a generation of long-term renters to increasingly unaffordable and insecure housing.

Author: Emma Power, Senior Research Fellow, Geography and Urban Studies, Western Sydney University

‘This thing’s gonna blow’: Top economists’ interest rate warning

From The Sydney Morning Herald.

Deloitte Access Economics’ quarterly business outlook, released today, predicts the official cash rate of 1.5 per cent will climb slowly in 2018 and 2019 to reach 3 per cent in the early 2020s.

The Reserve Bank was well aware “interest rates are now a massively more potent weapon for slowing the Australian economy than they’ve ever been before”, the forecaster said.

It noted Australian families have overtaken the Danish in recent months to become the world’s second most indebted households after the Swiss, relative to income – a consequence of “dangerously dumb” house prices.

Director Chris Richardson told Fairfax Media a crisis could be averted if, as he predicted, interest rates rose slowly and steadily. But cheap credit and high leverage still posed risks.

“In global terms our housing prices are asking for trouble,” Mr Richardson said, arguing many workers have found their homes make more money each day than they do. “That’s kind of God’s way of saying: this thing’s gonna blow.”

Sydneysiders were particularly vulnerable, Deloitte found, having benefited enormously from low interest rates but now witnessing “silly prices” that continued to grow – a “rather worrying development” in Deloitte’s eyes.

“The seeds of future slowdown are already well and truly sown. The better that NSW looks now, the greater the troubles that this state is storing up for the future,” the outlook warned.

“The joy of rising wealth eventually gives way to the pain of servicing gargantuan mortgages. Interest rates are beginning to rise around the world and although official interest rates in Australia may not follow suit until 2018, that augurs badly for the disposable incomes of Sydneysiders.”

Martin North, principal of Digital Finance Analytics, expressed concern Australia could be heading for a version of the US sub-prime mortgage crisis that preceded the Global Financial Crisis.

The parallels involve spiralling household debt, stalled incomes, rising levels of mortgage stress and interest rates that are on the way up.

Mr North’s modelling shows 669,000 families (or 22 per cent of borrowing households) are in mortgage stress. That would rise to 1 million households, or one third of borrowers, if interest rates rose by 3 percentage points.

But the main factors in Mr North’s reckoning are the static nature of wages and the rising tide of under-employment.

“This falling real income scenario is the thing that people haven’t got their heads around,” he told Fairfax Media.

“Unless we see incomes rising ahead of inflation and under-utilisation dropping, any increase in interest rates is going to have a severe impact on [people’s] wallets and therefore in discretionary spending and therefore on growth.

“I have a feeling we are meandering our way, perhaps a little bit blindly, into a rather similar scenario to the US.”

Mr North said mortgage stress was not only an issue for battlers and people on the urban fringe, but increasingly affected more affluent, highly leveraged households.

He dismissed the possible solutions put forth by Treasurer Scott Morrison as “political theatre” and invoked former prime minister Paul Keating by arguing Australia may be heading for “the correction we have to have”.

“I’m not sure that there are other levers that are available,” he said.

The Deloitte report also poured scorn on cutting immigration to boost housing affordability, an idea backed by former prime minister Tony Abbott among others.

A less than super response to housing

From The New Daily.

Prime Minister Malcolm Turnbull has reportedly intervened to scotch reports the May budget will include a measure to allow first home buyers to access funds from their superannuation.

He may believe that’s the end of the story, but in reality it’s the continuation of a too familiar narrative. This is a government of fragile convictions, bereft of ideas and lacking a cohesive policy framework.

This is not the first time the Turnbull government has floated a ‘big thinking’ idea – such as the short-lived income tax sharing arrangement with the states – only to hastily retreat at the first sign of opposition.

The irony will not be lost on anyone that a government which has boasted that it alone has a plan for Australia is manifestly rudderless on a range of policy fronts. On tax reform, energy, health and education the government has proven more adept at setting expectations than delivering on them.

Treasurer Scott Morrison’s second budget will seek to restore confidence in the government’s agenda, such as it is, but the early signs are less than promising. The flailing Mr Morrison, whose budget will also be aimed at securing his hold on the Treasurer’s job, has set very high expectations in an area he can realistically do very little about: housing affordability.

The grand plan floated for putting housing within the reach of first-time home buyers was a proposal to allow young Australians early access to their superannuation to raise funds for a house deposit. The same proposal that was deemed “thoroughly bad” by Mr Turnbull when it was raised two years ago. The fact that the idea resurfaced raises questions not just about the government’s policy acumen but its political smarts as well.

Under the model that reportedly had the favour of the Treasurer, potential home buyers would be able to put their compulsory superannuation contributions into a special-purpose fund for up to three years.

Despite public support by some members of the government’s restive backbench, including resident thorn-in-the-side Tony Abbott, the proposal has been widely condemned by economists and the superannuation industry. Mr Morrison would have been familiar with criticisms that the early release of super would lead to higher home prices.

And that’s in addition to the criticism that allowing young Australians to access their super early would be to the detriment of providing an adequate retirement income. As it is, with a current superannuation guarantee rate of just 9.5 per cent, retirees will be struggling to fund their retirement.
Treasurer Scott Morrison has come under fire for the plan.
It would have been negligence of the highest order were Mr Morrison to enact bad policy for the sake of being seen to be doing something about housing affordability.

It is one thing for backbenchers to float populist measures in the lead-up to the budget, but Mr Morrison’s conduct on this issue has been reckless. Whether for supporting the flawed proposal or permitting speculation to gain such currency, he stands condemned.

In making housing affordability a cornerstone of his budget, Mr Morrison has again set expectations that the Turnbull government will not be able to meet. While there are assistance measures around the edges that can provide home buyers with some relief, housing affordability is a function of the market. Nationals leader Barnaby Joyce is wrong to assert that there is no housing affordability crisis, but Mr Morrison is no less wrong for pretending that a resolution to housing affordability is in his gift.

As economist Chris Richardson of Deloitte Access Economics told the National Press Club, governments cannot solve housing affordability.

“We now have state and federal politicians talking about housing affordability and their policies, and if we leave families with the impression that governments can solve this, then they’re going to be pretty disappointed,” he said.

“The levers that state and federal governments pull on housing affordability are pretty small levers on a massive thing.”

Mr Morrison would do the nation a favour if he employed similar candour to set the context in which his budget will seek to provide some relief for young home buyers. He would especially do the nation a great service if instead of undermining Australia’s superannuation system he preserved, defended and enhanced its one and only role of providing Australians with a retirement income.

HIA Housing Affordability

Turning falling home prices into good news is quite an art, but one which HIA managed in their release today!

The latest HIA Affordability Report indicates that there has been a steady improvement in housing affordability during the opening months of 2017.

The largest improvement in housing affordability during the March 2017 quarter occurred in Perth (+5.6 per cent), followed by Hobart (+5.3 per cent) and Sydney (+5.0 per cent). Smaller gains in affordability affected the markets of Brisbane (+0.6 per cent) and Melbourne (+0.4 per cent). Of the capitals where affordability declined, the biggest fall was in Canberra (-7.2 per cent) followed by Adelaide (-4.0 per cent) and Darwin (-0.1 per cent).

The HIA Affordability Index results for the March 2017 quarter indicate that conditions are most challenging in Sydney, which has the lowest score (57.5), followed by Melbourne (70.7) and Canberra (78.5). The fourth most difficult capital city for affordability is Brisbane (86.8) with Darwin in fifth place (89.5) and Adelaide in sixth (90.5). By a wide margin, Hobart (113.9) remains the most affordable capital city in Australia followed by Perth (99.5).

“During the March 2017 quarter, the HIA Affordability Index improved by 1.9 per cent – and is 1.2 per cent better than this time last year,” commented HIA Senior Economist, Shane Garrett.

“The improvement in affordability is mostly due to a reduction in the national median dwelling price during the March 2017 quarter,” said Shane Garrett.

“Despite these latest results, housing affordability remains a significant challenge. There are good ways to improve affordability – and bad ways. The right approach to tackling affordability is through continuing
to secure the delivery of an appropriate supply of new homes and to reduce the barriers and costs involved in doing this,” explained Shane Garrett.

“With respect to delivering better housing affordability outcomes over the longer term, this week’s comments by the Treasurer in relation to leveraging private investment for affordable housing stock are very welcome,” concluded Shane Garrett.

Time to end the Treasurer’s ‘housing supply’ con

From The New Daily.

When Derryn Hinch told the ABC on Monday that “owning your own home is not an Australian right”, he was unwittingly throwing his weight behind a huge con.

That con, in essence, is to convince voters that a major structural undersupply of dwellings is responsible for the current housing affordability crisis.

The argument is utterly bogus, though Mr Hinch may not yet understand why.

When asked if young Australians had “unrealistic expectations of where they can afford to buy homes close to the city”, he replied:

“You’re right. You’re 100 per cent right … it’s the expectation that, you know, here I am, I’m married, I’m da da da da, and therefore I should have a house.

“Now, in many European countries, and you look at places like New York City, most people – I think I’m right in saying this, or it was some years ago – most people rent, they don’t buy, they can’t afford it.”

Sounds reasonable, until you look at the number of Australian residents per dwelling.

Houses have grown a bit bigger on average, but even in ‘bubble state’ NSW the average number of residents per dwelling has been virtually flat since the millennium (see chart below).

And yet our political leaders, hand-in-glove with property developers and the banks, try to create the illogical impression that average house prices have risen because people want to live close to city centres.

Treasurer Scott Morrison told the Australian Housing and Urban Research Institute in Melbourne on Monday that “… just over half of renters say they rent because they can’t afford to buy their own property”.

“Because of this, they are staying in the rental market for longer – a dynamic that puts upward pressure on rental prices and availability and even more pressure on lower-income households, increasing the need for affordable housing,” Mr Morrison said.

“Increasing numbers of higher income earners privately renting has the obvious effect of lowering availability of affordable rental stock to those on low incomes.”

The Treasurer’s logic is completely flawed.

When a renter becomes a home owner, they vacate one property and occupy another. When a high-income earner sells their home and decides to rent, they vacate one property and occupy another.

The average number of Australian residents per dwelling is not affected by that process.

If immigration, or the birth and death rates, ever get substantially ahead of the national supply of housing stock, that really would be a supply issue – we’ll know more about that when the second round of 2016 census data is released in June.

But until that happens, rising prices in one area should be offset by fewer dollars chasing properties in another area.

So why does that not happen?

Well actually, it does. House prices are falling in Perth, for instance, as mining-related workers head east to look for new jobs. Rental vacancies in that city have risen from around 1 per cent to 5 per cent in the past four years.

But those relative shifts between one capital city and another, or between inner and outer suburbs, have been dwarfed in the post-millennium era by the credit bubble that began to grow when generous discounts to capital gains tax were legislated in 1999.

Twin distortions

The 50 per cent CGT discount, combined with existing negative gearing provisions, meant that property investors could afford to borrow more to bid up house prices. As they did so, owner-occupiers were forced to try to match them.

The entire market has been lifted, like a harbour full of different-sized boats, by the same tide – cheap credit and ridiculously generous tax incentives for investors.

The two most important causes of the housing affordability crisis are, therefore, the ones Mr Morrison has already vowed not to reform.

To make planned affordability measures in this year’s budget seem plausible, Mr Morrison’s housing supply con must be maintained.

Mr Hinch should not join that effort. Owning your own home may not be an Australian right, but shopping for a home in a market that is not systematically distorted to benefit investors, developers and banks certainly is.

Affordable housing, finger-pointing politics and possible policy solutions

From The Conversation.

In the first article reviewing The Conversation’s many articles on housing issues, the commentary about fiscal and supply-side issues was consistent. The same is not true for affordable housing due to the diversity of affordability issues.

The issues have to do with the complexity and scale of the affordability problems and possible policies discussed in Conversation articles since January 2016. As it is not possible for one article to cover all the relevant policies, the focus here is on the National Affordable Housing Agreement (NAHA), support for not-for-profit social housing, bond aggregation and inclusionary zoning.

The terms affordable and social housing are sometimes used interchangeably, a potential cause of confusion. Affordable housing is more encompassing – it represents an aspiration for all who cannot enter the market for housing. This includes both ownership and rental.

Social housing is one form of affordable housing. It includes public housing and housing owned and managed by not-for-profit community housing providers. As well as providing housing for those unable to enter the market, community housing providers accommodate, for example, people with disabilities and those escaping domestic violence.

A ‘hot’ political issue

Affordable housing is a “hot” issue. Recently, the new premier of New South Wales, Gladys Berejiklian, listed it as one of her top three priorities.

Federal Treasurer Scott Morrison claims supply-side constraints are pushing up housing prices. He targets state planning regulations as the problem.

Federal politicians favour this explanation as supply-side complaints can be used to blame state and local governments. This serves to divert attention from federal fiscal policies, which effectively subsidise home ownership.

How big is the problem?

Of the need for public and social housing, authors wrote:

We have modelled the income rules determining eligibility for public housing, and estimate that there are 900,000 households satisfying these income eligibility criteria.

… state-owned-and-managed housing still accommodates around 700,000 of our most vulnerable citizens.

… there are as many as 105,000 people who are without a home and 160,000 households on public housing waiting lists. The overall stock of public housing has fallen from 331,000 units in 2007-08 to 317,000 in 2013-14.

Social housing has nearly 200,000 Australians on a waiting list.

In addition to the public housing stock, not-for-profits provide about 100,000 social housing dwellings.

The scale of the affordable housing problem is highly dependent on mortgage stress. This, in turn, is linked most closely to household incomes and employment levels. This mortgage stress is not especially concentrated in the capital cities.

Into this affordability mix one might also add some 2 million Australians who “don’t have the resources to bounce back” from unexpected bills.

Ways to improve social housing supply

The NAHA, which has been referred to as Australia’s housing policy, is a “national partnership agreement” by the Council of Australian Governments (COAG). Its largest component is social housing.

Federal government ministers have described the A$1.3 billion-a-year NAHA as an “abject failure”. This is because it has not increased “the number and availability of public and social housing stock”.

In contrast, The Conversation authors agree that spending on public housing is inadequate and declining.

Australia’s social housing system remains grossly underfunded. Currently available resources are inadequate even to properly maintain the existing portfolio, let alone to underpin the new supply needed to keep pace with the growing need.

… the overall stock has been eaten away, through market sale of public housing, and run down, through skimping on repairs and maintenance.

The history of public housing is that housing was briefly referred to as a “right” after the second world war. Public housing was used to accommodate people from various classes; it was not initially a preserve of the poor. Later, that changed:

[Public] 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.

When operating expenses are not covered, maintenance is inadequate. When that happens, the number of habitable units declines.

It is feared that the NAHA might not survive the 2017 budget. Likewise it is feared that:

… [Productivity] commission-inspired “reforms” could involve the forced sale of public housing to vulture capitalists unconstrained by enforceable obligations to provide tenant services or to maintain, upgrade and retain housing stock for its current purpose.

… some residents face eviction through large-scale public housing redevelopment by governments that view their homes as key real estate assets.

The fear of eviction from public housing sites with high land value is certainly warranted:

In March 2014, New South Wales government minister Pru Goward announced that all of the 293 public housing dwellings in Millers Point, Dawes Point and The Rocks, as well as the 79 apartments in the Sirius Building built for public housing in the 1970s, were to be sold. Their tenants would be moved.

One of the potential bipartisan ways forward is to scale up social housing provided by not-for-profits. As federal housing minister, Tanya Plibersek proposed in 2009 that:

… not-for-profit community housing providers would be supported to grow to a scale enabling them both to complement and compete with public housing entities.

Social housing tenants were evicted from the Sirius Apartments so the valuable inner-city site could be sold. Dean Lewins/AAP

Social housing critically serves low-income renters. The high cost and limited availability of rental housing is a defining feature of the affordability problem. It also underscores the inequality between owners and renters due to the fiscal policy benefits for home owners.

Funding is needed to scale not-for-profit social housing. In a context of seeking to cut public spending, Morrison is looking to private sector funding of the sector to increase both the supply of affordable housing and the transfer of public housing to not-for-profits.

He is seeking to secure such funding based on a bond aggregator model. This is best explained by the Australian Housing and Urban Research Institute (AHURI). It has proposed:

… an Affordable Housing Finance Corporation … designed to aggregate and source large amounts of capital from the bond market so as to provide lower-interest, long-term loans to not-for-profit community housing providers developing housing for lower-income households. The intention is that money would be raised efficiently with reduced financing costs rather than in expensive one-off transactions such as when borrowing from a bank.

AHURI cautions that the not-for-profit need for rental income means that households whose only income is welfare assistance cannot access not-for-profit social housing. The need for rental assistance remains.

Another means advocated for increasing the supply of affordable housing is inclusionary zoning. This approach requires a percentage of new housing projects on rezoned and government land to be affordable housing. An additional benefit is that this improves access to jobs for low-paid service workers.

Inclusionary zoning has long been practised in Europe, the US and, more recently, in South Australia. The rationale for inclusionary zoning is:

… that the uplift in land value results from public policy changes that allow for housing development or higher-density housing. It is not unreasonable, then, that landowner windfalls should be limited to achieve the important public policy outcome of housing affordability.

The Property Council opposes inclusionary zoning, claiming that it will increase the cost of housing for others. This is doubtful, for the following reason:

If a fixed percentage of affordable housing becomes a condition of rezoning … this will only affect the size of the landholder’s windfall gain. Developers will offer lower prices for the land, based on the mandated requirements for affordable housing.

The Greater Sydney Commission supports inclusionary zoning, which is sorely lacking in Melbourne. In Sydney, the debate concerns the percentage of dwellings allocated to affordable housing. The commission suggests figures of 5%-10%, whereas The Conversation authors advocate:

… at least 15% of housing in new private developments … [and] on publicly owned land, at least 30% of new housing developments should be affordable.

Fresh approaches and funding needed

If NAHA funding is reduced, or the NAHA is terminated, the affordable housing problem will sharply escalate. Australia’s “housing crisis” will truly deserve that label.

It can be anticipated that social housing provided by not-for-profits can scale, but this will take many years. Government rental assistance will still be needed. Inclusionary zoning is desirable and can serve low-income households, but will never be an alternative to the need for social housing.

The question is what policy alternatives Morrison has in mind and how much he is prepared to spend.

Author: Richard Tomlinson, Professor of Urban Planning, University of Melbourne

The RBA on Housing and Debt

Remarks at tonights Reserve Bank Board Dinner by Philip Lowe, RBA Governor included the level of household debt and the housing market.

This is something we have been focused on for some time. The level of household debt in Australia is high and it is rising. Over the past year the value of housing-related debt outstanding increased by 6½ per cent. This compares with growth of around 3 per cent in aggregate household income. The result has been a further rise in the ratio of household debt to income, from an already high level.

In aggregate, households are coping reasonably well with the higher debt levels. Arrears rates remain low and many households have built up sizeable buffers in mortgage offset accounts. At the same time, though, slow growth in wages is making it harder for some households to pay down their debt. For many people, the high debt levels and low wage growth are a sobering combination.

In the housing market, conditions continue to vary considerably across the country. The Melbourne and Sydney markets are very strong and prices are increasing briskly. In contrast, conditions are more subdued in most other cities and, in some areas, most notably Perth, prices have declined. Nationally, growth in rents is the lowest for some decades.

So it’s a complex picture and there is not a single story that applies across the country. But, as is often the case in economics, it largely comes down to supply and demand. On the demand side, population growth in Australia – especially in our largest cities – picked up unexpectedly in the mid 2000s and it is only in the past couple of years that the rate of home building has responded. This imbalance was compounded by insufficient investment in the transport infrastructure needed to support our growing population. Nothing increases the supply of well-located land like good transport links. Underinvestment in this area is one of the factors that has pushed housing prices up. Put simply, the supply side simply did not keep pace with the stronger demand side. The result has been higher prices.

Not surprisingly, the rising prices have encouraged people to buy residential property as an investment in the hope of ongoing capital gains. With global interest rates so low, many investors have found it attractive to borrow money to invest in appreciating residential property. This has reinforced the upward pressure on prices.

This configuration of ongoing increases in indebtedness and rising housing prices has been discussed at length by the Council of Financial Regulators. This council, which I chair, brings together the heads of the RBA, APRA, ASIC and the Australian Treasury. The concern has not been that these developments have posed a risk to the stability of our financial system. Our banks are resilient and they are soundly capitalised. Instead, the concern has been that the longer the recent trends continued, the greater the risk to the future health of the Australian economy. Stretched balance sheets make for more volatility when things turn down.

Given this, over the past couple of years there has been a concerted effort by APRA to encourage lenders to strengthen their lending standards. This followed deterioration in these standards a few years ago. Also, at the end of 2014, when growth in investor lending was accelerating, APRA announced that it would pay very close attention to lenders whose investor loan portfolios were growing faster than 10 per cent. It did so with the full support of the RBA. This guidance helped pull the whole system back and has made a positive contribution to overall financial stability. So too has ASIC’s focus on responsible lending. These measures constrained some higher-risk lending and reinforced the message to lenders that they need to take a system-wide focus in their risk assessments.

Notwithstanding this, given recent trends and the heightened risk environment, APRA announced some further measures last Friday. Again, it did this with the full support of the Council of Financial Regulators.

There are two parts of APRA’s announcements that I would like to draw your attention to.

The first is the need for lenders to have a very strong focus on serviceability assessments. Despite the focus on this area over recent times, too many loans are still made where the borrower has the skinniest of income buffers after interest payments. In some cases, lenders are assuming that people can live more frugally than in practice they can, leaving little buffer if things go wrong. So APRA quite rightly has said that lenders can expect a strong supervisory focus on loans with a very low net income surplus.

The second area is interest-only lending. Over the past year, close to 40 per cent of the housing loans made in Australia have not required the scheduled repayment of even one dollar of principal at least in the first years of the life of the loan; only interest payments are required. This is unusual by international standards. In some countries, repayment of at least some principal is required on all housing loans for the entire life of the loan. In other countries, interest-only loans are available only if the borrower has already contributed a fair degree of equity. So this is one area where Australia stands out. We are not unique in this area, but we are unusual.

There are a couple of factors that help explain the popularity of interest-only loans in Australia. One is the flexible nature of Australian mortgages. Many people with interest-only loans make significant payments into offset accounts rather than explicitly paying down principal. This flexibility, which is of value to many people, isn’t available in most countries. A second factor is the taxation arrangements that apply to investment in residential property in Australia.

Last week APRA stated that it expected that new interest-only loans should account for no more than 30 per cent of the flow of new loans. It also stated that institutions should place strict limits on interest-only loans with high loan-to-valuation ratios.

Like the earlier ‘speed limits’ on investor lending, these new requirements should help the whole system pull back to a more sustainable position. A reduced reliance on interest-only loans in Australia would be a positive development and would help improve our resilience. With interest rates so low, now is a good time for us to move in this direction. Hopefully, the changes might encourage a few more people to think about the merit of taking out very large interest-only loans when interest rates are near historical lows.

So the RBA welcomes these latest changes.

It is important, though, that we are all realistic about what these and other prudential measures can achieve. As I said before, the underlying driver in our housing market is the balance between supply and demand. The availability of credit is undoubtedly a factor that can amplify demand, but it is not the root cause. This assessment is consistent with the observation that housing market dynamics currently differ significantly across the country, despite Australia having nationwide financial institutions and the level of interest rates being the same across the country. It is hard to escape the conclusion that we need to address the supply side if we are to avoid ever-rising housing costs relative to our incomes and to avoid the attendant incentive to borrow that is created by rising housing prices.

The various prudential measures do not address the underlying supply-demand issues. But they can reduce the risk from the financial side of the housing market while the underlying issues are addressed. These prudential measures help lessen the amplification of the cycle we get from borrowing and reduce the risk of developments on the financial side weakening the resilience that our economy has exhibited for many years. Ideally, this would be achieved by financial institutions acting themselves, without the need for prudential guidance. But sometimes prudential guidance can help the whole system adjust.

The calibration of this guidance is not precise or straightforward so we need to keep matters under review. The Council of Financial Regulators will continue to assess how the system responds to the various measures so far. It would consider further measures if needed. As I have said, though, in the end addressing the supply side of the housing market is likely to prove a more durable way of dealing with the concerns that people have about debt and housing prices than detailed supervisory guidance.

So that is enough on debt and housing.

Saving The Backyard And Boosting Liveability

The Victorian State Government is taking action to protect the much-loved backyard and keep more garden space in local suburbs.

Minister for Planning Richard Wynne announced the changes today, which follow a review of suburban Residential Zones. The review found the zones had been implemented in an inconsistent manner across Melbourne, but the proposed changes will protect suburban character, no matter your postcode.

The changes are linked to the Government’s refreshed Plan Melbourne, a blueprint for ensuring our suburbs develop and grow, but never at the expense of neighbourhood character.

There will no longer be a cap on how many dwellings can be built on a block, but new requirements mean developments must have a mandatory percentage of garden space.

It’s all about giving more Victorians access to the outdoor space that is the cornerstone of great homes, and giving kids more opportunities to form their childhood memories in backyards every day all over the state.

Under new rules, blocks between 400-500 square metres require a 25 per cent minimum garden area, blocks between 501-600 metres need 30 per cent, and blocks larger than 650 square metres must have a 35 per cent garden area.

The former Liberal government’s version of Plan Melbourne failed to address housing affordability, and ignored the need for a long-term plan that allows for growth but prevents over-development.

We’ve listened to councils, industry and members of the public to right those wrongs – and to maintain our renowned liveability.

Plan Melbourne aims to deliver:

Jobs and services closer to where people live

A fixed urban boundary

Sustained investment in infrastructure, such as Melbourne Metro Rail and level crossing removals

Clarity about where growth can occur in the suburbs

Responses to climate change by reducing Melbourne’s carbon footprint and growing a green economy

A greater focus on social infrastructure such as parks

Well-connected, 20-minute neighbourhoods

The Victorian Government’s plan to change some requirements of the residential zones will improve housing outcomes in our suburbs says the Housing Industry Association (HIA).

The Government’s announcement today that elements of the residential zones will be amended is seen as a logical starting point to improve residential planning outcomes.

HIA has argued that the new zone provisions introduced in 2014 have had the effect of limiting the design of new homes together with restricting the location of small medium density developments.

Property Investment and the Financialisation of Housing

An important report from the Special Rapporteur to the UN Human Rights Council highlights the “financialization of housing” and its impact on human rights. If you want to understand the rise in property investment in Australia, and the problem of housing affordability, read this! Sydney and Melbourne are “Hedge Cities”. You cannot fix housing affordability without addressing the investment class.

The financialization of housing has its origins in neo-liberalism, the deregulation of housing markets, and structural adjustment programmes imposed by financial institutions and agreed to by States. It is also tied to the internationalization of trade and investment agreements which, as discussed below, make States’ housing policies accountable to investors rather than to human rights. The financialization of housing is also the result of significant changes in the way credit was provided for housing and more specifically, of the advent of “mortgage-backed securities”.

The amount of money involved in the purchase of housing and real estate is almost impossible to digest. Cushman and Wakefield, an American global real estate services firm engaging in $90 billion worth of real estate sales per year, publishes an annual report entitled “The Great Wall of Money” which includes a calculation of the amount of capital raised each year for trans-border real estate investments. The total in 2015 was a record $443 billion, with residential properties representing the largest single share. The report notes that “cross border flows will continue to transform real estate investment across the globe”

Housing prices in so-called “hedge cities” like Hong Kong, London, Munich, Stockholm, Sydney and Vancouver have all increased by over 50 per cent since 2011, creating vast amounts of increased assets for the wealthy while making housing unaffordable for most households not already invested in the market. Land prices in the 35 largest cities in China have increased almost five-fold in the past decade and prices for urban land in the top 100 cities in China have increased on average by 50 per cent in the past year.

The report examines structural changes that have occurred in recent years whereby massive amounts of global capital have been invested in housing as a commodity, as security for financial instruments that are traded on global markets, and as a means of accumulating wealth. The report assesses the effect of those historic changes on the enjoyment of the right to adequate housing and outlines an appropriate human rights framework for States to address them. The report reviews the role of domestic and international law in that sphere, and considers the application of principles of business and human rights.

The report concludes with a review of States’ policy responses to the financialization of housing and some recommendations for more coherent and effective strategies to ensure that the actions of global financial institutions and actors are consistent with ensuring access to housing for all by 2030. The Special Rapporteur suggests that, as a way forward, States must redefine their relationship with private investors and international financial institutions, and reform the governance of financial markets so that, rather than treating housing as a commodity valued primarily as an asset for the accumulation of wealth they reclaim housing as a social good, and thus ensure the human right to a place to live in security and dignity.

The expanding role and unprecedented dominance of financial markets and corporations in the housing sector is now generally referred to as the “financialization of housing”. The term has a number of meanings. In the present report, the “financialization of housing” refers to structural changes in housing and financial markets and global investment whereby housing is treated as a commodity, a means of accumulating wealth and often as security for financial instruments that are traded and sold on global markets. It refers to the way capital investment in housing increasingly disconnects housing from its social function of providing a place to live in security and dignity and hence undermines the realization of housing as a human right. It refers to the way housing and financial markets are oblivious to people and communities, and the role housing plays in their well-being.

Housing and real estate markets have been transformed by corporate finance, including banks, insurance and pension funds, hedge funds, private equity firms and other kinds of financial intermediaries with massive amounts of capital and excess liquidity. The global financial system has grown exponentially and now far outstrips the so-called real “productive” economy in terms of sheer volumes of wealth, with housing accounting for much of that growth.

Housing and commercial real estate have become the “commodity of choice” for corporate finance and the pace at which financial corporations and funds are taking over housing and real estate in many cities is staggering. The value of global real estate is about US$ 217 trillion, nearly 60 per cent of the value of all global assets, with residential real estate comprising 75 per cent of the total. In the course of one year, from mid-2013 to mid-2014, corporate buying of larger properties in the top 100 recipient global cities rose from US$ 600 billion to US$ 1 trillion.3 Housing is at the centre of an historic structural transformation in global investment and the economies of the industrialized world with profound consequences for those in need of adequate housing.

In “hedge cities”, prime destinations for global capital seeking safe havens for investments, housing prices have increased to levels that most residents cannot afford, creating huge increases in wealth for property owners in prime locations while excluding moderate- and low-income households from access to homeownership or rentals due to unaffordability. Those households are pushed to peri-urban areas with scant employment and services.

Elsewhere, financialization is linked to expanded credit and debt taken on by individual households made vulnerable to predatory lending practices and the volatility of markets, the result of which is unprecedented housing precarity. Financialized housing markets have caused displacement and evictions at an unparalleled scale: in the United States of America over the course of 5 years, over 13 million foreclosures resulted in more than 9 million households being evicted. In Spain, more than half a million foreclosures between 2008 and 2013 resulted in over 300,000 evictions. There were almost 1 million foreclosures between 2009 and 2012 in Hungary.

In many countries in the global South, where the majority of households are unlikely to have access to formal credit, the impact of financialization is experienced differently, but with a common theme — the subversion of housing and land as social goods in favour of their value as commodities for the accumulation of wealth, resulting in widespread evictions and displacement. Informal settlements are frequently replaced by luxury residential and high-end commercial real estate.

While much has been written about the financialization of housing, it has not often been considered from the standpoint of human rights. Decision-making and assessment of policies relating to housing and finance are devoid of reference to housing as a human right. Issues related to business and human rights have received some attention in recent years. However, the housing and real estate sector — the largest business sector with many of the most serious impacts on human rights — appears to have been mostly ignored.

A report on the topic is timely as States embark on the implementation of the Sustainable Development Goals. If the commitment in target 11.1 to ensure access for all to adequate, safe and affordable housing and basic services is to be achieved by 2030, it is essential to consider the role of international finance and financial actors in housing systems. That will help to identify and address more effectively patterns of systemic exclusion, to ensure more meaningful human rights accountability for issues of displacement, evictions, demolitions and homelessness, and the engagement of all relevant actors in the realization of the right to adequate housing.

Constructing human rights accountability within a complex financial system to which Governments are themselves accountable, involving trillions of dollars in assets, may seem a daunting task. However, the global community cannot afford to be cowered by the complexity of financialization.8 The present report aims to cut through some of the complexity and opaqueness of finance in housing to expose the central relevance and necessity of the human rights paradigm at multiple levels, from the international to the local.

The report builds on important work undertaken by the previous Special Rapporteur on the right to housing. In her 2012 report on the impact of finance policies on the right to housing of those living in poverty (A/67/286), she warned of emerging trends towards the financialization of housing encouraged by States’ abandonment of social housing programmes and increased reliance on private market solutions. She documented attempts by States to rely on the private market and homeownership, which increases inequality and fails to address the housing needs of low-income and marginalized groups. More fundamentally, she called for a paradigm shift through which housing would once again be recognized as a fundamental human right rather than as a commodity. The present report takes up that challenge.

Government establishes affordable housing taskforce

From Australian Broker.

The Turnbull Government today announced the establishment of the Affordable Housing Implementation Taskforce, which will develop an affordable housing bond aggregator model for consideration by the Commonwealth and the States and Territories.

The Turnbull Government recognises that housing affordability remains a concern for many hard working Australians, including the 30 per cent of Australians who live in rented homes, and those who rely on affordable and social housing.

An affordable housing bond aggregator would allow a financial intermediary to attract greater private sector investment into affordable housing. This would give community housing providers access to cheaper and longer term debt, freeing up capital for the construction of new affordable housing.

An expert panel has been appointed to guide the work of the Taskforce, drawing on their broad experience from the financial, affordable housing and government sectors.

The Panel will include Mr Stephen Knight as Chair, Ms Peta Winzar and Mr John Fraser and will also engage with international and domestic experts, including those from the development sector, as necessary.

Mr Knight has extensive experience in debt capital markets through his previous roles as CEO of the Treasury Corporation in New South Wales and as a previous member of the Australian Office of Financial Management advisory board.

Ms Winzar is the current CEO of the Community Housing Industry Association, the peak body for Australia’s community housing sector and has 20 years’ experience at the senior levels of government, working across a broad range of housing issues.

Mr Fraser is the Secretary to the Treasury and will be the Government representative on the Panel. Mr Fraser has extensive experience in the financial services sector as Chairman and CEO of UBS Global Asset Management from late 2001 to 2013.

The establishment of the Taskforce follows the recommendations of the Affordable Housing Working Group’s report which was endorsed by treasurers at the Council on Federal Financial Relations meeting in late 2016.

The Affordable Housing Working Group will report back by the middle of the year.

The Treasurer will be discussing social housing and housing affordability with the states and territories at the Council on Federal Financial Relations Affordable Housing Working Group later this month.