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sydney alternative media - non-profit community independent trustworthy
Tuesday, 23 December 2008
New tenancy protection for renters in a falling market is probably redundant
Topic: aust govt

We notice the letters page in today's Sydney Daily Telegraph building on coverage as per their sister paper here:

Rudd plan makes evictions harder | The Australian 22 Dec 2008

LANDLORDS could find it harder to evict tenants under a Rudd Government plan to combat homelessness.

The Government's $7.3 billion package to halve homelessness by 2020 also includes a brokerage fund to provide mortgage top-ups and extra security for victims of domestic violence.

The joint Commonwealth-state Road Home white paper, released yesterday by Prime Minister Kevin Rudd, sets ambitious legislative reforms and interim targets to 2013.

It aims to reduce the rate of homelessness in 2013 from 53 to 40 per 10,000; more services and specialist workers.

"A country like this should not have this problem. As a nation we can do a lot better than that," Mr Rudd said.

About $6.1 billion of funding was previously announced but Mr Rudd and the states yesterday pledged an extra $1.2 billion over four years - which the Government said would help create up to 10,000 jobs.

A key plank is keeping people connected to family networks and in their homes.

The Government will review the impact of without-grounds termination clauses on homelessness in state legislation and the lack of legislative protection for boarders and lodgers.

Legislation in many states allows landlords to evict tenants even if they have not breached their agreement, which lobby groups argue enables retaliation and discrimination.

"Most state and territory tenancy legislation permits without-grounds termination of a tenancy agreement by a landlord," the white paper said.

"As a result, a tenant may be legally given notice and forced to leave their rented home through no fault of their own.

"In such a circumstance, people become homeless if they are unable to find other housing that is suitable or affordable."

The review has been welcomed by Tenants' Union of Queensland co-ordinator Penny Carr, who said without-grounds evictions would remain in new Queensland legislation to be enacted next year.

"We think the introduction of just-cause evictions would be a major step forward," Ms Carr said.

She denied investors would be markedly impacted by changes.

The Commonwealth and states will also jointly sponsor a brokerage fund to keep victims of domestic violence in their homes.

It will help pay for installing deadlocks, screen doors, security lighting and home alarms, plus fund short-term subsidies or mortgage top-ups.

Well the writer is a renter in Sydney for 18 years already. As a result we don't have any negative equity in a house in a falling market. We don't have any property settlement in a divorce (or a divorce for that matter) and we haven't paid one red cent in oppressive interest under the yoke of a lending institution. Though our credit card debt is another question. As one activist with terminal cancer said once - thank God I didn't waste my time with a mortgage. We also have alot of flexibility and freedom with where we live.

But the thing about this latest legislative stroke to calm the concerns of renter voters by the federal government is that it is the market above all that tends to threaten renters. And given the investment market has just hit a wall with alot less motivation to demolish/renovate and jack up rents, or just churn tenants with an increase in rent with every change over. Literally the global financial crisis, crash in the share market, super savings, and reduction in discretionary spending means that there is a seriously depressed property market. As a result renters are alot less at risk - at least that's our impression. There is significant corroboration here:

financial crisis

21 Oct 2008 Is There a Recession Brewing in Our Housing Bubble? | newmatilda.com

The next phase of the economic crisis could be a crash in Australian property prices, writes Ben Eltham

"Auctions fall despite grant boost" read the banner headline of The Sunday Age.

"Melbourne's property market yesterday suffered its worst day in at least four years, despite yesterday being the first auction day when prospective buyers had access to the increased first-home buyers grant," wrote Chris Vedelago and Peter Weekes. The Australian reported much the same thing, although there was an increase in Sydney.

Could this be the beginning of the end of Australia's house price bubble? If it is, we should all be pretty concerned.

Paul Sheehan certainly is. In a breathless article for Fairfax, he quoted BNP Paribas strategist Hans Redeker saying that the Australian current account deficit could "spiral out of control".

It couldn't happen here, could it? Well, yes actually. After all, it's happened before: in 19th Century Melbourne.

1880s Melbourne was a wonder of the world. Driven by a booming mining sector and a white-hot property bubble (sound familiar?), the southern city grew into one of the largest metropolises in the British Empire ? and for a time, one of the richest. For a few years, "Marvellous Melbourne" had the world's tallest office building and some of the most expensive real estate on the planet. This was the famous Land Boom of the 1880s, which culminated in a speculative frenzy amazingly similar to the US subprime mortgage bubble of 2002-2006.

As Michael Cannon wrote in his history of the boom, The Land Boomers, "under the loose banking and company laws of the time, [so-called Land Banks] were able to take savings deposits, issue shares, float loans, discount promissory notes and other commercial paper, and in general perform all the functions of an established bank."

Cheap money flooded in from Britain, land prices soared, while rental yields dropped to 2.5 per cent ? in other words, it would take 40 years of rental earnings to pay for a property.

Economic historians today consider the colonial Australian banking system as a model of free market deregulation. In the words of two historians from Belfast University, "it had few legal barriers to entry, no branching restrictions and ... no credible restrictions on assets, liabilities or bank capital, nor legally established price controls."

Surprise, surprise: it turns out that this was not a good thing. The Australian colonies' unregulated banking system produced a property bust and banking crisis that looks eerily familiar in our own time. As land prices plummeted, borrowers defaulted, taking banks and building societies down with them.

Between 1891 and 1892, 20 major financial institutions failed and investors lost more than L20 billion. Confidence in colonial banks collapsed. After a brief respite, a full-scale banking crisis ensued in 1893 when the Federal Bank collapsed, followed a few months later by the Commercial Bank of Australia and 10 other institutions. Of 65 building societies operating in Victoria in 1885, only three survived by 1893.

With no central bank or national government, Australia had few available policy options. The result was a devastating economic depression: Australian GDP fell 17 per cent and it took nine years for the economy to recover to 1891 levels. Some economists think the 1890s depression may have been worse than that of the 1930s.

Could it happen again? Let's hope not. But drawing on the recent experience of other nations' property sectors, a property bust and ensuing recession is all too likely.

As I have remarked here many times before, Australian house prices are highly over-valued. In 2007, house prices in cities like Sydney and Perth briefly reached an astonishing nine times median incomes ? among the most over-valued in the entire world.

You can do the figures yourself: if you're a young couple on a combined income of say $90,000, even a relatively "cheap" house in a capital city ? say $500,000 ? is still going to set you back five and a half years of your total income. Factor in tax and other living expenses and you can see why so many home buyers are experiencing what the Australian Housing and Urban Research Institute calls "housing stress".

The result of this asset price bubble has been unsustainable levels of household debt. The Reserve Bank of Australia's household finance statistics tell us that Australian households now hold debts equal to 160 per cent of disposable income ? higher even than in the US. Unsurprisingly, RBA Governor Glenn Stevens thinks that consumers may be reaching their borrowing limits.

This huge debt burden is one reason why house prices must fall, and soon. Like their US counterparts, Australian households simply can't keep borrowing and spending indefinitely. Inevitably, balance sheets must be repaired as consumers begin to save again. In the long-term, this is a good thing. But in the short-term, this means much lower consumer spending ? something that Gerry Harvey says we're already seeing.

As consumer spending drops, so does growth. The economy slows, and unemployment rises. Higher unemployment eventually means more mortgage defaults.

Another looming problem is directly related to the credit crisis. Houses, remember, are nearly always paid for with mortgages. And some types of mortgages will be harder to get as the international funding sources for non-bank lenders dry up.

The RBA's 1 per cent cut in interest rates and Kevin Rudd's top-up of the first homeowner's grant will loosen the constraints somewhat, but there is already evidence that the credit crunch is constraining housing starts. The Master Builders Association's Wilhelm Harnisch recently told The Australian that "even some of our biggest building members, despite having been major clients of the big banks for many years, are now being told there is just not enough money to go around."

In the long-term, this might help prop up house prices by constraining supply. But in the short term, tight credit will depress house prices because customers who can't get a mortgage will be unable to buy homes. Perhaps this is one reason why Kevin Rudd's economic stimulus package included a special bonus for home-buyers purchasing new constructions.

As we've seen in the US, UK, Spain and Ireland, when property bubbles deflate, they can do so rapidly and damagingly. But here in Australia, the majority of property analysts still believe we will escape the fate of Florida and Nevada. Are they right?

One argument popular among real estate analysts is that there is a still a significant lack of housing supply, which means prices shouldn't fall too much. There is some validity in this point ? Australia built far fewer houses during its property boom than the US did. But even a shortage of properties won't stop house prices declining rapidly if demand drops off a cliff. And if home owners default, foreclosure sales will depress house prices. A vicious cycle can ensue, as the US experience demonstrates.

If Australian house prices do crash, we will certainly have been warned. University of Western Sydney economist Steve Keen is perhaps the most prominent property bear out there ? but not the only one.

Famous doom merchant Marc Faber said in July that an Australian house price bust "could be larger" than America's. Morgan Stanley economist Gerard Minack has been consistently pessimistic about Australian property all year. As he told Tony Jones on Lateline in March:

"You've got a lot of borrowers out there that have never seen a recession ? they always assume they can service their debt, and they've never seen house prices fall and so they think 'I can make a lot of money by buying a second house or a third house'. Once we see some job loss, once we shatter that illusion that house prices don't fall, then I think you can see substantial losses as indeed you've seen in part of Sydney already."

No wonder the housing industry is "pessimistic". Perhaps we should all be.

It appears the federal government are craftily surfing the market for voter perceptions perhaps more than substance. The one caveat we have on this interpretation is the upward pressure on rental cost of shelter from record levels of immigration in major cities like Sydney. A colourblind observer can easily demonstrate this does make significant pressure on rental accomodation.

There is a significant real politik aspect to the coverage of this issue in the letters page of the notoriously right wing small business/small minded audience of the Sydney Daily Telegraph aka Liberal Party newsletter. It's a lesson the high polling PM Rudd might like to consider - familiarity breeds contempt. Like a popular kid who becomes the butt of jokes for being so narcissistic. Ominiously Rudd was portrayed as Napoleon in a large graphic in the rival Fairfax yesterday.

Rudd is generally thought of as a younger model of ex PM Howard. It's a resonating stereotypical theme in Australian politics not least on the recent emissions trading scheme pre emptive buckle to big dirty business: Highly political, slick, cunning, scattering the critics across the divided spectrum. And maybe unifying them in disgust? One thing about Howard losing the election in November 2007 is that he went from being seen as popular to be seen as a smart arse. Australians are too keen on smart arses. Howard himself was warned about the same phenomena in 2001 about his government being seen as "mean and tricky". Too clever for their own good or ours. Too successful. Too popular. There is a grain of wisdom after all in the 'cutting down the tall poppy syndrome' for failure to grasp everyone is on someone else's shoulders. It's just another good reason why Rudd should take a holiday as superior politician and contemporary Barak Obama is shown playing golf in Hawaii in the press today.

There is a cost in rolling out a new policy every day of a holiday season. Familiarity breeds contempt.

Posted by editor at 7:45 AM EADT
Updated: Tuesday, 23 December 2008 8:27 AM EADT

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