New concerns surround the government’s increased use of legislative powers to bypass the parliament and create laws that cannot be amended or overturned. The federal government has embedded special powers in new Covid-19 laws to make unilateral changes to non-pandemic-related legislation, using what are known as ‘Henry VIII clauses’ – named for the unchecked power they involve.
The truth behind housing market forecasts
Sensationally titled “Australia’s cooling housing market; is the economy at risk?”, the Organisation for Economic Co-operation and Development’s latest economic survey of Australia triggered a slew of headlines filled with words such as “crash” and “collapse”. The country’s economy, it seemed, was just an affordable two-bedroom unit away from falling over.
It was a good reminder of Betteridge’s law, which states that any headline ending in a question mark can be answered by the word “no”. The actual substance of the report was far less dire than it seemed at first glance. “Life is good” was the first conclusion from the OECD’s executive summary. “The evidence of housing-market cooling is welcome following a period of rapid price growth,” its report said. “[The] data point to a soft landing without substantial consequence for the overall economy”.
The OECD nominated the strength of Australia’s major banks, the concentration of debt in higher-income households and high levels of mortgage prepayment as evidence the finance industry is well equipped to handle the downturn in prices. Its own worst prediction – that house prices take an uncontrolled dive and affect the wider economy – was described as “low-probability, but potentially dramatic”.
While the report itself didn’t contain much new information, its reception is indicative of a widespread fear among the Australian public that the housing downturn is going to get serious in the new year. Australian Bureau of Statistics data released this week confirmed that house prices dropped 1.9 per cent in the year to September 2018, with falls of 4.4 per cent in Sydney and Darwin and 1.5 per cent in Melbourne.
House prices are widely expected to keep falling in 2019, when a number of factors likely to curb loose lending will come into effect. The royal commission into the banking and finance industries is due to release its final report in February, with recommendations against irresponsible lending almost certain to be handed down. The Australian Prudential Regulation Authority’s crackdown on interest-only loans saw their share of mortgages plummet from 45 per cent in 2017 to less than 17 per cent this year.
A senate inquiry into payday lenders and other debt industries which escaped the scrutiny of the banking commission began on Wednesday. In January, new rules restricting credit card limits will come into force. And a federal election within the next six months raises the prospect of a Labor government that has pledged to abolish tax concessions for wealthy property owners.
Set against the backdrop of a banking royal commission filled with horror stories of banks failing to do basic diligence before approving loans, concerns about banks now wanting to verify a person’s income and assets before lending them money seems like a boutique problem. But focusing on the wealthy and their preoccupations has long been a fixture of Australia’s housing debate.
Take the ABC’s three-part 7.30 investigation last week, which delivered a grim prognosis for Australia’s housing market – largely by relying on the testimony of property developers and investors. Standing on the balcony of one of his tower projects in Waterloo, property developer Luke Berry lamented how the credit crunch has affected off-the-plan sales of his apartments. The program also featured the Sydney-based Gupta family, who own more than 30 properties between them. They sang the praises of “generational wealth” and “buying as much of the Monopoly board as one sees fit”.
Finance executive “Aussie” John Symond appeared, making doom-laden though uncited prognostications. “If interest rates went to 10 per cent over the next couple of years, people couldn’t handle that. It would wipe people out like a tsunami,” he declared. Currently, the official cash rate is sitting at 1.5 per cent. Last week, Reserve Bank of Australia deputy governor Guy Debelle raised the prospect of cutting rates even further, as well as possible quantitative easing after recent GDP figures showed Australia’s economy is experiencing a slowdown.
Federal Labor’s proposal to abolish negative gearing concessions for new home buyers also attracted criticism from Symond, who warned “the ramifications are so bad it could tip Australia into recession”. The Aussie Home Loans founder has long been an opponent of the negative gearing reforms. Ahead of the 2016 federal election, he featured in Liberal campaign ads, saying that dropping negative gearing would “definitely drop the value of homes” and harm “hardworking mums and dads”. He told Channel Seven’s Weekend Sunrise that a downturn in people flipping investment properties could lead to “mass unemployment” and that a Labor government could spell “Armageddon with the housing industry that’s propped up the Australian economy the last four years”.
As Symond likely knows, Labor’s policy would abolish negative gearing only on newly purchased homes, leaving the perk in place for existing home owners. A Grattan Institute study from 2016 found that “a higher proportion of workers in high-wage occupations negatively gear and receive larger average tax benefits when they do so”.
Choice campaigns and communications director Erin Turner noted that Symond was not exactly a neutral party in the debate. “The man who sells home loans is worried about the possibility he might sell fewer home loans,” Turner said. “Mortgage brokers get paid on commission. They make more money the more someone borrows. They have every interest to inflate house prices, not in making sure people get a fair deal. First and foremost, properties should be designed to be homes. I can’t believe I have to articulate that.”
On the whole, economic experts seem far less concerned with Australia’s cooling housing market than those spotlighted by 7.30. Reserve Bank governor Philip Lowe has welcomed the downturn in house prices “at a time when global growth is strong, the labour market is positive and interest rates are low”. Goldman Sachs economists last week predicted Labor’s negative gearing policy would have minimal effect on house prices and the housing market would continue in “an orderly decline in both prices and construction activity”. That assessment echoed a forecast from Morgan Stanley’s housing model in October, which estimated that “relatively orderly declines to date will continue”.
What wasn’t canvassed by 7.30’s investigation were the implications of prime minister Scott Morrison’s proposal to slash immigration arrivals from 190,000 people a year to 160,000. Last week, AMP chief economist Shane Oliver warned that the conditions driving house prices down “could all be made worse if immigration levels are cut sharply”. New South Wales Treasury analysis leaked to The Australian Financial Review last month came to the same conclusion. And this week, the OECD report noted that “immigration has played a fundamental role in the demographic, economic and cultural development of Australia, and continues to do so with broadly successful integration of new migrants”.
Those on the hunt for a dire story in Australia’s housing market, though, need look no further than Choice’s recently released report entitled “Disrupted: The consumer experience of renting in Australia”. Written with the National Association of Tenant Organisations and housing non-profit National Shelter, the report found a rental market overflowing with shoddy properties, exploitative landlords and desperate tenants.
Many renters expressed fear about invoking their rights as tenants for fear of eviction. Of those renting, 51 per cent reported living in a property needing repairs. Almost half believed asking their landlord or agent to fix problems in their home would get them evicted.
Using the Twitter hashtag #RentInOz, people recounted their horror stories – ceilings collapsing after months of unrepaired water damage, being electrocuted by faulty wiring and fuse boxes, landlords refusing to remove exposed asbestos insulation. One shift worker was not allowed to hang curtains in his bedroom, leading to sleep deprivation when he worked nights and was unable to sleep during the day. A disability pensioner reported that a hole in their bathroom ceiling had gone unfixed for six years.
The realities presented by the media’s response to the OECD report, the 7.30 special and the “Disrupted” survey seem worlds apart. Shelter NSW chief executive Karen Walsh dismisses much of Australia’s housing debate as a “neoliberal mantra” that favours the wealthy over the vulnerable.
“Homelessness has increased by 14 per cent between the last two censuses, but we don’t see an urgent injection of money to fix that problem, because they’re not the wealthy,” she says. “As soon as any policy or economic issue impacts wealthy property owners, we see this media sensationalism that scares people.”
Tenants’ Union of NSW senior policy officer Leo Patterson Ross is slightly more optimistic, contrasting the conversation now with that of a few years ago.
“I think it’s slowly breaking down. We weren’t talking about renting at all a few years ago. You would only see A Current Affair bashing public housing tenants,” he says. “But it’s slow. We still only really consider home ownership to be the one true path, which is quite strange compared to the rest of the world. Housing is something that’s essential for life, and we leave it up to individuals in a market system.”
This article was first published in the print edition of The Saturday Paper on Dec 15, 2018 as "Home truths".
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