Category Archives: Policy Making

Dud Housing*

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Recent media commentary suggests we have a housing crisis in Australia – ranging from affordability and supply, to quality and location, as reported here. Renters are being priced out of the market, ageing stock means houses that are too cold in winter or too hot in summer, and there aren’t enough homes to rent where people want to live. I suspect that all of these factors have been in place for several years, but the knock-on effects from the Covid pandemic have exacerbated these trends.

“House” (1993) © Rachel Whiteread. Photo © Rory Manchee

For background, I should explain that at the start of my career, I worked as a housing officer and paralegal in the UK. I worked for three different local councils in inner London, advising tenants, leaseholders and landlords on their respective rights and obligations – and where there were infringements, preparing prosecutions against landlords and their agents. I dealt with people facing harassment, unlawful eviction, homelessness and housing disrepair. Mostly, my work involved advising the parties of their legal position and available remedies, often I helped them reach an amicable solution, and occasionally I had to take enforcement action with the support of the council’s legal powers. The latter included injunctions against the threat of unlawful eviction, the issuance of proper rent records, repair notices, rehousing directives, and even compulsory purchase orders.

It was stressful, and at times confrontational, work – after 5 years, I was pretty burned out, and decided to make a career change. At the time, London (and the UK) was experiencing a huge amount of change that impacted both the public and private rental sectors. First, the Conservative government under Margaret Thatcher had introduced “right to buy” legislation, meaning public housing tenants could apply to buy the homes they lived in. Second, the government also introduced “mortgage interest relief at source” (MIRAS) which meant home buyers received tax relief on their interest payments. Third, central London in particular was going through a period of gentrification, with public money made available to property owners to improve and upgrade period homes. As a result, Georgian and Victorian houses that had been sub-divided into apartments (mainly occupied by long-term tenants) were restored to single family homes. Added to that, one of the council’s I worked for had been engaged in a “homes for votes” scandal, a “policy” to (re-)engineer the local demographics.

In the past, I’ve been both a tenant and a landlord, so I’ve also experienced some of these issues for myself. As a tenant, I’ve had landlords who denied that their properties were poorly wired or had defective plumbing (despite formal notifications from the council), and denied all requests to have the defects fixed. As a landlord, I’ve had tenants sub-letting to their “friends”, and who assured me that these “friends” could pay the rent.

So what is going on in parts of Australia, that there is such a misalignment between where tenants want to live, and vacant housing stock?

First, to touch on property ownership. Home owners don’t receive anything like the former MIRAS scheme in the UK, but there are various financial incentives for first-time buyers (such as zero stamp duty when buying a property off the plan), and during the Covid pandemic, some first-time buyers could access their superannuation (pension) fund to help with the deposit or down-payment. Property investors can take advantage of negative gearing to offset mortgage interest payments and costs of repairs against their income tax. These factors are generally considered to push up house prices – and despite recent interest rate rises, the cost of borrowing has remained at historic lows for more than a decade. Housing inflation means aspiring buyers are priced out of the market (especially as wages have not kept pace with inflation, let alone the rise in property prices). And landlords are now seeking to increase rents to offset rising interest rates.

Second, I’ve never really understood why some landlords don’t maintain their properties to an adequate standard – it surely detracts from the value of their assets, as well as deterring potential tenants. And when there may be improvement funds available (e.g., insulation grants, solar rebates) why wouldn’t they take advantage? On the reverse, should tenants have more powers to undertake essential repairs and improvements, and withhold rent to cover the costs? (Equally, I find it surprising that some tenants don’t feel it is their responsibility to undertake minor maintenance or running repairs, such as mowing the grass, clearing gutters or replacing cracked window panes.)

Third, it’s an economic imperative to have a supply of housing stock in the rental market. It helps people who prefer to rent rather then buy, it allows for workforce mobility, and it supports seasonal demand in industries like agriculture. I don’t believe that all rental stock should be held and managed in the public sector – it represents a huge obligation (not just an asset) on government balance sheets, tying up capital and incurring huge running costs. We need a component of public housing, but otherwise leave it to the private sector, with appropriate safeguards.

Fourth, why the apparent mismatch between supply and demand? On one level, developers are building the wrong types of properties and/or building in the wrong locations. Inner city areas have seen a massive growth in high-rise apartments over the past 20 years, supposedly in response to increased housing demand. In theory, these projects generate more yield for developers, although the apparent over-supply leads to depressed rents, and some banks won’t lend against these properties due to uncertain re-sale value and over-capitalised assets.

In the suburbs, archetypal quarter acre blocks have been sub-divided to cram in more town houses and units, or developers are building bigger houses (McMansions) on smaller plots, leaving minimal gardens and no breathing space between properties, as they build right up to the boundary lines. Many new suburban developments lack proper infrastructure and services (public transport, schools, shops, clinics), making them less attractive to renters – while the owners expect higher rents to cover the cost of their mortgages. Plus, many new properties have been built “on the cheap”, using inferior materials and design – hence the issues with heating/cooling. On the other hand, ageing stock, especially weatherboard and brick veneer structures, can also be hard to heat/cool. Many houses (new and old) lack double-glazing, for example, which would go a long way to resolving this energy conundrum.

Meanwhile, the recent lock downs in Melbourne (and to a lesser extent, Sydney) have meant many urbanites have moved to regional locations, putting upward pressure on property values and rents, pricing out locals who already live and work there. Of course, another reason for the mismatch in supply and demand is the growth in short-term lets, mainly for holiday-makers – such that local stock is taken out of the regular rental market. However, a lot of the Airbnb accommodation I have used over the years would never have been available on the rental market, because they were pre-existing holiday lets, or they are principal homes, where the owners are temporarily working abroad or interstate. And this type of flexible accommodation is also in demand by a mobile workforce that can, and prefers to, work from anywhere (so-called digital nomads).

None of which explains or resolves the current crisis. If governments want to address the bigger issues, they need to consider a range of solutions: updating building standards, upgrading land-use rezoning and planning regulations, encouraging a greater variety of housing development and management (soclal housing, shared ownership, property exchanges, rent holidays in return for repairs and improvements), and the use of modular/portable homes to meet fluctuating demand. All of which requires vision, and most party political objectives are driven by short term goals and the next election cycle.

* Apologies to Pere Ubu for (mis-)appropriating the title of their second album

Next week: Picasso and his circle

Mopping up after the LNP

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The incoming Labor government in Australia is currently enjoying a post-election honeymoon period. And while the new Prime Minister has spent about as much time overseas as he has been at home, there is sense that domestically, something has changed under Mr Albanase.

First, the strident, discordant and caustic tone of federal politics is subtly being dialled down, even if much of the same partisan rhetoric remains. Second, it has been suggested that Mr Albanese is seeking to evoke the spirit of Bob Hawke rather than looking for inspiration from either of his immediate ALP predecessors. Both Kevin Rudd and Julia Gillard were technocrats (rather than being natural politicians) and neither of them enjoyed a solid or stable power base within their own party (hence, they were both rolled while in office). Third, there does not appear to be any radical departure from the previous LNP administration, apart from a commitment to an indigenous voice in Parliament, a plan to establish a federal anti-corruption commission, and a greater focus on renewable energy.

Of course, the new administration faces a number of challenges in the budget deficit and in key areas of economic activity, most of which they have inherited from the outgoing LNP government. Federal largesse (in the form of industry subsidies, public grants, welfare payments and pandemic handouts) is under pressure. The era of “cheap money” is coming to end as we witness higher inflation, lower unemployment, skills shortages, and a very mixed set of economic results. Interest rates are on the way up to try and prevent parts of the economy overheating, and are designed to reduce both borrowing and retail spending. But there is a risk that higher interest rates will result in a decline in house prices and an increase in mortgage stress; and reduced discretionary consumer spending may dent employee expectations of wage growth. Despite the low level of unemployment, there can be no reasonable hope of higher wages without an accompanying increase in productivity. Perhaps the issue is that too many people have fewer hours of employment than they want or need, while those already in full-time employment seek to maximise the amount of work they have. Or productivity gains are difficult to achieve in sectors where wages are the biggest input cost, or where operating margins are already very thin, or where investment in technology has been lacking.

Despite the increase in domestic travel and tourism during and since the height of the pandemic in 2019-21, we should remember that domestic borders were also closed for extended periods. As a result, local tourism was hit hard, and even as things started to open up again, the hospitality industry struggled to find staff or was unable to operate economically due to capacity limits – and a lot of small operators haven’t come back.

I would expect to see bankruptcy numbers to rise – especially among sole-proprietors and SMEs (the latter of whom, in aggregate, account for the bulk of employment by headcount). This is always a lag economic indicator, given the time it takes for insolvencies and liquidations to work through the system. Despite the overall increase in the number of business in 2020-21 (see table below), 93.0% of businesses had turnover of less than $2 million, and 28.7% of businesses had turnover of less than $50,000. There was a 12.5% increase in businesses with turnover of less than $50,000, and only a 0.5% increase in businesses with turnover of $5 million to $10 million and $10 million or more. Given that 81.7% of exiting businesses had turnover of less than $200,000, there is a likelihood that more businesses will go under. This period is going to be especially challenging for sole traders and SME owners who typically mortgage their principal home to fund their business. The next ABS business entry/exit report in August will be very interesting.

Past stimulus packages have been spent on household goods (computers, mobile phones, HDTVs, etc.) that aren’t manufactured in Australia; or put towards the mortgage; or saved for a rainy day – and it’s highly likely a similar pattern emerged with the recent pandemic-related measures. All of which means their net effect on the domestic economy and the balance of payments was probably negligible. Sure, during the pandemic some consumer spending was diverted from things like overseas travel towards domestic purchases, but recent data suggests consumers are cancelling their internet streaming services and curbing their on-line shopping (in part because they are no longer working from home).

During the federal election campaign, one of the few areas of economic “policy” that both ALP and LNP ventured was the promise of financial incentives for first-time home buyers. The idea being, I suppose, helping people onto the property ladder enables them to establish long-term household wealth, while taking some pressure off the rental market. Although there has been a softening in city house prices, price increases in some regional areas have more than compensated for those recent declines (thanks to an urban exodus from cities like Melbourne and Sydney). If you’ve just paid at the top of those regional markets, and now face interest rate hikes (as well as coming off introductory fixed mortgage rates), I’m sure this will bring a new layer of mortgage stress.

Finally, it’s still not clear where the wage growth will come from (apart from a lift in the minimum wage?). Businesses (especially SMEs) that struggled during lock-down won’t easily be able to afford pay rises, and the skills shortages are in many areas where there is a lack of local talent, so increased skilled immigration quotas may actually depress salaries. Something of a vicious circle.

Next week: Literary triggers

New Labor?

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At the time of writing, ballot papers in the recent Australian Federal Election are still being counted. Although it is clear that the Australian Labor Party (ALP) has secured more seats in the House of Representatives than any other party, and its leader, Anthony Albanese has already been sworn in as the new Prime Minister, the ALP is yet to establish an overall Parliamentary majority – although it is highly likely they will.

While the final results are still to be tallied, it’s fair to say that this Election has been like no other, and the ALP will need to find a new style of Government, given the following facts:

  • Albanese is only the fourth Labor leader since WWII to lead the ALP to Government from Opposition – given the fixed three-year terms of Australian Parliaments, this is an achievement in itself;
  • The ALP secured less than 33% of the national primary vote (compared to the outgoing LNP Government’s 36%); this means nearly one-third of first preference votes were divided between the Greens, Independents, and other minor parties, and in theory breaks the two-party stranglehold on Federal politics;
  • The two-party preferred tally shows a remarkable similarity to the Brexit Vote: ALP 51.7% vs LNP 48.3% (Brexit: Leave 51.9% vs Remain 48.1%) – which might suggest a less than an overwhelming mandate for the ALP;
  • Candidates for the so-called “Teal Independents” secured more new seats than perhaps even they expected, and will form the largest group on the expanded cross-bench;
  • The Greens won three new seats, all in Queensland, which is surprising given the party’s stand on the mining, coal and gas industries;
  • Although Katter’s Australian Party retained its solitary member in the House of Representatives, neither of the other Queensland-based, right-wing parties (One Nation and the United Australia Party) picked up any lower house seats.

These election results have also highlighted (even exacerbated?) the differences that exist between regional, metropolitan, and suburban areas (both within each State and nationally) that represent significant fault lines across the Federal electorate.

Even if the ALP manages to secure a majority in the House of Representatives, the incoming Prime Minister has acknowledged the need to engage more with the cross-bench than previous administrations – in particular on climate policy and the establishment of a Federal independent commission against corruption. (And in the Senate, the ALP will likely be reliant upon the Greens to pass legislation.)

On climate policy, the main debate is on achieving lower targets for carbon emissions, how to do it, how soon, and at what cost. The biggest challenge will be on transitioning the mining, coal and gas industries (especially in Queensland and Western Australia), and on tackling the heavy polluters (in particular, energy generation, construction and agriculture). Given that both Queensland and Western Australia are under Labor Governments, and that these industries are heavily unionized compared to most other sectors of the economy, perhaps the Prime Minister will find it comparatively easy to sell his Government’s policies – but bringing the rest of the population with him will be key, and there needs to be a clearer path to decarbonizing the economy, including incentives for change.

Regarding a Federal anti-corruption body, the challenge will be to draw up practical and consistent terms of reference (especially given that such bodies already exist in some form or other at State level). For example, in addition to elected representatives and civil servants, should a new Commission have oversight of political parties, charities, unions, non-for-profits, industry associations, professional sporting codes, non-government bodies and anyone else that receives any sort of public funding? And what about whistle-blower protections and the public’s right to submit a complaint or other matter for investigation? How will it deal with freedom of information requests that appear to be denied on political grounds, or manage the transaction of investigations that may involve multiple parties? And should such a body have oversight of truth in political advertising or deliberate misinformation campaigns by those running for public office?

A glaring omission from the Federal election campaign was any meaningful debate on the need for structural economic reforms. Many of the published policies were heavy on how much funding would be allocated to favoured industries and pet projects, but they were very light on evaluating expected outcomes or measuring the quality of results. The only financial topics to get regularly aired were wage growth, inflation, interest rates, and incentives for first-time home buyers – all of which may be important, but they are largely “more of the same” that we have seen for the past 20 years of tax-based tinkering. Not since the introduction of GST (sales tax) in 2000 have we seen any significant policy implementation, and certainly nothing like the major economic reforms introduced by the Hawke/Keating administration. To be fair to the Greens, they did advocate new taxes to fund some of their carbon-related policies (including nationalising part of the renewable energy sector) but I don’t recall seeing a specific cost analysis or balance sheet on how they would achieve their goals. There are also tensions emerging between the need to bolster wage growth (off the back of improved productivity, which hopefully includes removing archaic restrictive practices and encouraging further competition?) and the need to address growing skills shortage (to be partly offset by increased immigration, without risking wage deflation?). Any discussion of the economy must also recognise the realities of the changing work environment, including new technology, remote working, casual employment and the need to encourage innovation and sustain the small business and start-up ecosystem.

Finally, if the Prime Minister is going to be successful in selling his vision of “New Labor” (my term) then he will need to:

  • ensure that the ALP does not again disintegrate into factional party warfare and rolling incumbent leaders that plagued the previous Labor administration (and which was adopted with equal gusto by the outgoing Coalition);
  • steer a renewed path to economic modernisation begun by his predecessors in the 1980s and 1990s;
  • embrace new technology and change the way public sector IT procurement is conducted;
  • acknowledge that the Government (featuring, as ever, so many career politicians who lack direct experience of working in industry or running commercial businesses) doesn’t know all the answers – but they know how and where to find them;

And while it’s not the Prime Minister’s job to actually “hold the hose”, he does need to make sure those who do are competent to do so, and that he and his Government will hold themselves, their appointees and their representatives directly accountable to the electorate.

Next week: Renzo Piano & the Centro Botín

 

 

Doctrine vs Doctrinaire

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The recent “debate” surrounding the Federal Government’s proposed Religious Discrimination Bill was a staggering example of political overreach combined with poor policy management. It was also a stark reminder that although we live in a secular, pluralistic and liberal democracy, some politicians cannot refrain from bringing religion into the Parliament and on to the Statute Books, even where there was neither a strong mandate nor an overbearing need to change the existing law in the way the Government attempted.

As far as I can tell, the Bill was originally intended to give people of faith additional protection against discrimination on the basis of their religion. But when linked to related Sex Discrimination legislation, it would likely have given religious institutions some degree of protection against claims of discrimination in the areas of gender and sexual orientation, particularly in respect of children’s access to education and in relation to employment by faith-based organisations.

If that wasn’t worrying enough, the Bill was underpinned by a controversial “statements of belief” provision. As drafted, this would have granted a person immunity from prosecution for the consequences of their words or actions if such deeds were based on a “genuine” religious belief. I find this particularly troublesome, not because I think people should be vulnerable to persecution for their faith; rather, it sets a dangerous precedent for what religiously-motivated people may feel emboldened to do in the name of their particular faith, especially where their actions cause actual or genuine apprehension of harm (the “God told me to do it” defence).

The shift from doctrine to doctrinaire is all too palpable. It’s one thing to believe in Transubstination, yet another to use a public platform (including social media) to proclaim that “gays will burn in hell”  unless they renounce their ways. The problem with a very literal application of ancient religious texts (most of which are open to wide and sometimes contradictory interpretation) is that this approach does not allow for any concept of progress (scientific, cultural, societal). It also gives rise to extreme forms of fundamentalism, such as banning music or refusing to ordain women priests. History has also shown us that people purportedly adhering to the same religion frequently disagree, leading to turbulent schisms, violent sectarianism and untold bloodshed. Then there are the religious death cults that kill themselves and their children for the sake of achieving their own “beliefs” (in which their offspring surely couldn’t have been compliant or willing participants).

As Luke Beck wrote recently in The Conversation, “There is broad agreement a person should not be discriminated against on the basis of their faith or lack of faith. However, the extent to which religion should be a licence to discriminate against others remains enormously contentious.”

This putative “license” may be an unintended consequence of the Bill, but the implications, should it be enacted, could be far-reaching: archeologists being sacked for saying the earth is older than 6,000 years; anthropologists for saying that the first humans were living 2 million years ago; astronomers for saying the earth orbits around the sun…. And that’s just in the area of science.

I understand that a person of faith may have a deep-seated belief against birth control, or pre-marital sex, or alcohol, or tattoos, or marriage equality – but that doesn’t mean their faith should impose their choices on the rest of the population. (Just as people of faith aren’t being forced to consume booze or get inked against their will.) As it is, religious institutions enjoy significant tax benefits, public funding and legal exemptions, and this current “debate” is bringing some of these discrepancies into sharp focus.

The last time I looked, here in Australia we aren’t living in a theocracy, people of faith aren’t being fired from their jobs because of their religion, and secularists, agnostics and atheists aren’t calling for places of worship to be demolished. What the latter do expect is people of faith not to use their beliefs either as a pretext to justify any form of discriminatory, pejorative or harmful acts or statements, or as a protection against being accountable for their words and deeds.

Next week: When is a print not a print?