Category Archives: Population

Dud Housing*

Posted on by
Reply

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

Public Indifference?

Posted on by
Reply

A few weeks ago, two connected but unrelated news items caught my attention. The first concerned the death of an elderly man, who froze to death in plain sight on a busy city street. The second, published barely 10 days later, reported that the mummified body of an elderly woman was only found two years after she died. Much of the commentary surrounding both stories talked about public indifference (even callousness) and lack of concern for our neighbours, especially those who live alone.

I suspect that two years of pandemic, lock-downs and isolation have only amplified preexisting conditions. Depending on our perspective, we may choose not to do or say anything in these situations because: we don’t want to get involved, we don’t want to interfere, we don’t want to risk infection, we don’t feel adequately trained to deal with these situations, or we simply don’t have the time.

Scenarios like these can often make us think about how we might react in similar circumstances – the thing is, we won’t know until it happens. But equally, acquiring some basic skills or adopting some common protocols might help prevent future individual tragedies.

In my inner city suburb, during the pandemic, there has been a sense of “looking out” for your neighbours – some enterprising folk even organised local soup deliveries, and unwanted home produce was left by front gates. It was all totally spontaneous, but largely driven by existing relationships. If we want to do this properly, by fully respecting older neighbours’ independence whilst not interfering in their daily lives, we need some different community models.

One positive example came from the ABC’s inspirational documentary series, “Old People’s Home For 4 Year Olds”. Although a large part of the outcome was to help older people in building up their physical and cognitive skills, by also framing it about boosting pre-schoolers’ social development, it underlined the longer-term community benefits of such initiatives. It also showed that in raising mutual awareness of the need for social interaction, and by creating a level of co- and inter-dependency, communities can find practical solutions and achievable outcomes, often using existing and available resources more creatively.

Next week: Ask an expert…

 

Where is wage growth going to come from?

Posted on by
Reply

How good is the Aussie economy? On the back of the stable outlook on our AAA sovereign credit rating, last week’s employment data showed a better-than-expected post-COVID recovery in terms of the headline unemployment rate and overall workforce participation. This has led to speculation of a potential uplift in wages, due to labour shortages amplified by the current halt on immigration (thanks to closed borders).

But where will this expected wage growth actually come from?

According to ABS data for February 2021, the top 5 industries by number of people employed are: Health Care; Retail Trade; Professional, Scientific and Technical; Construction; and Education. (See above chart.)

Now, contrast this with three other relevant data points: 1) the number of Australian companies by size; 2) the annual change in employment growth/reduction by industry; and 3) the national GDP contribution by industry.

First, there are nearly 2.5m registered business entities, according to ABS data. Over 1.5m of these are designated as “Non-employing” – including sole traders, self-employed, independent contractors or freelances. Over 850 thousand establishments employ fewer than 200 people. Fewer than 5,000 businesses employ more than 200 people. Although there was an overall growth of 2% in the number of registered businesses, the largest increase was in the “sole trader” category, while the largest decreases were among medium-sized companies, and large enterprises. (See table below – the next ABS data is due in August.)

Second, the largest employment growth by industry sector in 2019-20 came from logistics and healthcare – no doubt in large part to the impact of COVID. Primary industries and mining both registered decreases.

Third, the main contributors to output (GDP) are Health and Education (13%), Mining (11%), Finance (9%), Construction (8%) and Manufacturing (6%) – based on a recent RBA Snapshot. But the data is always subject to further examination and clarification – for example, while construction employs over 1.1m people, many of these are engaged as independent tradies or through sub-contractors, and in spite of the huge number of major infrastructure projects (just look at Victoria’s Big Build and all the cranes in Melborne CBD), there was only negligible growth in overall employment within the sector. And while mining is a major contributor to GDP, it does not employ huge numbers of people (it’s actually on a par with the arts…), yet the fewer than 9,000 people who are employed as mining engineers are in the top 10 occupations by salary (according to ATO data analysed by the ABC.)

Some other factors to consider as we ask, “Where will wage growth come from?”:

  • While most people are employed by SME’s, these companies are probably under the greatest strain when it comes to overheads and inputs, as they have relatively high fixed costs, and can ill-afford higher wages in the current trading conditions.
  • On July 1, the Superannuation Guarantee is due to increase from 9.5% to 10% – some commentators suggest employers (especially SMEs) may have to reduce or offset wages to pay for the scheduled increase.
  • We have an apparent choice between an asset-led recovery (inflated house prices – but risks leaving people “asset rich and cash poor” when interest rates go up ); a consumption-led recovery (reliant on higher wages so people feel comfortable to spend money); or an investment-led recovery (businesses need to invest in new equipment and projects to boost productivity, and not just bring forward planned expenditure thanks to tax incentives).
  • The sectors where we need more people (health care, aged care, child care and education) are still among the lowest paid on a per capita basis.
  • What is happening to boost manufacturing, or aren’t we interested in making things anymore?
  • Our IT and technical skills shortages have been exacerbated by the absence of overseas students and graduates – there is anecdotal evidence of wage and hiring pressures in this sector, one which is probably more important to our future economy and sustainability than mining coal or building more roads.
  • One leading economist reckons that household incomes have increased by 30% over the past 10 years. If wages have been stagnant, where has this growth come from? Is it because of tax cuts, low interest rates, quantitative easing, real estate prices (or their crypto holdings)? And do we actually feel any wealthier as a result?

Finally, will inflation and/or interest rates undermine any potential increase in wages?

Next week: Is Federation still working?

Transition – post-pandemic career moves

Posted on by
1

Even before the latest lock-down v3.0 in Melbourne, one of the other members of my co-working space in the CBD decided they’d already had enough of being confined to a 5km radius, working from home, and other lock-down related restrictions. Having had their interstate travel curtailed over the past 12 months, and suffering from cabin fever, they have opted to spend the next few months living in and working from various Airbnb locations around regional Victoria. Even though they are used to WFH, recent experience has shown that they don’t need to be confined to one place. And this post-COVID shift in our work/life patterns (already being disrupted and enabled by remote working) is only increasing.

Likewise, a client I spoke to in the USA last week informed me that they had just settled into a new location on the west coast, and was “living the dream” of a nomadic existence.

More extreme is the recent example of a Guardian employee who, having had to travel from Sydney to the UK for a family funeral last year, then took several months to get back home (due to flight cancellations), but managed to keep working remotely from various European locations as he moved around to stay ahead of border closures.

Prior to this past weekend, and despite the city being out of Stage 4 lock-down for 3 months, private offices in Melbourne’s CBD have only been allowed to operate at 50% of capacity – the proposed move to 75% capacity has been put back. It means, for example, that even on a really good day, my local coffee shop is still only doing 60% of its pre-COVID business.

It’s my guess that the combination of office restrictions and many retail and hospitality businesses simply not bothering to re-open at all means the CBD is barely operating at 40-50%. It’s deceptive – some activities (e.g., construction) have continued pretty much unabated (even expanding while there is less traffic on the roads); while others have been shut down altogether (e.g., entertainment). Certainly food delivery services are still in demand, while some retail has been doing a bit better as customers appreciate the novelty of shopping in-person.

Monday to Friday in the CBD is like a bell-curve distribution – Mondays and Fridays are much quieter, as people choose to WFH part of the week. Which is challenging for employers, as they try to revert to “normal”. But assuming a mix of remote and on-site working continues, it probably means less overall demand for office space. (It’s also difficult to assess the impact of the CBD exodus on suburban hubs.)

So all that construction work suggests we will have an over-supply of commercial premises (offices, shops, restaurants and hotels).

Residential property is a similar story – student accommodation is far from full, as overseas students aren’t returning; and more inner-city apartment buildings are still going up, but there is something of an exodus from the city to regional and rural locations.

The latter tree- and sea-changes are being fueled by a number of factors: a desire to leave the city (which is more prone to lock-downs); low interest rates (so, cash out the equity in your suburban home and move to the country where your money buys you more); increased opportunity to WFH (see, 5G and the NBN have their benefits!); and a broader wish for a different work/life balance.

Unfortunately, this shift is also putting pressure on local housing supply – average property prices are going up faster in some regional centres than in the capital cities; and more nomadic lifestyles are driving up demand for short-stay accommodation. The combined effect is higher rental costs and reduced supply, tending to squeeze out the locals.

Ironically, we’ve heard farmers and primary producers in rural and regional Australia complain that they can’t get seasonal workers due to COVID restrictions on international visitors (especially students, back-packers and experienced fruit pickers). Conversely, we’re told that 90% of jobs lost after March last year have now been recovered – although this apparent rebound is mainly in part-time roles, not full-time positions. It would be interesting to see a detailed breakdown by industry, as some sectors (tourism, aviation, universities) are still struggling.

The hiatus (and disruption) brought about by COVID and subsequent lock-downs has no doubt prompted many people to reassess their careers: where do I want to live/work? what type of work do I want to do? which industries or companies are hiring? and for what roles? As part of a wider re- and up-skilling initiative, the Federal and State governments are offering a range of free vocational courses (mostly Cert I to IV programmes), as well as some enhanced “pathways” to trade apprenticeships.

While this is to be applauded, I can’t help feeling the effort is at least 5-10 years too late to address the technological, demographic and societal changes that began at the end of the last century, with the advent of the internet, cheaper technology, an ageing population, increased globalisation, inefficient taxation and tariff systems, and general economic restructuring. If nothing else, COVID has demonstrated the need for more resilience in the domestic economy, (and a reduced reliance on overseas imports and supply chains) such as smart manufacturing and food security.

Meanwhile, a friend of mine recently related that a nephew of his had dropped out of college (like many of his peers in the USA and elsewhere) and decided to become a self-taught expert in DeFi, as there is more chance of financial success (and career satisfaction) than obtaining an “off the shelf” bachelor degree….

Next week: Corporate Art