June 28, 2004 | Graham

Housing Summit just gets more unaffordable

Just as I predicted the National Summit on Housing Affordability is developing into an eyrie of bird-brained schemes that will make the affordability “problem” worse, not better. It is also encouraging others to come out independently with their own deficient proposals.
Yesterday’s Sunday Mail carried a story headlined “Rent crisis hits elderly – Poverty and discrimination spoil later years”. It is written almost entirely using quotes from Tracey Douglas who is chairwoman of Queensland Shelter. It claims that there is a crisis in housing for the elderly, because of a “spiralling rent crisis”.
According to The Sunday Mail Ms Douglas believes that the problem can be solved by “a sliding scale of rent assistance so higher payments are available in areas where rents are increasing more quickly”.
Well, it might solve the problem, but not for long, and it would damage the rental and house buying prospects of those not elderly or on social welfare at the same time putting more money into the pockets of landlords and property owners.
If you subsidise people to buy a product and that product is in short supply then they will simply pass your subsidy through to the seller. If there really is a rental crisis – and I have doubts about that on the figures that I have seen – then a sliding scale will simply add fuel to the fire and set a new “affordable” standard for rental levels – affordable only because the government is paying for it.
Worse still, if that subsidy is set to increase rental assistance more in areas where rents are rising more quickly, then it will tend to accentuate that trend in those areas.
The ACTU has an even more cock-eyed approach to the “problem”. They don’t like the system of rental assistance – first advanced by Prime Minister Keating and his housing Minister Brian Howe in the early 90s – and want all the money redirected towards public housing.
As this is the third millennium and nanny state solutions are out of favour, this is dressed up as a public private partnership initiative. The proposal is to set-up a public housing trust into which superannuation funds would put some money as well as governments, including all that money now spent on rent assistance.
John Sutton, the proponent, is quoted in The Courier Mail as saying that rent assistance “does little more than subsidise the private rental market.” So, who exactly owns the superannuation funds that he envisages becoming the recipients under his scheme? They’re not private?
Perhaps he owes this lapse in logic to the fact that many superfunds have union board members, so he may see super as being the investment arm of the union movement. He is certainly treating it as though it is the investment arm of the social security department. Under his proposal many superfunds would be pressured into investing in the trust, but this would in fact put at risk the savings and retirement of millions of Australian workers – workers who Mr Sutton apparently represents.
There has never been any significant direct investment in housing in Australia by superannuation funds for one simple reason – they can get better returns elsewhere. Housing makes sense to small investors for two reasons. Because they are small they have limited investment opportunities, so they are forced to crowd into investments with less generous returns than those available to large scale investors. And because they can heavily gear their investment, small capital gains can be magnified into large ones.
To understand this last point, if I borrow 80% of a $200,000 house then I have only applied $40,000 to the purchase. If it appreciates only 4% per year (a pretty meagre appreciation) I realize $8,000 each year, and after a bit less than 5 years (allowing for the compounding effect and ignoring any interest shortfalls) I have doubled my money.
The problem from a superannuation fund’s point of view is that it can’t gear, and therefore 4% will never be more than 4%. As the job of superfunds is to give their investors the best returns possible, they ignore the housing sector as a potential investment. If they are coerced into investing in it their returns will be lower, and the retirement incomes of those who rely on them will be lower too.
Another nasty side effect of this plan is that anyone currently receiving Commonwealth Rent Assistance will be forced into this new form of public housing because they won’t be able to rent elsewhere. That means that the owners of these properties are suddenly going to own property they can’t easily rent – an investment disaster – and that their tenants will be forced out of housing that in most cases they find satisfactory into institutionalised accommodation – a social disaster.
It appears to be human nature to want to find complicated solutions to simple problems. I’ll be keeping an eye out on the summit this week to see what other counterproductive schemes it comes up with.

Posted by Graham at 11:20 am | Comments Off on Housing Summit just gets more unaffordable |
Filed under: Australian Politics

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