Wednesday, May 21, 2014

Choose your parents wisely...

Choose your parents wisely, for they may be all that stands between you and poverty.

"A little high, a little low" ...
the Little household discusses rents and incomes.

Now that we've had a week to digest some of the proposed changes to the Australian budget, we can begin to wonder what life might be like if the brave new world it has set before us makes it through the Senate.

It will be particularly tricky for young people who rent. Reductions and limitations to income support will mean more rental stress and evictions in a market that is already failing to deliver housing for people on low incomes. We expect landlords will simply decline to rent to young people on low or insecure incomes, putting additional pressure on an already stretched social housing system.

But as we mentioned last week this budget is bad news for social housing landlords as well. Absent a well-funded saviour (State Government, anyone? Don't hold your breath...) the social housing sector will contract even further. The result: more people living with mum and dad for longer. Or, if that's not an option, homelessness...

Changes to income support are not just a concern for low-income or unemployed tenants who can't find a home. The prospect of a six month wait for Commonwealth income support will place all young people in the 'inherently risky' basket - even if you do have a job. If you can talk a landlord into renting you a place, expect it to be on a six month agreement at best. If you can't, you'll be living with mum and dad for longer. Or, if that's not an option, you'll be homeless.

Now, if you've been following our posts about the real housing supply problem, you might start to wonder at the sense of this. The Australian Government could have made some adjustments to the way housing is taxed, to encourage landlords away from speculative investment. As things stand landlords take a punt on high-cost housing because they think it will produce the juiciest capital gains. They'll need an increasing supply of mid- to high-income tenants to rent their houses to, because you just can't go renting high-cost housing out at affordable rents. Landlords need high rents to keep their losses manageable while meeting the interest payments on their loans.

At the 2011 census, 54 per cent of tenants in New South Wales earned less than $600 per week, and 29 per cent earned less than $300 per week. While the Government wants young people to avoid certain disaster by stepping up to the next income bracket, we're afraid it is just as likely to have the opposite effect. The ranks of low-income renters will swell. This could just as easily knock off a few underpaid landlords in the meantime; particularly those who have had to take the kids back in, without any income to contribute.

But thankfully for your landlord it doesn't stop there. Changes to tertiary education funding will result in lower disposable incomes and higher debts for students, but it will also mean reduced savings for graduates. Sure, this means your landlord will have to keep a spare room free while their kids are off earning or learning - just in case they come up short on the rent for six months or so... But it might also ensure mid- to high-income earners are priced out of home-ownership for longer. And that means they'll be renting. Look out while your landlord puts the rent up, because competition just got a little bit more stiff.

And if that means you can't afford it, don't worry. You can always just move back in with your parents.

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