Lessons from America - Evicted

"Three generations of Hinkstons, eight people all up, lived in a two bedroom, one bathroom apartment in Milwaukee. It was cramped and mouldy, there were roaches everywhere and no repairs got done. They were there because they had been evicted from their five bedroom house, home for 7 years, and had nowhere else to go. Now sharing couches and the floor, the children couldn't get a proper night's sleep and fell asleep during the day, even through classes. The adults had to find a way to scrape together enough money to find somewhere better."

But the rent has to be paid in the meantime - so will they get to move in their own time, or will they be evicted first?

Evicted should be required reading for all. The holistic nature of the issues raised mean there is no one with a passing effect on our housing system who should not feel some responsibility for that effect.

Evicted is written by Harvard sociologist Matthew Desmond, who lived in the communities he writes about and has previously experienced homelessness first hand. His work excoriates any lingering doubt that society does have an ongoing responsibility to make sure its people not only have a roof above their head at any one time, but a home in which they can plant roots.

Desmond followed the eviction experiences of 8 families in Milwaukee, Wisconsin. These stories demonstrate some part of the range of issues preventing poorer people in the United States from housing themselves and their families. There are single mothers, recovering addicts, crowded multi-generation families. Evicted also pulls back the curtain on the thinking of landlords by following both sides of an eviction. Empathy, understanding and flexibility are all demonstrated - but so is the ultimate divergence of interests. If the rent isn't paid, or the repairs aren't worth the hassle, there is only one response: eviction.

Milwaukee is not Sydney or Dubbo or Albury. Australia is not the United States. What lessons can we take from Evicted? There is a temptation to take the US as a warning, a guide of how not to house people. It can be comforting to feel that things are not as bad here, but that is dangerous thinking which allows things to get exactly as bad here as they are shown to be there.

For instance, Desmond cites the American Housing Survey 2013 that between 50-70% of low-income renters in America are paying 50% of their income on housing (including rent, utilities, and other charges required to house yourself). Our figures look better at first blush - somewhere between 20-40% of low income renters are paying more than 50% income on rent. However, our measures are generally limited to rent. Housing costs properly includes all the things needed to make a dwelling habitable - no one should live in a home without running water or electricity. When utilities are thrown back into the mix, we start to look very similar to the US. An examination of the 2011 Census suggests that at least 50% of low income renting households report paying more than 50% of their household income on housing costs under the same definition as the US.

In part our better position is because of the Commonwealth Rent Assistance. Of Australian renters receiving CRA, which includes renters who are in moderate, or even high, ranges of incomes, more than 25% of CRA recipients would pay more than 50% of their income just on their rent. Include the CRA payment and the number is halved to just 13%.

Evicted also brings to light the structural nature of continuing impoverishment. In the United States structural housing insecurity comes down most strongly on people of colour, and especially black men and women:

There are no figures on similar rates of eviction for Aboriginal people in NSW. In fact, there are no figures on rates of eviction for anyone in NSW, or Australia. We simply do not know how many people are booted every year, nor the cost of those forced moves both to the families being evicted, and to the economy in lost wages, increased support services, and motivated workers. Desmond knows these figures because he previously designed and carried out the Milwaukee Area Renters Survey, a truly impressive piece of work that Sydney and Australia sorely needs to replicate.

The final element of interest to us here in Australia is the impact of tenancy legislation. In Milwaukee, no grounds notices are permitted - and are explicitly used to cover the same multitude of sins we see here in New South Wales. Repairs do have strict codes but enforcing the standards often means becoming vulnerable to eviction in response.

Tenant representation in eviction proceedings in Milwaukee is rare and expensive - only generally available to well-off tenants. In New South Wales we are better off - though our Tenant Advocacy services are severely underfunded and unable to offer assistance to all who need it. The bread and butter work of the Civil and Administrative Tribunal (and its predecessor the CTTT) is tenancy evictions, making up approximately 60% of its entire workload.

If we want renters to have stable, affordable and liveable homes, we need to make a conscious effort to create that environment. It will require significant changes to the way renting is viewed by lawmakers and landlords. Separating the interests of those two groups may be the biggest change of all.

An excerpt from Evicted was published in the New Yorker and is available here: http://www.newyorker.com/magazine/2016/02/08/forced-out

Which Optus-approved renter are you?

Of all the contributions to The Institute of Tenancy Culture Studies, a report on renting from a Telco giant was one we’d have pegged as most unlikely. And yet, somehow, here we are. On Wednesday Optus released excerpts from 'The Renter of the Future' – a survey that purports to uncover the “attitudes, behaviour and technology trends” of Australia's tenants. Its commissioning and publication are openly driven by a product launch targeting rental households, and there's certainly no shortage of cringeworthy marketing speak throughout. So it’s tempting to dismiss it as a work of highbrow advertorial. But it does make some claims relevant to more than whether you say ‘Yes’ to a new modem, and has been attracting attention, so is worth some unpacking.

'Yes' man Josh Thomas: is this the future of renting?

A central finding of the report relates to how and why tenants are in the rental market. It claims that 27% of tenants are “flexibility renters”, whose status as tenants is attributable to “[liking] the flexibility of moving when they want to”. This is in contrast to the other 73% - “stability renters” who “prefer to stay in one place for a while”.

It also contrasts markedly with our 2014 survey of the NSW rental market. When we asked “Why do you rent?” only 9% of respondents nominated ‘flexibility and mobility’. We gave respondents six options in response to this question - accounting for those priced out of the buyers’ market for now or for good, those who prefer to invest elsewhere, and those who are renting where they can’t buy. Whilst the Optus report contains no information as to the methodologies employed, it would appear that its use of a simplistic dichotomy between ‘renting for flexibility’ and ‘renting for choice’ has created a distorted picture of tenants’ motives.

The Optus study also includes a separate division of the renting population into four ‘personalities’. Only one personality, the “pragmatic homeseeker” comprising 44% of all tenants, rents due to an inability to enter the homeowners’ market. The other groupings are “pragmatic lifestylers”, “tech lifestyers”, and “tech homeseekers” - the latter categories relating to tenants' technological and digital engagement.

But accounting for tenants that cannot afford to buy, those looking to buy or build, and those saving to buy, our study found that 69% of tenants could be termed ‘pragmatic homeseekers’. We’d also note the obvious artificiality in the Optus report's division between tenants shut out of the owners’ market and those interested in the tech industry. Clearly, one can ardently desire home ownership and remain passionately interested in their smartphone. The four ‘rental personalities’ suggest mutual exclusivity where none exists. Perhaps this component of the report is merely a product of its commercial imperatives.

Finally, the Optus report does note that renters move much more frequently than owners – every 1.8 years compared to every 8 years for mortgagors and 18 years for those who own outright. But it fails to consider the disconnect between such frequent moves and the relatively low number of ‘flexibility renters’ (whether you put that figure at our 9% or Optus’ 27%). Could it have something to do with the instability forced upon tenants by our rental laws? We say it certainly could. Our study found that, of respondents who had moved in the last three years, 14% said their landlord telling them to leave was the main reason, 12% nominated a rent increase, and 4% pointed to a disagreement with their landlord. Moreover, a full 92% were worried about having to move in the future. On a national scale, a recent study from the Australian Housing and Urban Research Institute found that 27% of tenants who move house have their hand forced by eviction or unaffordability. 

So proceed with caution - it’s fair to label the key claims of the Optus report as dubious to say the least. We won't pore over its supplementary claims, though in most cases such an exercise would be better suited to an advertising blog. 

But at the very least, the mere existence of this report points to a burgeoning realisation that tenants represent an ever-growing slice of whatever market you're trying to sell into - and that perhaps we should be taking better care of them.

And yes, we also value a high-speed Internet connection as much as everybody else.

Mythbusters: Boarding House Edition

'If the prostitutes and criminals don't get you, the ice addicts, deviants, and bums surely will. Why just look at them now, the usual suspects leering at you from their den of ill repute - or 'boarding house', which I do believe is the technical term:

"We'll get ya!"

I assume they paint the boarding house walls in the style of a police lineup to save time. Save yourself while you can - run to the hills (district)!'

Or so went the dominant view surrounding the application for construction of an eight-room boarding house in Cromer, on Sydney's Northern Beaches. Warringah Council's Development Assessment Panel granted development approval last week despite an overwhelmingly predictable backlash. Approximately 800 individuals made submissions to council regarding the development. According to The Sydney Morning Herald, just 0.12% - that is, one - of the submissions were supportive of the project. The record shows those 799 dissenters included Social Housing Minister The Hon. Brad Hazzard MP, Warringah Mayor Michael Regan, and the Principal of a neighbouring primary school. 

The following comments are not attributable to any of those persons, but do give an idea of the flavour of much of the opposition:

"Most [boarding houses] are filled with ice addicts, heroin junkies, paedophiles and jail birds. Please stop this from happening asap [sic].."

"Not only because there is no control over who will be living there (paedophiles???) but also because the children might be exposed to drug/alcohol related problems."

Clearly, these are serious numbers and very serious allegations. So how could the Cromer boarding house have been granted approval? Does it evince a disregard for community safety and interests? Perhaps a sign of arrogance - hubris even? The undue influence of property developers? Or could the opposition campaign be extraordinarily misguided in multiple respects?

Lock in D for the full million, Eddie. It is difficult to know where to start in debunking the opposition to what should be an entirely uncontroversial development.

But let's start with what exactly has been approved. As Warringah Council's report on the development application provides, the Cromer project may be categorised as a 'new generation boarding house'. Earlier this year, the Australian Housing and Urban Research Institute ('AHURI') released a discussion paper which defines the term. And the truth is less than earth shattering: "blocks of small 'studio apartments' or in some cases one-bedroom apartments with separate bathroom and kitchenette". And those undesirables? According to AHURI, they are largely a mix of professionals, students, and shift workers, often paying in the vicinity of $400 a week in rent.

So don't believe the hype. The Cromer development is a largely ordinary apartment block, set to be inhabited by an 'ordinary' cross section of the community. 

Somebody please think of the children!

But even if the project better resembled a more traditional boarding house, the 'addicts and criminals' claim would not hold water. As the AHURI report states, traditional boarding houses are indeed home to "some of society's most excluded and vulnerable individuals...". But the assumption that vulnerable residents bring danger and degradation is simply not borne out. 

Just look at Cromer itself. According to Fair Trading's Boarding Houses Register, its postcode of 2099 is already home to two such boarding houses. The neighbouring postcodes of 2098 and 2100 also contain one each. And there are likely more still, as the AHURI report notes: "...there are strong grounds for believing that the actual scale of NSW boarding house provision is understated by the Fair Trading register...the numbers registered with Fair Trading as at August 2014 were considerably fewer than those formally approved to operate as boarding houses by the council concerned." 

The reality is that the people the campaign so fears will move in are already living in and around Cromer, possibly in considerable numbers. And yet the sky has resolutely failed to fall. Fear and loathing inspired by the vulnerable of our community is simply wasted. 

Finally, the notion that a development application should be refused on account of objections such as those raised in this matter does not concord with how planning law works. Broadly, a development application is assessed according to its compliance with technical and dispassionate criteria, such as height limitations and permitted use. Subjective contentions such as those raised by the opposition here do not get a look in. This quote from the NSW Land and Environment Court, relied upon by the panel in approving the Cromer project, puts it best: "The consent authority must not blindly accept the subjective fears and concerns expressed in the public submissions...there must be evidence."

So forget the hysteria, loud as it may be, and rest easy. This development will not send Cromer to hell in a hand basket. Indeed, this has all happened before, as the seemingly prophetic words of a boarding house proprietor quoted in the AHURI report make clear:

"When [council] has the notification period...all hell breaks loose. There's a residents' action group that's formed, there's agitation from them, you'll have 40 people come to the Council meeting, all throw their arms up, 'there'll be derelicts here, there'll be drug dependents, etc., not in our back yard, get rid of it. Make sure you refuse Mr Council and Mr Mayor and make sure it goes away'."

Far from devastation, the Northern Beaches are as safe as boarding houses. 

Caution following REI's lead over rent drop

Breathless good news on rental affordability from Tele land this week.

Citing Real Estate Institute of NSW data, the state's favourite tabloid told us that rent in some of Sydney’s blue chip neighbourhoods – including Bondi Junction, Neutral Bay, and Manly – is down by between $25 and $70 per week.

REI president Malcolm Gunning attributed this fall to a ‘glut’ of new apartments released onto the market in 2014. 

A strong second quarter does not a triumph make

But we suggest caution before jumping to any of the same conclusions. Whilst REI data is not freely available to the plebeian blogosphere, it’s worth noting that the basis for the article’s claims appears to be a REI study of the second quarter of 2015 alone. This is a perilously short period of time from which to be drawing any bold conclusions such as these.

What's more, as the second quarter takes place over both a university break and the feared ‘polar vortex’ period, autumn and winter variations for rent in student and waterfront neighbourhoods are also relevant. Indeed, of the ten suburbs cited in the article, six are beachside or waterfront, and two are situated in the immediate vicinity of Sydney University or the University of New South Wales. Bondi Junction arguably fits both criteria.

Remember too that REI data is based on asking rather than actual rents. As we noted recently, this paints a misleading picture of the market. Far more reliable is the equivalent data in the Rent and Sales Report – based on the rent paid in new tenancies, as discerned from rental bonds lodged with Fair Trading (i.e. almost all of them). And published free of the desire to push any particular narrative. 

That, too, is a quarterly publication, with the second quarter edition due in a tantalising 21 days. We will wait on its findings before making any breathless conclusions of our own.

Counting the Cost- Saving the Census

You may have read that the Federal Government, at the request of the Australian Bureau of Statistics, and in response to funding pressures, is considering possible changes to the ABS Census. The next Census is due in August 2016.  Check out the back story in these two articles.

Presently there is a Census every five years. There is talk about conducting the Census every ten years and, between Censuses, to collect information from samples only. We believe that a threat to timely and accurate census data is a threat to fact-based debate and data-driven policy making.

Why? Because surveys that rely upon sampling techniques do not provide useful information at the small area level which allow results to be interpreted with reasonable confidence.

This also will have a negative impact on the provision of community services across Australia, especially for vulnerable and disadvantaged groups. Just one example. The NSW Tenants Advice and Advocacy Program applies a formula for allocating funds to local Tenants Advice and Advocacy Services that draws upon Census data. A 10-year Census will not provide an accurate picture of the demography of small towns and local government areas between Censuses.

So, in early March of this year, the Tenants’ Union of NSW wrote to the Hon Joe Hockey expressing our concern. We are awaiting his reply.

Read more about why we need to keep the 5-year Census. There is also a ‘Save the Census’ letter you can send to Canberra.

Multi-generational housing survey

Do you live in rental housing in a household of multiple generations of related adults?

If so, the City Futures Research Centre at the University of NSW wants to hear from you.

City Futures is researching multi-generational households in Australian cities, and they've developed an online survey for you to fill out.

Participants have the chance to win a shopping voucher – but more importantly, everyone who participates will be contributing to what we know about an important aspect of how we are housed.

At the 2011 Census, there were about 58 000 multi-generational households living in private rental housing in Sydney (that's about double the number recorded 30 years previously).

The case against the case for negative gearing

Negative gearing is an issue that is rather close to our hearts. We're not the biggest fans of this tax break for landlords, and we've talked about it a fair bit over the last couple of years. We understand that many landlords don't feel the same way about it - about 1.12 million of them, in fact. Whenever the question of its efficacy gets a run in the press, we start to see many of its supporters pointing to the calamity of 1985-1987, after the Hawke government trimmed it a little.

(Bob Hawke and Paul Keating

had a bit of a go at negative gearing in 1985)

During that time, rents went on a bit of a rampage. It is often claimed that this is because investor sentiment was so damaged by the restrictions to negative gearing (losses could only be offset against rental income, not other income) that landlords simply started to abandon the market. In the face of serious pressure from the propertied classes, the government capitulated, and negative gearing was reinstated in full.

We've always thought that this was a bit of old hokum, and we're not the only ones. In April 2011, while the world was gearing up for the National Tax Forum, Saul Eslake pointed out that it was extremely low vacancy rates in Sydney and Perth, and not a nationwide landlord strike, that caused all this trouble with rents. More recently Tim Lawless, head of RP Data's research and analytics team and friend to all Australian property speculators, has published a spiel that appears to support the idea that the great rent rise of '85 was not the result of changes to negative gearing.

Lawless refers to this graph:

Source: Tim Lawless, via Michael Yardney's Property Update

... which shows that rents were already well and truly on the rise before any changes to negative gearing were made in 1985. It also shows sharp increases during the mid-nineties and mid- to late- noughties.

He also refers to data from the Australian Bureau of Statistics, on loans for property investment over the period in question. He says:

The total value of investment finance commitments in September 1987 was 41.5% higher than in September 1985.  These figures seem to suggest that at that time there was no weakness in demand for investment housing ...

... The reason why negative gearing was reinstated in September 1987 was that it was proclaimed that rents rose sharply on the back of a fall in housing market investment.  However, it doesn’t look as if investment in the housing market dried up throughout this period. Rents clearly did rise quite sharply throughout as demonstrated.

Lawless offers no alternative ideas as to why rents rose so sharply during that time, but we're inclined to agree with Eslake. Steady increases in rents are more likely to be linked to vacancy rates than to the way we (un)tax the nation's landlords. Well might you argue that disinvestment by landlords en masse could have an adverse effect on vacancy rates, but the reality is likely to be otherwise. Landlords are, in the main, not a particularly riotous bunch. They tend not to burn down their houses as they exit the market - it's far more orderly than that. When they opt to bail out, they sell, and some other body usually moves in in the end...

But the main point of Lawless' article was not to exonerate those who have decried the myth of disinvestment, and to join the chorus of voices calling for reasonable tax reform. Instead, it was to put an alternative argument in support of negative gearing. The argument is: if not for negative gearing, landlords would not invest in new houses, so there wouldn't be enough to go around. This would be a disaster for taxpayers because it would fall to the government to pick up the shortfall.

Let's have a closer look at this argument.

Lawless looked at the ABS dwelling approvals numbers, and saw that in the 12 months to October 2012 there were 145,515 dwelling approvals granted to private interests, compared to 2,065 granted to public housing providers.

He then checked the census data, and saw that 29.6% of Australians live in rented accommodation.

He concluded that the private sector must have built and let 43,684 new homes, because that's 29.6% of the houses built in the period (adjusted to allow for the 2,065 new public housing tenancies).

He checked the median home price for October 2012, which was $386,000. He multiplied 43,684 by $386,000 and got a little over $16.86 billion. This is how much it would cost the government to build all those homes for tenants.

He compared this to the tax foregone by negatively geared landlords: estimated at $4.81 billion over the 2009-10 financial year - as good a figure as any to rely on.

He concluded that the government would not be able to use the increase in tax revenue to build enough houses to make up for a projected shortfall, if negative gearing was abolished.

This logic may appear sound, but it relies on a heck of an assumption - that almost 30% of newly built housing is commissioned by landlords, to be rented out to tenants. Quite simply, this is wrong. As Chris pointed out some time ago in his analysis that negative gearing is not your friend, only a small proportion of the money borrowed by landlords is used to fund new construction. Eslake has spotted this, too, and he puts this figure at 8%.

(RBA Table D06)

That means Lawless is going to have to review his argument.

Let's make a start for him:

If 8% of privately commissioned newly constructed housing goes straight into the rental market, and we apply that to the 2012 dwelling approvals numbers Lawless has used,* we end up with a figure of 11,641 dwellings built by private landlords. If we multiply this by his median house price, we find that the government would have to spend a shade above $4.49 billion in order to keep pace. This falls in just below the $4.81 billion of foregone revenue that we can attribute to negative gearing.

But we can take this further. A recent independent report into the Social Housing Initiative of the Nation Building Economic Stimulas Plan tells us that the government can build houses somewhat more cheaply than private landlords can. In fact, the figures suggest that the government can build houses at a cost of around $266,000 per dwelling - having procured 19,699 new dwellings out of the $5.238 billion spent on social housing across the stimulus package. In order to build those 11,641 new houses for tenants, the government would have to spend a little under $3.1 billion. Perhaps we could have houses, and a budget surplus, too?

That report tells us that there are many other economic benefits when the government invests in social housing, and we've spoken before about some of the social benefits, too. Spending tax dollars on social housing is very clearly a good thing to do.

But we're mindful of the fact that there are still 133,874 new dwellings that we're yet to account for in our example here - those properties that are built by/for owner/occupiers. Of course these purchases would not, we'd assume, contribute to any negatively geared property portfolios. But does the construction of these properties have any bearing on vacancy rates in the private rental market? And what, if anything, is the impact of negative gearing on the cost or availability of those old houses that are left behind?

We're not going to be able to answer these question in any definitive kind of a way, but we can certainly explore them a little. Let's see how far we can get...

We'll look at the ABS' feature article First Home Buyers In Australia for some data and analysis. First, it tells us that, in the three years before 2009/10, there were 429,000 first home buyer (FHB) households in Australia. We must note that changes to the First Home Buyer Grants scheme that came with and since the Nation Building Economic Stimulus Plan will cause this figure to fluctuate over time - the previous three year window saw 318,000 FHBs enter the market, and we're likely to see a drop in the next period following the winding back of FHB grants schemes in some parts of the country (late in 2012). We must also expect fluctuations to have occurred within each three year period, so it would be wildly inaccurate to simply divide the latest number by three in order to get a yearly uptake of FHBs. But, for the sake of the discussion, let's do it anyway... 429,000/3 = 143,000. So let's say there are roughly 143,000 Australian first home buyers in any given year.

Next, we can see that of Australia's FHBs, 18% of them bought newly constructed homes in 2009/10. Again, this number is hardly indicative of long-running trends - the 2007/08 period saw 9% of FHBs in newly constructed homes. Changes to grants schemes - and a wealth of other factors affecting Australian housing markets - will ensure these numbers continue to move around from year to year. But let's take the latest figure again, just because it's there. 18% of 143,000 is 25,740. So let's say roughly 25,740 new homes are purchased and occupied by first home buyers in any given year.

Now, we can also see that, in 2007/08, 63% of Australia's FHBs moved out of a dwelling rented from a private landlord, in order to take up in their new digs. We'll have to make some more bold assumptions here: a) that this number is fair enough to compare to other data from the 2009/10 period, b) that this number applies across purchases of both new and existing dwellings and c) that every FHB household to exit the rental market is equal to one household of tenants. These assumptions are clearly wrong, but let's make them anyway. 63% of 25,740 is 16,216. So let's say roughly 16,216 rental properties are vacated each year due to FHBs building new homes and exiting the rental market.

16,216 new rental vacancies that negative gearing had nothing to do with? Imagine that! No doubt that's a foolishly optimistic conclusion, but it's a train of thought that's worth pursuing...

But what of the 108,134 new properties that are still unaccounted for in our example? We'll just have to assume that most of these are purchased by established mortgagors - upgraders who are looking to move into a nicer place. This means that, as part of the day-to-day cycle of second-hand house trading (and continuing with our rather clumsy simplification of the numbers), about 108,134 established dwellings will be added to the market by vendors each year. These houses will be bought by either investors or owner/occupiers - and it's fair to assume that many first home buyers would be looking at getting a hold of one of these if they could. But with 92% of landlords - the vast majority of them negatively geared and willing to borrow up big - competing with 82% of first home buyers, it's not hard to see why FHBs might struggle to keep up...

So, after all that, we're left with a combination of FHBs and upgraders paying overs for a new home, and negatively geared landlords gobbling up second-hand properties to rent out to those who've missed out. We refer again to earlier analysis from Chris, and quote:

• negative gearing does not cause an individual landlord to charge less rent;

• negative gearing does not create net additional rental housing;

• negative gearing has contributed to more higher-income households renting, which both pushes rents up, and pushes lower-income households out of lower rent properties;

• negative gearing has contributed to low-value proprties dropping out of the rental market, which pushes up the rent for those that remain in rental; so therefore

• negative gearing is not your friend.

Policies that encourage the construction of new dwellings - whether by governments or by private interests (indeed, can't we have both?) - do a great deal more for the rental market than negative gearing ever will.

*Nb - Lawless uses the number of "dwelling approvals", which include renovations and alterations as well as new builds. These numbers must all be taken with a grain of salt.

A bit of perspective with the International Union of Tenants (part 3)

You'll recall that earlier in November we met with the General Secretary of the IUT, Mr Magnus Hammar, and heard him speak about how our rental system in Australia compares with various markets across Europe.

Magnus Hammar

It was pretty interesting stuff. As it happens, the Australian approach to home is not universally applied, but tensions between folks who profit from property and folks who live there crop up no matter where you look.

Here's a brief rundown of Magnus' key points:

First, to the numbers. More residents of Central Europe rent their homes than anywhere else in the world.

It's the Swiss (64%) and the Germans (57%) who lead the way. Australians (29%) are about half as likely to rent as residents of Switzerland or Germany.

Our own rental market, as a percentage of total housing stock, aligns more closely with the USA (34%) and England (32%), and we're far more likely to rent than Europeans in the south-east.

Our investment in social housing, as a percentage of total stock, is comparatively poor. It's interesting to note that Germany - one of the world's largest and strongest rental markets - relies fairly minimally on state funded housing.

As you would expect, the percentage of tenancies is higher in Sydney than the Australian national average - a feature that is mirrored the world over. Interestingly, the New York rate completely dwarfs the USA rate generally. Perhaps this is why rent-regulation remains on the statute books in Albany, NY?

All these figures raise an obvious question: what are the structural differences that make renting more common in European countries than in Australia?

The answer is just as obvious: security of tenure.

In many parts of Europe, long tenancies are expected. Tenancies cannot be ended without a good reason, and landlords must take steps to assist their displaced tenants in finding new, reasonably similar accommodation.

In Australia, by contrast, we do not have strong security of tenure. Tenants can be asked to leave without a good reason. In this we are not alone in the world, but it can be considered uncommon from a global perspective.

But the question still remains: which came first? Does a greater numbers of tenancies lead to stronger rights for tenants, or do stronger tenants' rights lead to confidence in renting, resulting in a greater numbers of tenancies?

Whatever the answer, a strong and well supported rental market is not a bad thing. It's not only good for tenants and their rights - it makes for economic stability in times of uncertainty as well.

See if you can spot the Global Financial Crisis on the graph below.

A bit of perspective with the International Union of Tenants (part 1)

Yesterday we had the pleasure of hosting Mr Magnus Hammar, General Secretary of the International Union of Tenants, for a day in Sydney. Mr Hammar is touring the east coast of Australia following his address to the 7th National Housing Congress in Brisbane last week.

We started the day with a drive out to Rosemeadow/Ambarvale and Claymore, where we met and talked with local tenants, and caught up with staff of the South Western Tenants Advice and Advocacy Service.

Residents of Rosemeadow/Ambarvale spoke of their resolve in the face of redevelopment, and the relocations that they felt forced into by their landlord - Housing NSW. Their stories gave us a stark reminder that restrictions on eligibility for social housing, combined with limits on the availability of appropriate housing for people with mental illness or disability, can lead to dysfunction and despair within the neighbourhood. Sometimes this system fails just about everybody - and it's no wonder that long-established tenants express reservations when told they must move away from all that they know and love.

 

Residents of Claymore told a slightly different story, borne of a different set of circumstances. For these tenants, redevelopment and relocation remain an unrealised threat to the community that has been their home for 30 years or more. Some homes have already been demolished, but the funds required to rebuild those places have not yet materialised. Many doubt they will ever see the brand new houses that have been promised, and in the meantime the uncertainty sees their local infrastructure continue to deteriorate. But these tenants know that no matter what conditions are like on the outside, their community comes from what's inside their homes and gardens, across the many winding streets of their town.

We then traveled back into town for a look at some of the heritage listed public housing buildings in Millers Point, many of which face the continued threat of sale by the NSW Government ...

... and the iconic Sirius Building on Cumberland Street, The Rocks: built to replace stock that was demolished in the 1970's, before green bans were imposed and the wholesale redevelopment of this historic area was stalled ...

But then it was time to let Magnus do some of the talking. We stopped in at the Customs House Library to hear some of Mr Hammar's perspectives of how rental housing in Australia compares to housing markets in Europe.

It was interesting and informative stuff. We'll leave you for now with a few of the slides from Mr Hammar's presentation, for a bit of an impression of where Australia fits into the global picture. We'll return with more details on this international perspective in a later post.

But first - we must express our heartfelt thanks to the tenants of Rosemeadow/Ambervale and Claymore for having us over, and to Mr Hammar for sharing some of his time in Australia with us.

*** 

The real housing supply problem - part 2

In part 1, we discussed the National Housing Supply Council's analysis of what we called the real housing supply problem in Australia: the supply of affordable rental accommodation to the lower-income households who need it. 

Across Australia, 60 per cent of lower-income households renting privately are in 'housing stress' (in New South Wales, it's 65 per cent); 25 per cent are in 'housing crisis' (in New South Wales, 28 per cent).

Those figures are, for the most part, worse than previously. And they are not affected by the overestimate of household formation that has undermined the NHSC's headline claim of a 'housing shortfall.'

The NHSC presents the rental affordability problem as a supply problem in the section of its report headed 'Affordable and available rental properties'.

We've discussed this part of the NHSC's work in a previous report and, as we said there, it can be tricky to get one's head around – but once you do, you get a clear view of the problem.

Here's the headline claims; we'll then discuss how they're calculated:

• In 2009-10, there were 1,256,000 private rental dwellings that were affordable for the 857,000 private renter households with incomes at, or below, the 40th percentile [so, an apparent surplus of 399 000 affordable rental dwellings].
• Of these, 937,000 were occupied by households in higher income groups. As a result, the apparent surplus of affordable rental dwellings for the lowest two income quintiles was actually a major shortfall of 539,000 dwellings (over 60 per cent of underlying demand), up from a shortage of 473,000 dwellings in 2007-08.

What the NHSC has done here is to basically separate the Survey of Income and Housing data into the data about households and their incomes, on the one hand, and the data about what rents are being charged for their dwellings, on the other hand.

Looking at the households, the NHSC says, 'OK, let's divide the households into groups by income'. They use five groups, each with 20 per cent of households ('quintiles'), so the bottom two quintiles represent the bottom 40 per cent (ie the 'lower-income households' we're talking about).

Looking at the rents data, the NHSC says,  'OK, we have so many dwellings rented for this amount, so many for that amount, so many for that other amount – indeed, for a whole range of rent amounts.'

As a first step, the NHSC then says 'Our first quintile of households (ie the lowest 20 per cent) would find such-and-such a number of dwellings affordable (that is, they'd pay not more than 30 per cent of their income in rent); the next quintile would find this-and-that number of dwellings affordable, and so on.'

Then the NHSC takes a second step: 'Now, in real life not everyone gets lined up with the dwelling that's affordable for them. Let's go back to the data and see how many of those affordable rentals are actually getting to the lowest two quintiles.'

And that's the basic problem. There's lots more dwellings that go for rents that are affordable for lower-income households than there are lower-income households – but too few of the affordable dwellings are getting to those households.

Now, you'll notice that the NHSC is again using absolute numbers of households and dwellings. These numbers, as we've said, are based on the data from the Survey of Income and Housing, scaled up according to the ABS's estimate of the number of households in Australia – which, as we know, was an overestimate. This means that the absolute number of households referred to by the NHSC is over-inflated – but so is the number of rental dwellings to which they relate. In other words, both sides of the relation have been inflated – so while the absolute numbers used are off (by ten per cent, roughly), the shape and relative dimensions of the problem described by the NHSC still hold.

And the shape of the problem is depicted in the graph below. Once again, it is tricky to get one's head around, but persistence pays off, because it shows you what's happening in more detail, within those quintile groups.

The horizontal axis (marked 0, 2, 4, 6, 8 and 10) is all those renter households lined up in order of their incomes (lowest to highest), with the quintile groups marked (the NHSC has, a little unhelpfully, slipped into using 'deciles' (ie 10 per cent groupings) here, but just think of that 2 as marking off the lowest 20 per cent, and the 4 marking off the lowest 40 per cent, and so on to 10, which marks off 100 per cent – that is, all households).

The vertical axis is the surplus (up) or shortfall (down) of affordable dwellings, relative to households. As we said, you should knock about 10 per cent off the numbers marked (200,000 etc), but it is the shape of the lines that's important.

Looking at the red line first: this shows the first step in the NHSC's analysis, as described above, in terms of the shortage or surplus of affordable rental dwellings. Imagine that you're some sort of uber-bureaucrat, allocating households to dwellings that are affordable for them.

Starting at 0, move along the horizontal axis – the line of households – and observe what the red line does.

About half way into the first quintile (so, about the bottom 10 per cent of households), you'll see the red line has dipped down. This means that there is a shortage of dwellings affordable for these very low-income households: if you tried to allocate each household to a dwelling that's affordable for them, you'd quickly run out of dwellings, and you'd have to start allocating households to dwellings that are unaffordable for them.

But once you get to about the end of the first quintile (ie the bottom 20 per cent), you'll find that the red line has turned up and is just about at zero again. This means as you've moved along the line of households, allocating them to dwellings, you've found more and more dwellings that are nearly affordable, such that by the time you get to around the end of the quintile group, you're allocating them to affordable dwellings.

And as you keep moving into the second quintile, the red line keeps going up: meaning that if you tried to allocate each household to a dwelling that's affordable for them, you'd have dwellings to spare. Keep allocating households, and the spare dwellings keep mounting until you're past halfway along the line of households. After this point, the red line dips down – but not to worry, this is just you leisurely drawing down on your surplus of dwellings as you allocate increasingly high-income households to dwellings, until you allocate the last (highest-income) household to the last dwelling.

Looking now at the grey line: this shows the second step in the NHSC's analysis. This is real life, where households have gotten their dwellings themselves. You're not an uber-bureacrat allocating households to dwellings; this time, you're just an observer, armed with a clicker counter, counting the households who are paying more than 30 per cent of their incomes for the rental dwelling they actually occupy. 

Starting at 0 again, you move along the horizontal axis, counting the households renting unaffordably. For every one you count, the grey line heads down.

As you move through the first two quintiles of households, you're clicking your clicker counter a lot and the grey line heads down at a steady clip – 60 per cent of households in the line so far you've counted as renting unaffordably.

As you move along the axis into the middle quintile, you find yourself clicking less often, as fewer of the households you encounter are paying more than 30 per cent of their incomes in rent. The grey line starts to level out. In fact, once you're past halfway, you scarcely click at all – and the grey line flattens out.

So that's the size and shape of the real housing supply problem: we've got affordable rental properties, but not enough for everyone who wants one, and certainly not enough for all the lower-income households who really need them. Most of those households – 60 per cent – are missing out, and renting unaffordably as a result.

As for the causes of the problem, and what to do about it – we'll discuss that in part 3.

Tenants at the Census

This week the ABS released the first data from the 2011 Census.

Before anything else, let's welcome the 42 392 new households who joined the New South Wales rental housing sector since the 2006 Census. These new renters bring the total number of rented private dwellings (this includes social housing) to 743 050 - that's 30.1 per cent of all private dwellings. This is a growing proportion too – it's up from 28.4 per cent in 2006.

From all of us here at the Brown Couch and at the Tenants' Union of NSW, we hope you have a good time of it; we're working to make it better. If you have any questions, please ask your local Tenants Advice and Advocacy Service; they know all there is to know about renting in New South Wales.


The welcome here is, unfortunately, a lot warmer than the one these renters got moving into rental housing: at the 2011 Census, the median rent for New South Wales was $300 per week – which represents a 43 per cent increase on the median rent five years previously. Amongst New South Wales renters, 11.6 per cent – over 86 000 households – were paying more than 30 per cent of their income in rent.

More news from the Census:

•  The 2011 Census counted about 7.8 million households in Australia – which is 900 000 fewer than the estimate used by the National Housing Supply Council when it calculated the nation's 'housing shortage' of 228 000 dwellings. As we discussed yesterday, the assumption that households would keep forming and demanding housing, without regard to prices and incomes, on the 2001-2006 pattern, was always very iffy. The NHSC concedes that there's a 'gigantic' difference in the numbers and will have another look.
• The 2011 Census also counted houses without households... and found 934 471 unoccupied dwellings. That's 10.7 per cent of the nation's housing stock. (This spare housing stock is in addition to the 8 million spare bedrooms we found for the Queensland Housing Minister the other day.) It is true that not all of these unoccupied houses can be considered as potential additional housing – some of them would be awaiting demolition, or awaiting a household that has already determined to move in – but if only a fraction of them really represent stock held in reserve, that's even more potential supply to set against weakening demand.

We'll get back to the real housing supply problem – the lack of rental housing that is affordable to people on low-moderate incomes – in our next post.

D'oh! Spare bedrooms correction

Your correspondent woke in the middle of the night to the thought that the overestimate of household growth relative to the Census that affected the National Housing Supply Council's calculation of a housing shortage will have also affected the Brown Couch's calculation of the number of spare bedrooms (because we were both using the ABS's Housing Occupancy and Costs data). Correcting this – by using the new Census data – would reduce the number of spare bedrooms.

Then, on redoing the numbers, he discovered a stuff-up entirely of his own making (forgot to account for the twos and threes). Correcting this stuff-up increases the number again.

So, using household numbers from the Census, without stuff-ups, we now get: more than 8 million spare bedrooms in owner-occupied households.

Sorry about that, readers.

Our posts on this issue have now been edited to use the correct figure – more than 8 million spare bedrooms. The graphs remain the same, because they were about proportions, not absolute numbers.

More on the Census coming up.

Spare rooms and the housing shortage

A couple of days ago we discussed the Queensland State Government's proposal that public housing tenants with spare bedrooms should take in a needy person (or family) from the social housing waiting list... to which we replied, well, owner-occupiers 'under-utilise' to a far greater extent – there's more than 8 million spare bedrooms in the nation's owner-occupied houses – so why not ask them?

Here, by the way, are the data on rates of 'under-utilisation', presented a little differently (the axes are flipped) for clearer comparisons:

Now, by coincidence, the National Housing Supply Council has just released its report for 2012. The lead findings: that Australia has an estimated housing shortage of 228 000 dwellings, which is 28 000 deeper than the shortage estimated as at June 2010, and that the shortage is projected to deepen further to 370 000 dwellings by 2016, 492 000 by 2021 and 663 000 by 2031.

It's a peculiar sort of housing shortage, you might think, when there are 8 million spare bedrooms in the homes of owner-occupiers.

And it is a peculiar sort of shortage when you consider how the NHSC arrives at its figures.

For the NHSC, the shortage is the difference between the change in supply of dwellings (ie the number of dwellings added to the housing stock) and the change in underlying demand for dwellings. By change in 'underlying demand', the NHSC means changes in the size of the population, and how it is divided up into households. When it considers these changes, and projects them into the future, the NHSC assumes that they will occur on the same pattern of change as measured between 2001 and 2006.  

And that's all it assumes. That is to say, the NHSC assumes the population will keep on dividing up into households, and these households keep demanding to be housed, as they did at 2006, in the heady days before the GFC, when folks didn't worry about debt and thought that owning a house was a way of getting rich... and they'll do it without regard to how affordable it is in terms of prices and incomes now, and without regard to a great many other things too.

In the NHSC's words (from its 2011 report):

The Council’s projections include underlying housing demand for occupied dwellings (by dwelling structure and tenure type) that would result from changing household composition over time if the existing patterns of housing consumption (‘demand propensities’) of different household types continued over the period of the projections.

The model assumes that the dwelling and tenure preferences of each cohort of the population (by age, household type and location) over the next 20 years will be the same as that cohort’s proportional use of each dwelling and tenure type in 2006.

The resulting projections do not take into account changes in housing preferences and consumption patterns driven by non-demographic factors such as housing prices relative to income, the development of new types and styles of housing, increased transport congestion and resulting increased journey times to work, increased or reduced working hours, fuel prices, changing fashions, government policy and performance with regard to housing and land development, policy and behavioural responses to climate change and so on. Many of these phenomena have changed significantly in the past and are likely to change further in future.

The Council’s housing type and tenure type projections simply provide, therefore, an answer to the question ‘What would be the underlying demand for housing types and tenures if only the size and structure of the population had changed since 2006?’. (Emphasis added.)

By not taking into account 'house prices relative to income' – that is, affordability – and all those other factors, this is a very big and wobbly 'if'.

To be fair to the authors of the NHSC's report, they do make their assumption explicit  in the report – but it does place a big qualification over the claim of a shortage, and its projected deepening into the future. It's a shortage only if people keep forming new households as if its 2006, without any regard to the affordability of housing, and without regard to a very wide range of other factors.

In the real world, of course, people do consider the affordability of housing when they decide whether to leave the parental home, or the share house, and form a household of their own, and demand some housing – owner-occupied or rented – of their own. And some of those already out there in the housing market might look again at its affordability, and decide to withdraw, back to the spare rooms of parents and friends.

Which brings us back to those 8 million-plus spare rooms. The Australian housing stock has quite a bit of capacity to accommodate persons who change their 'housing preferences and consumption patterns', including in response to apprehensions affordability – whether that's the feeling that prices are too high, or incomes are too low or insecure. And while not each and every person always has access to a spare room outside the market, the Australian population generally has quite a bit of scope to moderate its demand for housing, and hence the prices it will pay.

So claims about a housing 'shortage' of a particular size must be treated with caution. What is much clearer, however, is that we have a housing supply problem, if by that we mean a problem in getting adequate, affordable housing to those who need it. More on that in our next post.

Queensland tenants asked to share public housing

More social housing news, this time from north of the border. Queensland public tenants have received a letter from the State's new Housing Minister, Bruce Flegg, alerting them to a 'crisis' in public housing: 'under-utilisation'.

According to the Minister, more than 8 700 public housing properties have two or more spare bedrooms, while 30 000 persons wait on the housing register. 'Such under-utilisation cannot be allowed to continue', Minister Flegg says.

Accordingly, the Minister proposes transferring tenants to smaller properties... or instituting 'voluntary shared housing arrangements'!

Getting people off the waiting list and into social housing is great, but not when it is done by asking those who are on just the next rung of the ladder to wriggle over a bit. It also overlooks the great untapped reservoir of housing that exists in the spare rooms of owner-occupiers.

This is where the greatest 'under-utilisation' happens, as the Australian Bureau of Statistics shows in its Housing Occupancy and Costs survey.

(Source: ABS (2011) 'Housing Occupancy and Costs 2009/10', Table 14. Click on the image for a better view.)

In fact, of all the tenure types, public housing tenants 'under-utilise' their housing the least – even less than private renters. Meanwhile, almost 90 per cent of owner-occupiers without a mortgage, and over 82 per cent of owners with a mortgage, have one or more spare bedrooms.

And of course, there's lots more owner-occupiers than public housing tenants. By our count of the ABS data [that is, the Housing Occupancy rates and the correct households data from the Census], Australia's 5.2 million owner-occupier households have between them not less than 8 million spare bedrooms.

Perhaps Housing Ministers should consider writing to the nation's owner-occupiers and ask them to take in a social housing applicant.

Or, if they prefer, that they contribute a little more money in tax – say, a land tax that applies to land for owner-occupied housing – to fund a social housing system that grows at least in line with demand for it.

Congratulations, Murdochs

Double congratulations from the Brown Couch to glamorous Sydney couple, Lachlan and Sarah Murdoch.

(The Murdochs)

Congratulations first on the announcement today of the birth of their third child... and secondly on the news that they have entered into a two-year fixed term agreement for Coolong, the handsome Vaucluse pile. The Murdochs are tenants.

(Coolong)

Better do the condition report very carefully.

The Murdochs are one of the 40 per cent of New South Wales renting households with dependent children. In fact, at the 2006 Census, 16 per cent of all New South Wales residents living in rental housing were children aged under ten.