NSW Budget week 2018: Ain't nothin going on but the rent?

With $3.9 billion surplus, this week the government splashed out with a budget they described as one 'for everyone'.

If only it were true. In reality it is very much a decision to keep on the same path when it comes to housing, and that's really a decision to help property investors at the expense of the rest of us. As Professor Peter Phibbs points out in one article there is little support for people renting on lower incomes:

“If you claim to be pushing a people’s budget, they’re the people that are in pain,” Mr Phibbs said.
“If you’re someone aged in your late 20s the fact house prices have gone up more than 70 per cent means that even if they have come back 5 per cent, you’re still not going to be out there celebrating,” he said.
“The state government has made a fortune out of stamp duty … they should be investing more of that money back into the supply of housing.”

Since we're talking about that fortune, now is a good time to think about whether stamp duty should continue to be relied on as a revenue stream. The budget papers described stamp duty as a “highly volatile revenue source” and numerous people, including the NSW Treasurer, accept that there are better alternatives - such as a broad-based land tax, the fairest tax.

We need a good supply of housing which is truly affordable to those that need it most. The Government's current plan which mostly centers on transferring public housing to community housing and the private market is not sustainable. Though it might be true to describe NSW's Communities Plus as Australia's largest social housing building program, this is more of an indictment on the country as a whole rather than something for NSW to be proud of. Public housing remains one of the best investments a government can make. Community housing can and should also be expanded, though this should not be at the cost of a well-run public housing system.

There is a clear need to shift from a reliance on property ownership to house the population. An innovative and forward-looking government, flush with cash earned from a property boom that creates winners and losers, should also be exploring ideas like expanding and encouraging community led housing models like co-operatives.

While nothing much happened for housing in the Budget, plenty happened in and around parliament  this week.

On Wednesday, the day kicked off with a renter's rights assembly out the front calling for an end to no grounds evictions.

Later that day inside the Lower House, debate began on the government's short term holiday lettings bill. The TU was mentioned a couple of times, with the ALP's Shadow Minister Yasmin Catley and Alex Greenwich both referring to concerns we have with the current proposal and flagging amendments.

On Thursday two things of note happened in parliament. The government introduced a bill to apply a range of new and harsh measures to public housing tenants, including bonds for public housing tenants. Minister Goward went on TV in the evening to repeat the claim that public housing is a privilege not a right.

Ch 7 News, 21/06/2018

However earlier that day NSW parliament had passed the following motion, introduced by the Greens MP Jenny Leong, and with members of the Coalition, Labor, and independent Alex Greenwich speaking to it:

The Hansard for the motion is well worth a read.

On the one hand we had a budget that did little to alleviate the housing crisis, and social housing legislation proposing to make life much more difficult for the people government is supposed to be assisting. But there are positive signs of changes afoot. We have a parliament who has officially recognised that housing is a human right and that it is government's role to ensure safe, secure habitable and affordable housing and a growing movement to ensure they deliver.

Joining the dots on affordability

This week is Budget Week for New South Wales. There's still time for the Berejiklian Government to announce the forgotten part of their housing affordability package - the one that tackles Sydney's high rents. So far they've covered tweaking taxes and grants in favour of first home buyers over investors, and fast-tracking supply. But they've left off any policy that would directly affect the rent.

As we've noted before, the shift of incentives from investors to first home buyers is designed to have the strongest impact in the market for newly built properties. We've also previously noted that while the majority of investors do not purchase newly built properties, there has been a significant increase in investor driven demand lately for off-the-plan units. It is worth considering how this change will impact demand for new dwellings over the next few years.

Understanding your standard first home buyer is no easy task. We can go back to the ABS Feature Article from 2012, First Home Buyers in Australia, which tells us that just prior to the height of Australia's post-GFC first home buyer boom there were about 430,000 of them over the three years to 2010. Driven by stamp duty concessions and the Rudd Government's First Home Owner Boost that put either $14,000 and $21,000 into their hands depending on whether they bought an established or new home, slightly less than one-fifth of them bought a newly built property during that time. In the three years prior to that, when the grants were not quite so generous, there were around 320,00 of them with less than one-tenth buying off-the-plan.

This tells us that first home buyers do seem to respond to stamp duty concessions and direct grants, but just like their investor counterparts they are much more inclined to buy established properties than newly built ones. Of course, this is based on how they behaved in the bad old days when property prices were merely exorbitant, but the latest Digital Finance Analytics' Property Imperative Survey suggests these numbers remain in the ballpark - they've identified 330,000 first time buyers in their March report, noting that 80% are buying or intending to buy an established dwelling. But we must note here that an increasing proportion of these first timers identified by Digital Finance Analytics are investors, so they are buying another person's home rather than their own.

Now that prices are scandalous, it remains to be seen if anything much will change after the tweaking of stamp duties and grants. It is possible that 100% of Sydney's first time buyers will rush to the new apartment market to see what they can afford, since the houses they'd evidently prefer to buy are still likely to cost too much. But it's just as likely many will continue to rent the homes they want (or can afford) to live in. Either way, the removal of incentives for investors to buy off-the-plan is likely to see them withdraw from the new apartment market, and this wont be completely offset by any increased demand from first home buyers. Construction activity may well start to fall away in response. If that happens, no amount of rezoning to fast-track supply will save us from the plague of rising rents - assuming it ever could.

This brings us back to the forgotten part of the NSW Government's housing affordability package. Given the recent Federal Budget foreshadows a new Affordable Housing and Homelessness Agreement requiring the states to consider affordable housing targets, along with an Affordable Housing Finance and Investment Corporation that will provide a funding mechanism for the supply of new sub-market dwellings, the Berejiklian Government would do well to adopt planning and zoning reforms along similar lines to those announced by the NSW Opposition a couple of weeks ago. In the face of their own affordability package that might otherwise reduce demand for their services, this could be just the tonic our developers will need - to say nothing of our neighbourhoods and communities who are already crying out for some downward pressure on rents.

NSW Government's affordability pledge

Hot on the heels of the NSW Opposition's announcement, Premier Berejiklian has brought forward the Government's own plan to improve housing affordability.

Announced yesterday, the policy has three different components: incentives for first home buyers/disincentives for foreign investors; fast-tracking development at higher densities; and building more infrastructure to support communities. Careful observers will note that tenants continue to be the real forgotten people, as rental affordability doesn't even rate a mention.

Tenants who are well-off enough to be pursuing a first home purchase will be pleased, as stamp duty exemptions will apply to all first home purchases up to $650,000 from July this year. That's a big change from the current scheme, which sees exemptions apply only to newly built homes up to $550,000, or land up to $350,000. Further concessions will apply all the way to $800,000, rather than the current $650,000. Additionally, a first home owner grant of $10,000 will apply to the purchase of a newly built dwelling up to $750,000, or an existing dwelling up to $600,000. That's a change from the current scheme that only offers a grant for first timers if they buy a new dwelling.

So, depending on what you're buying, first timers' up-front costs could be reduced by around $30,000. Of course, you'll still have to come up with a substantial deposit before you can borrow the balance, so you'd better keep up with your savings plan just to be on the safe side... and cross your fingers that the market has peaked, so that prices don't go up by another 50 or 60 grand before you can take advantage of those extra incentives. Then again, if you're already that close to buying into this market perhaps a correction, and protracted negative equity, is the last thing you want to contemplate right now... To which we say not to worry, with an army of reanimated first home buyers ready to let loose upon the market - each with a $30,000 spring in their step - it shouldn't take long for prices to start climbing again.

First home buyer incentives are only half the story, as changes to taxes and grants will also impact upon investors. Foreign investors will bear the brunt of it as they'll have to pay an increased surcharge on their stamp duty - doubling from 4% to 8% - as well as an increased surcharge on land taxes - increasing from 0.75% to 2%. But all investors will lose the New Home Grant, which was introduced in 2012 to encourage investors to increase supply by purchasing off-the-plan instead of established dwellings. And investors will no longer be able to defer their stamp duty liabilities when purchasing off-the-plan. The new policy could be an attempt to shift domestic investors back to trading in second hand stock - or perhaps it simply acknowledges that this is really what they're most interested in after all - while trying to keep new supply up by encouraging first timers to jump in off-the-plan. We'll need to keep on eye on the impact of this.

As for new supply, we'll take a look at the second and third aspects of the Government's housing affordability plan - fast-tracking supply and delivering more infrastructure - as soon as we can.

NSW Opposition's affordability pledge

NSW Labor announced a housing affordability package over the weekend. It's worth a look.

As reported in the SMH, the Oz, and ABC Online, the headline is that under a NSW Labor Government 25% of government owned land that is earmarked for residential development would be set aside for Affordable Housing. Additionally, 15% of new dwellings or floor space on "privately developed" land would be designated as Affordable Housing, "available for rental or sale to low- to moderate-income households."

As reported in the SMH and ABC Online, with comments attributed to NSW Planning Minister Anthony Roberts, the plan lacks detail. It is unclear just what is meant by "Affordable Housing", although the term does have a meaning in modern housing policy parlance. It generally refers to rental housing that is let at around 80% of the going market rate, and it is usually managed by a registered Community Housing landlord. It is not clear how Affordable Housing "for sale" would be determined, though we note the policy states Labor would "work closely with industry experts, including Community Housing Providers, to formulate the rules around this policy". That's good, but they could include tenants and prospective home buyers in that list of experts as well.

For his part, Minister Roberts says the plan is "totally flawed", and that the NSW Government has already created affordable housing. In comments to the ABC, he is reported to have said:

We are doing it incredibly successfully without destroying the value of peoples' properties, without actually going into the marketplace and providing a level of Government intervention that is no good for anyone.

Presumably he was referring to the Social and Affordable Housing Fund, under which the construction of 2,200 new properties was announced in early March. He might also be referring to the Communities Plus initiative, under which land owned by the Land and Housing Corporation - that's the public housing landlord in New South Wales - is to be "recycled". For the uninitiated, that means knocking down established communities in places like Redfern, Waterloo, Macquarie Park, Telopea and Riverwood, and replacing them with new, higher density neighbourhoods that will include both Social and Affordable Housing. But they'll include more dwellings for sale into the private market than anything else, because that's how this "recycling" model gets funded.

Ignoring the significant upheaval this causes tenants and residents within those communities, Minister Roberts might be right - that is one way to deliver Affordable Housing in parts of Sydney without destroying the city's property values. In fact, it seems designed to encourage further growth in the value of property, while carving out small tracts of affordability for a lucky few. To be clear, that is affordability relative to our extremely unaffordable housing market, as opposed to affordability by any real objective measure. That's good for property owners, but on its own it's not so good for tenants and would be home-buyers struggling to find something they can afford in the places they'd like to live. And it's really not good for the public housing tenants who value their properties in an entirely different way - by making homes and neighourhoods in the communities that are about to be destroyed.

In any event, the scale of Sydney's affordable housing crisis is such that a few thousand extra dwellings here and there won't really put much of a dent in it, even if we do rent some of them out a little more cheaply than the rest. What is needed is a clear and meaningful target for affordable housing to be included in new residential developments right across the city, if not across the state. We need a sustained effort to get more and more of it built with every new development that gets off the ground. On this note we'll give the NSW Labor policy a big thumbs up.

We'll be surprised and disappointed if the NSW Government comes out with a substantially different policy when it announces its own housing affordability package, as it has promised to do in the coming State Budget. Given the recent Federal Budget's focus on delivering Affordable Housing through the proposed National Housing Finance and Investment Scheme, and the reference to aggregate supply targets (including targets for social and affordable housing), residential land planning and zoning reforms, and inclusionary zoning arrangements in the proposed National Housing and Homelessness Agreement, the only real difference we're hoping to see in the Government's plan is a little more attention to detail.

Time will tell.

Please, may we have some more?

The proposed transfer of 18,000 Public Housing properties to Community Housing landlords is as fine an example of placing your policy burden on somebody else's bottom line as ever you might see...

We hear every so often from the Australian Government about its debt and deficit worries. The significance of that debt is questionable, and it's low by international standards, but for the sake of the argument let’s accept the need for budget repair.

The NSW Government, on the other hand is completely debt free. It's hoarding a handy $4.7billion surplus, largely from a buoyant stamp duty take on the back of Sydney's eye-watering house prices over the last few years. Stamp duty has rapidly grown from about 20% of the state’s tax revenue just a few short years ago, to nearly 30% today, increasing from $4.5billion to $8.3billion in the last tax year.

One of the selling points of transferring properties to Community Housing is tapping the de facto subsidy for Community Housing landlords that's known as Commonwealth Rent Assistance (CRA). For people on low incomes, such as a Centrelink benefit or a minimum wage, CRA helps offset the high cost of renting in Australia by adding a few extra dollars to your take-home payments. Community Housing landlords calculate the rent to maximise their tenants' CRA entitlements, then take the lot. This is a nifty way for a state government to draw on federal money to fund their agreed Social Housing responsibilities.

The media release in which Minister Hazzard announced the Social Housing Management Transfer Program suggested it would give Community Housing landlords an extra billion dollars over the next twenty years. That's a billion dollars of federal money, delivered via individual tenants on account of their entitlements to CRA, in case we hadn't made that clear.

If the NSW Government, rich with the take from Sydney’s sustained property largesse, wanted to chuck a lazy billion dollars at the Social Housing system in order to improve it for tenants, it could very easily do so without adding to our apparent federal spending woes - or at least, without dipping into the only national scheme designed to assist tenants in the private rental market. If it really wanted to, it could do this more than once every twenty years or so without putting too much strain on the bank.

It's just a matter of priorities.

NSW Budget: Private rental subsidies

With NSW budget night behind us, the fourth and final entry in our series on the 2016-17 State budget looks at a suite of new and expanded rental subsidies for targeted groups in the community.

Rent money features heavily in the 2016-17 budget

The largest announcement is that funding for 'Start Safely' will be increased dramatically - from $43 million to $100 million over four years. The Start Safely rent subsidy assists women leaving domestic violence to move from crisis accommodation to the private rental market. The additional funding will allow the Department of Family and Community Services to extend the maximum length of the subsidy from 2 to 3 years, and raise the income eligibility threshold - though by what amount is not clear. It should also free up spaces in crisis accommodation in turn. 

Also prominent is the creation of two new rental subsidies. 'Rent Choice' is a medium-term subsidy that will require recipients to engage with education/or employment, as well as unspecified 'relevant supports'. The 'Youth Private Rental Subsidy' will be available to persons aged 16-24 and at risk of homelessness, and may also require engagement with education and/or employment programs. The full value of these new subsidies is not yet clear.

Both Start Safely and the new rental subsidies were flagged in the 'Future Directions' roadmap for Social Housing from 2016-2026.

Thirdly, the Government has allocated $1.1 million in 2016-17 for rental assistance products to support the Commonwealth Government's one-off increase to Australia's refugee intake. The Family and Community Services budget briefing provides that these funds will support the existing 'Rentstart Bond Loan' and 'Rentstart Advanced Rent' programs. Respectively, these provide recipients with interest free loans for payment of a rental bond, and assistance with rent payments to establish a tenancy. Though this initiative was not canvassed explicitly in Future Directions, it is reflective of the plan's intention to 'promote the uptake of existing rental assistance products'.

Though exact figures are nebulous, it's clear that tens of millions of dollars towards helping prospective tenants establish and keep tenancies will leave these most deserving groups markedly better places. This should not be discounted nor understated.

Nonetheless, question marks remain. Most notable is an issue of overarching policy direction - is the private rental market best-placed to be doing the 'heavy lifting' of housing especially vulnerable, low income groups? Certainly, there is a strong argument on value for public expenditure. That land and construction costs are exceedingly high in NSW is well-established; though it indexes national prices, The Economist's global house price index reflects this as starkly as any source. In this respect, rent subsidies are an easy fix, given they require no State investment in land or capital works. But as we have noted time and time again, the private rental market lacks stability, liveability, and affordability - including in comparison to Social Housing, which has traditionally housed many in these groups. This particularly impacts tenants that are already vulnerable for other reasons. To use an obvious example, will a landlord that issues a no-ground notice of termination consider that their rent-subsidised tenant may be particularly affected as a result? And though NSW Fair Trading's review of the Residential Tenancies Act may deliver some improvements, it appears it will be a case of incremental rather than revolutionary progress. 

There is also the question of how precisely Rent Choice and its youth-oriented offshoot will function. If participants fail in their obligations to engage with supports and 'opportunities', will subsidies be decreased or even removed? Available information suggests this is a distinct possibility. Though educational and employment opportunities for these groups should certainly be welcomed, jeopardising their security of tenure in this manner should not. 

Finally, we note that it appears possible that NSW will house the majority of the 12,000 refugees arriving in Australia as part of the on-off increase in the national intake, and resettlement could occur over a period of 1-2 years. Accordingly, we hope that the modest allocation of $1.1 million for refugee-specific programs is sufficiently large - and will be carried over if arrivals are staggered over future budget cycles. 

NSW budget: homelessness funding

In the third of our blog series regarding tenancy and housing in the budget, we look at two more items concerning homelessness and housing unveiled by the Government for the financial year to come.

The larger of these announcements, from Premier Mike Baird, concerns a $40 million funding package aimed at preventing homelessness among young people. The Government will provide $10 million a year over four years toward 'housing, education, training and jobs support' to young adults leaving out-of-home care. The announcement notes that 60% of young people who enter homelessness services have been in out-of-home care.  

It is provided that specific initiatives to be funded include "more transitional housing properties linked to specialist homelessness or other support providers", and "expanding private rental subsidies and accommodation as well as mentor support to vulnerable young people enabling them to access education and training and transition to jobs and independent living". Though it is not stated explicitly in the announcement, this funding appears to be targeted at persons aged 19-24. 

This constitutes a major spending announcement, relatively speaking. The package is several times larger in terms of expenditure than the announcement covering support for Social Housing tenants - and a full 40 times the size of the veterans' rental subsidy discussed below. We certainly support efforts to provide housing, rent assistance, and related support to young people at risk of homelessness. This is particularly so for young people leaving out-of-home care: both Government statistics and the recent Registry Week report from homelessness peak Homelessness NSW suggest this group is overrepresented amongst our homeless population. 

But as the announcement is light on detail, we do have some questions. Most particularly, does providing 'more transitional housing' and 'expanding accommodation' equate to expanding the Social Housing portfolio? If so, how many new dwellings will be delivered? Who will manage them? Would they be provided in addition to other initiatives to deliver more housing under the 'Future Directions' plan for Social Housing? Alternatively, does the announcement suggest targeted allocation of existing properties to young people leaving out-of-home care? How would this impact upon others in need of Social Housing from outside this cohort? Finally, what does 'mentor support' entail?

The second announcement, from the desk of Family and Community Services Minister Brad Hazzard, provides for the creation of another new rental subsidy. Valued at $1 million over an unspecified period, it will assist homeless war veterans to access the private rental market. This appears part of a pledge in Future Directions to increase private rental subsidies. That forms part of a broader objective to deliver increased opportunity for vulnerable persons to avoid and exit the Social Housing system. 

As Homelessness NSW recently noted on the issue, there is evidence that around 8% of homeless people in inner Sydney identify as veterans. But whilst all these people require housing, around half also require intensive support - sometimes for the rest of their lives. So though targeted rental subsidies represent a good start, more holistic support is clearly needed for these most vulnerable members of the community. 

A Homelessness NSW statement addressing 2016-17 budget measures relating to homelessness welcomed an "improved commitment" from the Government - noting especially the increase in rental subsidies. But the organisation called on the State to commit further to addressing the causes as well as the symptoms of homelessness; "Again, the increased investment in mental health, drug and alcohol services, out of home care and domestic and family violence is welcomed but in the context of a healthy economy, higher employment and a forecast surplus of $3.7 billion the time is right to significantly address the causes of social disadvantage and homelessness at a comparable level to infrastructure investment."

NSW Budget: Social Housing funding

The Government will officially hand down the budget today, but much that will be of interest to us on the Brown Couch has already been revealed.

There's no shortage of measures relevant to the Social and Affordable Housing space. A joint statement by Treasurer Gladys Berejiklian and Minister for Social Housing Brad Hazzard has added more meat to the bones of 'Future Directions' - the Government's ten-year plan for management and growth of the Social Housing portfolio. We detailed the three priorities of the document back in January, when the plan was announced: more Social Housing, more opportunities to avoid or leave Social Housing, and a better Social Housing experience. Much has happened on the 'more Social Housing' front since then (our Clearing House has been keeping tabs), but little otherwise. Until now; the initiatives revealed in the joint statement are best categorised under 'more opportunities to avoid or leave Housing'. They amount to $14.4 million of spending, mostly delivered over four years, for jobs, education, and support programs for Social Housing tenants. 

The 'Future Direction' of Housing is increasingly clear (though doesn't include tree houses...yet)

For one, the State will provide $4 million for a free job seekers' service for Social Housing tenants, and a further $1.2 million for 150 tenants to receive training, support, and work placements as care workers. Most important is that the job seeking service will be accessible on a voluntary basis. This would seem to satisfy our reflexive concern that such initiatives to 'improve opportunities' could in fact threaten tenancies, if tenancy agreements were conditional upon participation. And if the initiative to move tenants into work as carers seems oddly targeted, consider that the impending rollout of the NDIS is expected to create considerable new demand for care workers throughout Australia. There is also thought to be unmet demand for care workers in the aged care sector. So whilst the scope of the latter measure is decidedly modest, the strategy appears sound. We hope it captures some of the hundreds of thousands in the community performing this valuable work without pay.

For education, there's $3.2 million towards scholarships and support services for high school students from "low socio-economic backgrounds", with a view to assisting school leavers access tertiary education. We might query whether the Government hasn't shoehorned another agency's program into the Social Housing sphere, because unlike other initiatives, there's nothing in the announcement suggesting the program is actually targeted at students residing in Social Housing.

Also announced is a further $2 million, which will be provided as "seed capital" to deliver "opportunities" for students from Social Housing of pre-school age. We'd call that explanation clear as a heavy fog, in a blizzard, at night, with sunglasses on, but it's all we have to go on. So we will refrain from commenting on its worth at this stage. 

For support, the State promises $4 million "for nurse home visiting to improve child development and assist with the co-ordinated care of vulnerable and at-risk families". Given it is targeted at all vulnerable families, this presumably falls as much into the 'avoiding Social Housing' bracket as it does the giving of 'opportunities' for current public housing tenants. Though it is certainly no panacea, assistance of this kind could be a great assistance to families at risk of homelessness.

The one other detail of substance is that total spending on Future Directions programs over the next four years will come to $280 million, so it's reasonable to expect more announcements to follow.

State Budget 2016: extra duties for foreign purchasers

The NSW Government will hand down its 2016-17 State Budget on June 21. That's... tomorrow!

But announcements on new spending and policy are already finding their way out of Macquarie Street. One matter of some interest to tenants - and more than a few landlords, we bet - concerns changes to stamp duty payable by foreign purchasers.

Investors not ordinarily residing in Australia will be obligated to pay an additional 4% surcharge on the purchase of residential real estate. This is considerable. As The Sydney Morning Herald noted, the duty payable on a home purchased for the median Sydney house price of $995,804 would all but double from $40,305 to $80,137. It is expected to raise an extra $1 billion over four years.

The official rationale is that the surcharge serves the broader community interest by raising funds for public amenities. Or, as Victoria, which recently implemented its own surcharge, puts it: as capital growth in residential property is largely attributable to an area's quality of life, foreign purchasers (who are unlikely to pay much if any tax to Australia on income, consumption, and so on) should make a fair contribution to the public spending that delivers that quality. 

But from a tenant's point of view, the move is less interesting for the official line as what else it might say about our housing market. Office of State Revenue figures show that the NSW Government has been riding high on stamp duty revenue for the last several years - from collecting $3.3 billion in 2011/12 to well over $7 billion in 2015/16. But, of course, this is inexorably linked to sharp growth in sales prices, in Sydney especially. And the latest Rent and Sales Report suggests prices flattening or slightly declining in a number of LGAs across Greater Sydney. Many well-placed commentators are warning of more of the same - including the Reserve Bank, OECD, property analysts CoreLogic, and ratings agency S&P from last week alone. 

Shadow NSW Treasurer Ryan Park said of the surcharge, "We're very concerned that this is a very short-term move based on the fact that the Government knows that the [property] market is cooling, based on the fact that we're all the more reliant on stamp duty."  And tenants may have reason to share that concern. Because a reliance on sharp and perpetual growth in property sales to fund spending is a reliance on housing speculation. That is, the same speculation that has sparked price growth to lock tenants who would be homeowners out of the purchase market - in many cases for good. As we explained in one of our favourite posts on the Brown Couch, those frustrated homeowners are not the only tenants missing out. They also tend to be more competitive in the rental market in which they are forced to remain than those on lower incomes - forcing up rents across the board. 

Of course, restraining this speculative frenzy is not a matter for State Government alone. It's also a major Federal Election issue, and part of the focus of the excellent Vote Home campaign. But you can be sure tenants would benefit much more from efforts to create a more equitable and accessible housing market than from an extra $1 billion skimmed from foreign participants in our speculative housing market.

On the other hand, some developers have declared that the surcharge will actually have the unintended consequence of driving house prices down. There's precious little evidence to support the position.

There's one more thing to consider: we've also heard our share of stories about foreign purchasers buying properties off the plan, only to leave them empty. The alleged practice would allow the dwelling to be sold as new, negating any need for the purchaser to spend on maintenance or property management. It also restrains rental supply - thereby helping to drive up rents even as new homes are delivered to market. There's nothing definite to establish just how widespread the practice might be, but the UNSW City Futures Research Centre has raised concerns about what it says are up to 90,000 unoccupied dwellings throughout Sydney. A surcharge on stamp duty could function as a disincentive against the practice; As most purchasers will be required to pay tens of thousands of dollars more, they could be driven to take the extra steps required to attain a rental income to help cover it.

Happy anniversary, Residential Tenancies Act - part 4

Six years ago today the Residential Tenancies Act 2010 became part of the law of New South Wales.

Now we are six we're as clever as clever...

Part of the deal was that it must be reviewed after five years, to see whether its policy objectives remain valid, and its terms remain appropriate.

This statutory review of the Act commenced in late October 2015, with NSW Fair Trading inviting interested parties to contribute via a public discussion paper. They received in excess of 200 submissions - many of them from tenants. We produced our own submission, and have discussed it quite a bit on the Brown Couch as well.

The review is required to conclude within a certain time. The responsible Minister must table a report in both Houses of Parliament by the sixth anniversary of the Act's date of assent. That means it's due today.

But there's a problem - Parliament is not sitting today.

Both Houses will sit for three days next week, before taking a break until early August. The Government of NSW will use these sitting days to deliver the 2016-17 State Budget, and will no doubt have much to discuss. Will they also have time to table a report on the state of our renting laws?

We sure hope so! Stay tuned, we'll keep you posted.

NSW Budget 2015

We don't have a lot to say about the most recent NSW Budget, released last week, as it doesn't have a lot to say about renters! Apart from a modest promise to increase supply, the government was largely happy to take its share of the boom without addressing what it meant for large parts of the population. At least the gorillas and meerkats at Taronga are getting new homes.

As Shelter NSW put it, “The $2.1 billion surplus is the government’s share of the speculative boom driving housing unaffordability and causing deep hardship to many low-income households... “Shelter recognises that the Government is spending more to support new housing supply, but notes that the planned growth is insufficient to meet the growing need. It’s unlikely to even slow the affordability crisis for low and very low income renters." You can read more from Shelter's release here.

The most interesting part of the Budget for tenants came in the Labor Opposition's response. Luke Foley is advocating for 20 000 properties to be transferred across to Community Housing Providers, including property title, and flagging an intention to see all public housing properties moved out of government hands.

“Existing tenants, the users of social housing, will benefit because the associations are closer to them and avoid the characteristics of old style monolithic bureaucracies. This is an area of public policy where I believe the not-for-profit sector will do better than the state."

“Over time all of the state’s public housing should be transferred to not-for-profit community housing associations. They are more responsive and they are best placed to lift the quality and quantity of social housing stock."

The Tenants' Union does not oppose the expansion of community housing, any plan to increase social housing is welcome. We do question some of the assumptions in this plan, particularly about the true differences between public housing and community housing and their ability to deliver for their tenants. For example, the characteristic of a "monolothic bureaucracy" is often a function of the organisation's size- so what happens to that justification if a community housing provider gets as large as a government department?

No Land Tax to ride donkey vote?

No Land Tax has nabbed first position on the ballot sheet – and thus the prospect of picking up the donkey vote – for the upper house in the NSW State election. This is fitting, as the party is devoted to free rides for land owners.

Considering that it faked photos of party members on its website, No Land Tax has also done well to find a candidate for every lower house seat.

Mind you, about 70 per cent of No Land Tax candidates don't actually live in the electorates they are contesting.

Nearly all of them comes from Sydney – and many come from a few big property families.
 
For example, James Ruben is Party President and number 4 on No Land Tax's upper house ticket; his mother, Susanne Gervay, is standing for No Land Tax in the seat of Vaucluse, and no fewer than four other members of the Ruben-Gervay families are candidates for No Land Tax. No fewer than five members of the Cacciotti family are standing for election for No Land Tax, in seats as far afield from their ancestral home in Balmain as Cootamundra. Similarly, the Lopreiato family is fielding no fewer than five candidates, the Di Cosmo family no fewer than four, the Arduca family no fewer than three, and the Marra family no fewer than three.

Going by surnames, it appears that about 40 per cent of No Land Tax candidates are related to at least one other No Land Tax candidate.

*

Let's look at some more land tax numbers – this time from No Land Tax's campaign website.

We've previously discussed Land Tax's claims about the basic economic effects of land tax (they're wrong – land tax promotes productive investment and economic growth) and housing affordability (they're wrong – land tax makes housing more affordable). This time we'll look at their claims about land tax revenues.

No Land Tax says:

Every year Land Tax goes up.
Next year it will increase by 4.7%.
Over the next 4 years it will increase by a whopping 20%.

These figures are... quite correct (they're consistent with the forward estimates in the NSW State Budget papers). What's missing is the context.

As the Budget papers also show, total State taxes next year will increase by 5.6 per cent, and over the next four years will increase by a 'whopping' 23 per cent.

So on present settings, land tax payers will be getting off more lightly over the next four years, relative to other taxpayers.

We say, of course, that land tax should be doing more of the lifting, not less – particularly through reforms that broaden the base to include land used for owner-occupation and primary industry, and change the rate structure. These reforms would also discourage speculation and make housing more affordable and secure.

No Land Tax, on the other hand, say that property owners should be relieved of paying even a small bit of the value that accrues, unearned, to them – and that everyone else should pay more GST instead.

You really would be a donkey if you voted for that.

Millers Point: three new homes for every property sold?

Last night a second government owned property in Millers Point was sold. Family and Community Services Minister Gabrielle Upton reports it sold for $2.56 million. This follows the first property sale price of $1.911million.

Minister Upton says for each property sold in Millers Point, the government's public housing portfolio could be increased by three. But not so long ago the Secretary of FACS said the current State Budget would deliver a 'line-ball' increase in social housing supply this financial year.

More recently, the Minister herself told the Budget Estimates committee (see page 5 of the transcript) that for every million dollars her department spends on its housing portfolio, only $190,000 – 19 per cent – goes towards new housing. Of the rest, $340,000 is used for 'improvements' (for example, kitchen upgrades), and $470,000 goes to repairs and maintenance.

Now, we're all for spending money on overdue repairs and maintenance of the government's housing portfolio, but it's a bit rich to sell other people's homes in order to pay for it. Especially when much-needed growth of the portfolio is implied, to justify the sales.

Anyway, on the basis of Minister's Estimates statement, we thought we'd see what we could do with the $4.471 million raised so far. Within the confines of the Budget, of course...

First things first, we'll have to put about $1.52million aside for 'improvements', and a further $2.1 million aside for repairs and maintenance. This leaves us with just under $850,000 to tip into the 'new housing' bucket.

$800,000 will get you a pretty swish flat in Sydney, leaving change for stamp duties, legal costs and perhaps even some champagne to celebrate.

Cunningham St Sydney - from www.realestate.com.au

Or, if you wanted to replace the two Millers Point properties with a pair of dwellings, you can get a nice little studio in the same complex...

Cunningham St Sydney - from www.realestate.com.au

... a spacious walk up in Parramatta...

Early Street Parramatta - from www.realestate.com.au

... or a respectable family home in Campbelltown, for around $400,000.

Lindesay Street Campbelltown - from www.realestate.com.au

Of course, if you wanted to replace the two Millers Point properties with six homes in Sydney, you'd be hard pressed to do it. You'd be looking at around $140,000 per home. A quick look at the real estate pages tell us you can still find homes at such low, low prices, but nowhere near Sydney. You'd have to look in places like Deniliquin, South Grafton, Dubbo, Jindabyne, Albury and Orange.

Which leaves us with two possible conclusions to ponder: either the money will be used to buy houses in regional NSW, or more of our existing metropolitan public housing will be demolished so that we can 'replace' the Millers Point homes on land already owned by the NSW Government.

Help us keep track of what's happening with public housing sales and estate redevelopment. Check out our Clearing House blog for more information.

NSW State Budget 2014: part 2 – where is the money coming from?

In his Budget speech, NSW State Treasurer Andrew Constance said:

0. The money to rebuild New South Wales must come from somewhere. Our best option is to recycle capital from our existing infrastructure. It doesn't place a debt burden on our children, or a tax burden on enterprise.
   

 
Does the NSW State Government need to get its money from somewhere? From the perspective of Modern Monetary Theory, Treasurer Constance is... quite correct.

Unlike the Australian Government, which issues the national currency and so can never run out of it, the NSW State Government does not issue currency. This is a fundamental difference between the Australian Government and each of the State and Territory Governments. The NSW State Government is a currency user, and like other currency users, such as households and firms, the NSW State Government must finance its spending. It does indeed have to get money from somewhere.

Treasurer Constance indicates some of the ways in which the NSW State Government can finance its spending. Like other currency users, the NSW State Government can sell things it owns (the Treasurer's preferred method); it can also borrow money from financial institutions (which the Treasurer does not like doing). However, the NSW State Government has another means of getting money that's not available to households and firms: it can tax.

The NSW State Government uses money it collects through State taxes to finance its spending (unlike the Australian Government). This includes what it spends on interest on the money it has borrowed. It must be kept in mind, however, that the ability to raise money by taxation – that is, taking money from citizens by force of law – makes the State Government, in the eyes of lenders, a very safe prospect (AAA credited rated), and so it can borrow at lower rates than other currency users.

Which is why we find it baffling that the State Government should be so averse to debt that it won't borrow money to grow the stock of social housing... but is happy for community housing organisations to borrow for the same purpose, and will engineer intricate regulatory regimes and private sector consortia to try to make this happen, even though the State Government is innately better able to get cheap debt.  

Now let's look more closely at how the NSW State Government taxes.

The NSW State Budget predicts that for the coming year, 38 per cent of the NSW State Government's revenues will come from States taxes. (By contrast, 43 per cent will come from payments from the Australian Government; and the remaining 19 per cent will come from sales of goods and services, royalties, fines and other incomes.)

(NSW State Budget 2014, Budget Paper 2, Chapter 6)

And here's how NSW State tax revenue breaks down. The big three are: payroll tax (comprising 30 per cent of total State tax revenues), followed closely by transfer duty (AKA stamp duty – 24 per cent), then land tax (10 per cent).

(NSW State Budget 2014, Budget Paper 2, Chapter 6)

As well as raising revenue for the State Government, these taxes affect the behaviour of economic agents – in troubling ways.

Payroll tax is levied on firms at the rate of 5.45 per cent of the wages they pay to New South Wales employees above a threshold of $750 000 pa. Firms pay the tax, but because it increases the cost of putting employees on, it will cause some firms to choose not to put additional employees on, thus reducing demand for labour and hence labour's price – ie higher unemployment and lower wages. Not a happy result.

Transfer duty is levied on purchasers of property at rates applied to the value of the property bought; the rates apply progressively from 1.25 per cent up to 7 per cent on 'premium' properties above $3 million. Purchasers pay the duty, but because it otherwise increases the cost of purchasing a property, it will cause some would-be purchasers to bid less. Insofar as it discourages some would-be speculative buyers, that's a good result, but this effect also applies to other would-be purchasers, with unhappy results. In particular, people who just want to move house – to downsize, or to be closer to work, or to take up a job opportunity elsewhere – get punished by transfer duty, and as a result may not move. This makes the uses of property generally less efficient, contributes to long trips to work, and holds back economic opportunity. On balance, not a happy result.

Finally, there's land tax. Land tax is levied on owners of land at the rate of 1.6 per cent of total assessable land value above a threshold of $412 000 (increasing to two per cent on total values above $2 519 000). Land tax is levied annually, regardless of the amount of income – if any – the owner has derived from the land. This means the burden of land tax cannot be passed on by owners to the users of land (ie tenants), because owners cannot defer the liability while holding out for a higher price to cover it (contrast, say, a sales tax, which is payable only when the sale is made, thus allowing the vendor to hold out).

It also means that owners are encouraged to put land to productive use – or sell it to someone who will. This tends to discourage speculative hoarding and reduce the cost of land, making housing more affordable.

And, by its nature, land cannot be taken out of the jurisdiction or hidden – making land tax hard to avoid – and its supply cannot be reduced.

Finally, keep in mind that the increases in value that land tax gets at are increases that come from the economic development of the community generally (such as developments in transport infrastructure, and developments in uses of adjoining sites). Taxing these increases allows them to be 'recycled' for community use, rather than leaving them to accumulate, unearned, to the land owner.

These are the numerous happy results of land tax... the trouble is that we don't get anywhere near the full benefit of them, because of the defective way in which land tax is applied in New South Wales. Far too much land has been made exempt from land tax: in particular, land used for owner-occupied housing, which accounts for about 60 per cent (by dollar value) of the potential tax base. This undermines the discouragement of speculation in land and makes housing more expensive.

There's other problems too: the threshold is too high ($412 000 cannot be justified as an exemption for low-cost housing) and the increasing marginal rates discourage large institutions, such as super funds, from owning residential rental properties.

The NSW State Government should be making much greater use of land tax, both for the revenue it the Government needs, and the encouragement land tax – properly applied – gives to productive economic activity and housing affordability. The NSW State Government should broaden the land tax base to include owner-occupied housing, reform the structure of the rates, and replace other taxes that burden work and enterprise.

Read the TU's land tax policy here.

NSW State Budget 2014: part 1 – social housing

Social housing will continue to consume itself under the terms of the NSW State Budget announced yesterday.

In the coming year, $612 million is allocated for new social housing supply and maintenance – a 23 per cent increase on 2013-14.

However, that money is to come from sales of social housing assets, notably properties at Millers Point and The Rocks, but other places too.

Will this process of sales and spending result in a net increase in the social housing stock? Family and Community Services Secretary, Michael Coutts-Trotter, says it will be 'line ball'.

In the context of a growing need for housing, a 'line ball' result on supply is to go backwards, and tightens the unsustainable spiral of decline in which the system is caught. Only new spending for a substantial increase in social housing stock will make the system sustainable.

It's FAIRbruary!

February is FAIRbruary at the NSW Council of Social Service (NCOSS) – and, we hope, throughout the wider community too.

NCOSS is talking about greater fairness through:

• greater access to transport, particularly health transport; 
• greater investment in early intervention services for vulnerable children; 
• action to prevent electricity disconnections; and 
• more social housing. 

There's more info on the FAIRbruary website, and all the details in NCOSS's Pre-Budget Submission for 2014-15.

Why not write a letter or email to your local MP and tell them how they can make New South Wales fairer for all its citizens.

A quiet word on the budget

It would be remiss of us to let the week pass without a quiet word on the NSW State Budget for 2013-14.

... And a quiet word is really all that's required.

It's not a particularly exciting budget for tenants - it's pretty much business as usual.

There'll be no significant change in the supply of housing and tenancy management services from the NSW Government.

There will be no increase in funding for Tenants Advice & Advocacy Services, even though it is sorely needed. (The Consumer, Trader & Tenancy Tribunal gets an increase of half-a-million bucks, though...)

Tenants who are also potential home buyers might have been on the look-out for changes to the First Home Owner Grants scheme. This controversial scheme was restricted to new builds in New South Wales in last year's budget (and similar restrictions apply in other states as well). Well, there was no change, but the planned reduction in the grant from $15k to $10k, which was scheduled to occur in Jan 2014, was put on hold until Jan 2016.

We'll leave it to others to comment on that.

Social housing rents bite on carbon tax compensation

With the State Budget comes confirmation that Housing NSW will include carbon tax compensation payments in social housing rent rebate calculations, starting from March 2013. (Click here for the media release.)

So, for most social housing tenants, 25 per cent of their payment will go to increased rent.

(We swore to ourselves that the last time we used this metaphor really would be the last time, but like the Count himself, it just won't die... and we had an eerie premonition that something like this might happen.)

As Shelter NSW points out, the State Government's decision is contrary to the general principle that income of a general nature is assessable for rent rebate purposes, but specific purpose supplements (like the GST supplement) are not.

The State Government's decision is also contrary to the stated intentions of the Federal Government. From the CleanEnergyFuture website:

Public housing tenants

Assistance is not intended to be included in state government public housing rent setting calculations so that public housing residents get the full benefit of assistance.

Housing Minister Pru Goward explained the State Government's decision:

Industry commentators forecast increases to property costs of up to 1.7 per cent. This increase would cost social housing in NSW $50 million over 4 years....

This is another reason why the NSW Government opposes the carbon tax because of its significant adverse impacts on the people and economy of NSW.

It is not the Brown Couch's job to advise politicians on how to spin, but the Coalition State Government might want to be careful not to appear to make social housing tenants the pawns in a political contest between itself and the Federal Labor Government.

Help the TAASs help tenants

We've mentioned a few times the good work of the Tenants Advice and Advocacy Services. These are community organisations funded under the Tenants Advice and Advocacy Program (which also funds the Tenants' Union, as a resource body for the TAASs).

Last year the TAASs helped more than 32 000 tenants across New South Wales with phone advice, community education, personal advocacy and representation in the Tribunal.

Now the TAASs are asking for your help.

Baseline funding to TAASs has not increased for almost 10 years. It is as if no additional tenancies have been created since 2002... but, in fact, the private rental sector has grown since then by about a quarter. And the caseload of the TAASs has grown by almost half.

So the TAASs are stretched thin. They need more money to employ more advocates to help more tenants.

The TAASs aren't asking tenants to reach into their pockets and part with any more of their hard-earned money – they figure tenants already part with enough in rent and bond payments. That's where their funding comes from: from a small proportion of the interest earned by monies lodged with the Bond Board and in agents' statutory accounts. Instead, the TAASs are asking for a bit more of that interest earned on tenants' monies to go to the TAASs, to improve their services for tenants.

The money's there: even after paying out significantly larger amounts towards the operations of Renting Services and the Tribunal, and a little bit to tenants individually, the Bond Board has been sitting on mounting surpluses for years.

Over the years two independent consultants have been engaged by Fair Trading NSW to review the Tenants Advice and Advocacy Program; both have reported back that it's a good program that should receive a substantial increase in funding. But to date no action has been taken to increase the funding.

So, please write to the NSW Minister for Fair Trading, the Hon Anthony Roberts, and the NSW Treasurer, the Hon Mike Baird, and ask for better funded Tenants Advice and Advocacy Services, for the collective benefit of all New South Wales tenants.