Kids Still Can't Fly

We posted recently about children falling from windows. It's happened again – this time, fortunately, the four-year old girl who fell is recovering in hospital.

The Daily Telegraph reports that the State Government is considering what actions it might take to address this problem. It need look no further than the report of the Children's Hospital at Westmead.



Now, if you follow the link to the Tele's article (here it is again) you'll see some reader comments at the bottom – many of them from landlords who don't at all mind giving their industry a very bad look. Tidied up a bit, they disclose two main objections – both readily answered.

Objection 1: how about parents exercising some personal responsibility?

Parental care and responsibility will always be the best assurance of a child's safety. Surely the goal is making parents' exercise of responsibility work to best effect. What the Children's Hospital's proposed reforms would do is put window-limiting devices into the hands of parents and tell them 'now, exercise your responsibility and use them – make them work to keep your children safe.'

Objection 2: but what if there's a fire?

The Children's Hospital anticipated this one in their report, and asked Fire and Rescue NSW (formerly NSW Fire Brigades) for its view. It had no conclusive data as to how many people escape fires by exiting through a window – whereas the Hospital's data shows that kids falling from windows is a clear and present hazard. Fire and Rescue NSW's own recommendation is that people should plan to have multiple escape routes in the event of fire, and that window-limiting devices should be able to be unlatched, unlocked or removed by adults.

The Tele editorialises on the issue:

Shut legal window

IT isn't the biggest state project of all time, but it is deeply urgent. A simple change in state housing laws will possibly save many children from serious injury or death resulting from second-floor (and above) window falls.

As things stand, there are relatively few regulations mandating safety for windows in NSW houses. As we've lately seen, these sort of conditions can easily result in terrifying falls for young children.

A basic legal requirement to limit the amount that a window can open, therefore preventing any falls, is all that is needed.

In the meantime, there are extremely simple steps that parents of little children can take in order to make their houses secure.

Any person who is competent with basic tools should be able to stop windows being opened dangerously.

Why wait for the Government to act?

Well said.

Negative gearing - turning off the third rail?

An eyebrow-raising report in the Herald today:

THE Gillard government has sounded out unions over steps to cool Australia's housing market, with measures that range from a new sales tax for investors sitting on large property portfolios, to curbing the popular strategy of using negative gearing for multiple properties.

The proposals to do something about negative gearing, in particular, catch the eye. Is the Labor Government finally daring to touch what has long been regarded as the third rail of Australian politics, in order to slow the debt-laden housing loco as it barrels down the line?

(Labor ministers and union representatives gingerly prod the third rail.)

The report is short on details, but gives an outline of the strategy:

[T]o reduce political risk, the changes have been designed to target only the wealthiest property owners, leaving those with one investment property untouched.
...
[The negative gearing] proposal is to scale back the negative gearing tax benefit from its 100 per cent benefit as the number of investment properties rise.
...
About 1.7 million property owners used negative gearing in the 2009 financial year, claiming rental losses as a tax offset. This generated a net rental loss of $6.5 billion for the financial year, Tax Office figures show.
They show about 1.19 million Australians own one investment property. About 294,000 have two investment properties, while those with three number 88,300.
Meanwhile, about 14,100 Australians have six or more investment properties, the figures show.

Our housing system sorely needs negative gearing to be reformed, but does it need this sort of reform?

Do we need further preference given to small-holding amateur landlords, who all-too-often get into the market without a second thought to tenancy, instead of multiple-property holders who might take a more professional approach to their business?

Do we need to further encourage the dedicated negative-gearists out there to borrow up big and spend up big on a single property ('aw yeah, it's a premium property!'), instead of building a portfolio of lower price - and hence lower rent - properties, which is what we really need?

There's other ways of reforming negative gearing. There's the short-lived 1985 reforms – recently reprised by Saul Eslake – which allowed landlords to set their losses (ie the amount their rental income fell short of their interest payments) only against future rental income or capital gains, rather than against all their income from work and other sources.

Or there's restricting negative gearing to newly constructed properties only, and for a certain number of years post construction.

Or there's the Henry Review's proposal to reduce the tax preferencing of capital gains by discounting tax on rental income... more on that as our review of the Henry Review continues.

Kids Can't Fly

A couple of years ago Dr Danny Cass, head of Emergency and Trauma at the Children's Hospital, Westmead, noticed something: an increasing number of his tiny patients had sustained their injuries from falls from residential windows and balconies.




Looking over his records, Dr Cass found that over the ten years to 2008, 169 children had been admitted for this reason – and that's just at the Children's Hospital at Westmead.

Last month the Children's Hospital at Westmead released the report of its Working Party for the Prevention of Children Falling from Residential Buildings. Its recommendations include making amendments to residential tenancies and strata legislation to require landlords and owners corporations to provide safety devices (window guards, durable and sturdy mesh screens, locks, winow opening limiters) or other permanently affixed devices on openable windows more than three metres above an external surface, such that occupants could limit the window opening to 100 millimetres.

The same month yet another child, a boy two years old, fell from a window at home and died.

The issue of window safety was not specifically considered in the review of residential tenancies law that led to the recently commenced Residential Tenancies Act 2010. The relevant provisions of the Act – that premises must be provided and mainatained in a state of reasonable repair, and must comply with health and safety legislation – do not go so far as to specifically require the window safety devices described by the Children's Hosital's report. This means that tenants who ask their landlords to install such devices might be told 'no, the windows in reasonable repair/safe enough as is'. And of course there are many more tenants and landlords who, in the absence of a specific requirement for window safety devices, may not turn their minds to the issue at all – until it's too late.

The Tenants' Union strongly supports the Children's Hospital's proposals. They can and should be implemented now – and there could be no more worthwhile first item of business for a new Fair Trading Minister.

New Ministers

We referred yesterday to the new State Coalition Government's Minister for Citizenship and Communities, Victor Dominello. It would be remiss of us if we didn't properly congratulate him and his colleagues newly appointed to ministerial portfolios relating to renting.

Congratulations to the new Minister for Fair Trading, Anthony Roberts –

(Minister for Fair Trading, Anthony Roberts MLA)

– and the Minister for Housing...

...

... actually, there is no Minister for Housing. For the first time in 70 years, there is no Minister for Housing in the NSW State Government. Congratulations instead to Minister for Finance and Services, Greg Pearce –

(Minister for Finance and Services, Greg Pearce MLC)

– and Minister for Family and Community Services, Pru Goward.

(Minister for Family and Community Services, Pru Goward MLA)

Ministers Pearce and Goward share responsibilities previously allocated to Housing Ministers, including administration of the Housing Act 2001.

This new division of ministerial responsibilities is an interesting development, and we'll have to see how it works in practice. As noted by the Brown Couch after the federal election, the Commonwealth Government has also lost its Housing Minister. We were disappointed with that decision, because the Commonwealth had only just restored the portfolio after years of abeyance under the Howard Government, and a wide-ranging federal housing portfolio had the potential to direct policy to outcomes like improved affordability and security, rather keeping the great housing Ponzi scheme going.

The situation is a little different at the level of State Government, because unlike the Commonwealth Government it is directly involved in housing provision through the public housing bureaucracy. Despite successive Housing Ministers taking office with a commitment to being 'a minister for housing, not just public housing', each has been fatally attracted to the administration of public housing, including individual allocation and tenancy management decisions.

Maybe the new arrangement will break the curse. Still, its a curious thing for the Commonwealth Government, which does not directly administer a social housing system, to have a Minister for Social Housing, and for the NSW State Government, which does have a social housing system, not to have a Housing Minister at all.

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It would be remiss of us too if we did not acknowledge at least a few of those on the opposite side of politics who exited the parliament at the recent election.

In particular, the former Fair Trading Minister, Virginia Judge, who lost her seat in the Legislative Assembly, deserves credit for her role in producing the new Residential Tenancies Act 2010. After an over-long review of our renting laws (under three previous Ministers), it was Ms Judge who finally got out of it a new – and significantly improved – Act.

Secondly, we also acknowledge the efforts of Paul Pearce, previously MLA for Coogee. Mr Pearce was never a Minister for Fair Trading or Housing – more's the pity, because he was always a voice in the parliament for tenants and marginal renters. He leaves with our thanks and best wishes.

Sex exploitation in marginal rental

Today's Herald reports on the experience of international students living in illegal boarding houses in university-side suburbs throughout Sydney. These marginal renters often live in difficult conditions – the 'boarding houses' are often just ordinary houses and flats with partitions thrown up to create additional rooms, in each of which several students might sleep – and sometimes have to deal with some of the very worst landlords in our housing system, whose demands start at exploitative rents and go on to exploitative sex.



The Herald reports that the new State Minister for Citizenship and Communities, Victor Dominello – also MP for Ryde, where many of these boarding houses have sprung up – is proposing legislation to better regulate this sort of marginal rental accommodation.

In fact, the Minister has already got some legislation ready – a private member's Bill drafted last year, when he was in Opposition. This Bill would have created a boarding houses register, to help sort the legitimate operators from the rogues.

As the Tenants' Union said at the time, a boarding houses register would be a welcome and useful consumer protection measure and should be part of a wider ranging program of reform of the marginal rental sector. In particular, let's build on the register so that it also becomes an accreditation or even a licensing system to check that operators have appropriate skills and knowledge of their business (Mr Dominello's party proposed something similar for residential park operators ahead of the election).

And let's also get the lamentable state of legal relations between marginal renters and landlords sorted out with legislation for modern occupancy agreements that have to comply with a few basic occupancy principles.

It's not only the marginal renters themselves who stand to benefit form better regulation. The universities and the legitimate operators should get behind marginal rental reform too, for the benefit of their reputations and businesses.

Good on Mr Dominello for maintaining his interest in this neglected part of our housing system as his party makes its transition to government. And here's hoping that from his new position of power, the Minister builds on his efforts in opposition and pushes for a more ambitious program of reform for marginal renters.

Tenancy Culture Studies: More Fun and Games

Renting is occasionally described as a mug’s game, a view we certainly don’t subscribe to, but in this entry into the Brown Couch’s growing library of tenancy culture studies we delve into games inspired by renting.

Of course, we have previously mentioned the ultimate property-related game of Monopoly and it’s ancestor, the Landlord’s Game. However, there are in fact two very different games with at least as many, if not more, players than Monopoly that are relevant to our interests.

In 2008 Monopoly fans across the globe set out to break the world record for the number of players playing at the same time. They achieved a respectable 3000 according to Hasbro. Somewhat embarrassingly for the wannabe property developers and occasional landlords however, at that exact moment there were something more than 1.5 million people playing “Fight the Landlord”, or Dou Di Zhu on online platforms such as TencentQQ and GICQ.

(Dou Di Zhu on the popular QQgames platform)

The game involves three players. One player is the Landlord, the other two form a team of Peasants. The object of the game is to have a player on your team shed all their cards first. This is done through a system of hands much like other climbing games (Australians may know Big Two, or Bullsh*t).

Dou Di Zhu has its roots in the Cultural Revolution- and the name reflects Landlords position in Chinese society at that period. As members of the “Stinking Old Ninth” and the “Five Black Categories”, landlords were subjected to some fairly horrendous treatment at the time. Unfortunately, the modern names for the two teams have on occassion been changed to the Cop and two Bandits. The possible cultural inference is not lost on us here, with the Landlord becoming the law-enforcing Cop and the Peasants (or renters) being criminalised into Bandits!

But let us not dwell on that unpleasantness- we have come to the big one. Not just bigger than Mr. Monopoly or Mickey Mouse- bigger than any pixellated character ever.

It's a me, Mario!

Yes, it’s Mario. The various Mario games had in 2010, only 19 years after the first release, sold at least as many copies as Monopoly has in it’s 80 year history. It’s hard to put a precise number on, since appearing in around 200 different titles, this fubsy little landlord is adored by hundreds of millions around the world. Wait a minute, I hear you ask, landlord? I thought he was a plumber!

Lest you think I’ve gone off the rails a little bit, let me take you back to 1981. Shigeru Miyamoto had created Jumpman, also known as Mr. Video, the carpenter featured in Donkey Kong. Nintendo America was localising the game for the American market when Mario Segale, their landlord, burst in upset about back rent that had gone unpaid. In honour of their beloved landowner, Nintendo settled upon Mario as the name.

(Mario Segale as a young man)

I don’t hang the connection solely on the namesake however. Mario, like many landlords, considers himself something of a handyman. A plumber? Well, so he says- he does do a little in Mario & Luigi: Superstar Saga (2003) when he fixes the piping system in Beanbag castle. Before or since? Nothing that could actually be called plumbing.

He did famously start out life as a carpenter in Donkey Kong. He also does a stint as electrician in Hotel Mario (1994). So plumber, carpenter and electrician- what could possibly go wrong? Well, somewhat worryingly, there were two stints as a demolitions expert in Wrecking Crew (1985 and 1998).

(l-r: Dodgy wiring practices at Hotel Mario; Ryan Wood's artistic rendering; Mario in Wrecking Crew mode)

In short, Mario fits the bill of the worst stereotype of a do-it-yourself landlord, telling you all the things he can do, and never doing any of them properly.

The Henry Review reviewed: part 1

This time last year, we were all waiting, with bated breath, for the report of the review into ‘Australia’s Future Tax System’ or, as it is known after its principal author, the Henry Review.

(Dr Ken Henry (at right), with an anonymous adviser)

The Henry Review was, after all, established as a ‘root and branch’ review of Australia’s tax system, ‘the most comprehensive examination of the tax system in over 50 years’, that would help set the tax reform agenda for years to come. And, making it even more compelling, the review was expressly directed to look at, amongst other things, the connection between taxation and housing affordability.

The review was completed on time at the end of 2009, and the report handed to the government. And we waited.

Next thing, in May the Government releases the report, the day before the Budget. From the Henry Review’s 138 recommendations the Government plucks two – reforms to superannuation and, fatefully, the mining tax. Twenty million dollars worth of PR hell breaks loose. Exit Rudd, under whom the government had ‘lost its way’; enter Gillard, who then leads it to the election and into minority government.

And what of the Henry Review? In their deal for supporting the Government, the three independents and the Greens MP, not being ones to let a ‘root and branch’ tax review go to waste, secured a commitment for a ‘tax summit’ to discuss the Henry Review, to be convened by mid-2011.

So it's a good time to look again, and in more detail, at the Henry Review. In a series of blog posts here on the Brown Couch, we'll look particularly at what the Henry Review says about tax and owner-occupied housing; tax and rental housing; and 'housing transfers' – that is, Rent Assistance and social housing rent rebates. And we'll look, too, at what the Government said in response.

First, tax and owner-occupied housing.

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Home ownership. The Great Australian Dream. The Great Australian Tax Shelter, more like it. Over the years we've established various ways of taxing property – in particular, taxing income from capital gains, and land tax – and we've always made sure to leave owner-occupied housing untaxed. That's not to say, however, that housing is unaffected by these arrangements: on the contrary, by leaving owner-occupied housing out, it becomes tax-preferenced. This means that if you have money to spare and are looking for a place to store it where neither it nor any increase in value are taxed, look no further than spending it on your own housing.

And as you spend on your housing, others are similarly motivated to spend on housing, so prices rise. And as prices rise and the gains go untaxed, so the motivation to spend on housing increases. Even before we get to other tax lurks like negative gearing and the matter of spending on other people's housing (ie rental housing) – and we will get to this, in part 2 of the review – we can see how the tax-preferred status of owner-occupied housing is a basic driver in Australia's house-price inflation machine.

The Henry Review doesn't use the term 'tax shelter' to describe owner-occupied housing; it prefers to call owner-occupied housing a 'savings vehicle'. After rightly acknowledging that owner-occupied housing provides good things like actual shelter and a sense of security, the Henry Review says of its 'savings vehicle' aspect:

As well as providing vital services to individuals and communities, housing also forms a large share of Australia's savings. Houses are built to last — many people work hard to pay off their house during middle age, in order to ensure they have access to accommodation with no cash payment obligations when they are old. As a form of savings, housing has additional benefits over other savings vehicles because it not only acts as a store of value, but also reduces exposure to fluctuations in rental costs. In particular, those on fixed incomes are insulated from housing cost fluctuations, ensuring that other necessities like food or energy are affordable and they are protected from the risk of poverty.
Australia currently has one of the highest rates of home ownership in the OECD. In total, 68 per cent of Australians own or are buying the home they live in, compared to an OECD weighted average of 63 per cent. For those aged over 65 years old, the rate is 82 per cent, which is among the highest in developed countries.... These high levels of home ownership often reflect strong personal preferences for home ownership over other forms of housing tenure, as well as deliberate government policies to enable owner-occupied housing.
The Review's recommendations are intended to support this policy goal. There is a strong case for continuing Australia's approach of ensuring that owning their own home is within the reach of ordinary families. The role of owner-occupied housing as the key source of voluntary retirement savings is a major reason for continuing to exempt it from income taxation.

For the breath-bated reader who may have been looking for a bit more 'root and branch' reform than the Henry Review is willing to recommend, a few points in response to this passage jostle to be made. Does the 'strong personal preference' for owner-occupied housing really need any more encouragement from tax policy? Does the tax preferencing of owner-occupation actually 'enable owner-occupied housing' – keeping in mind our brief sketch of how it contributes to house price inflation and the fact that rates of owner-occupation for younger households have declined significantly over the last decade and a half, and that the rate generally has declined in recent years?

(Rates of owner-occupation and renting (%). ABS, Australian Social Trends Data Cube: Housing. Cat no 4102.0.

For present purposes, let's put those points to one side and work with Henry on this idea of owner-occupied housing as saving – because it is through the prism of savings that Henry does come up with recommendations that partly address the tax-preferencing of owner-occupied housing.

Tax, owner-occupied housing and savings

The taxation of savings is one of the main focuses of the Henry Review, and more consistent tax treatment of different ways of saving is a major theme of its recommendations. As the Henry review drily observes, 'the tax outcomes for different types of savings vary considerably and have evolved in an ad hoc manner.'

Consider the differences between saving by putting money into owner-occupation and saving by putting it in the bank.

For the owner-occupied housing saver, the main pay-off from this strategy is the prospect of a capital gain – that is, that some other person will come along later and pay more for the house than it cost the saver. The cost, of course, is the purchase price, plus all the interest that the 'saver' pays on the loan along the way. Under our current tax system, the pay-off is not taxed – and as we've seen, Henry would keep it that way.

For the bank saver, the pay-off is the compound interest paid to them by the bank. They face costs too: the bank saver, not being an owner-occupier, pays rent (and 'tax tranquille' of rent inflation). Under our current tax system, the interest pay-off is income that gets added to whatever other income the saver earns from work and so is taxed at the highest marginal tax rate applicable to the individual saver.

Now this is what Henry proposes to change. The Henry Review recommends that interest, as income from savings, should be taxed at a discounted rate – in fact, a 40 per cent discount on the tax rate applicable to the bank saver's other income.

OK, that's something – but it's still some way off the 100 per cent discount enjoyed by the owner-occupied housing saver.

And it also leaves unaddressed another way in which the owner-occupied housing saver's strategy pays off. The capital gain is one pay-off; another is the valuable product – that is, the 'vital service' of shelter – produced by the housing along the way. If this product was sold by the owner-occupier to some other person – that is, rented out – the proceeds would be taxed as income; however, the owner-occupied saver chooses to consume this valuable product themselves. When kept for one's self this pay-off is known as 'imputed rent', and it could be taxed like other forms of income from saving – but it currently isn't, and Henry doesn't propose to change that either.

So Henry's proposed 40 per cent discount on tax on interest income goes part of the way towards consistent tax treatment of income from savings; but the refusal to consider taxation of imputed rents takes a small step away from consistency. However, Henry proposes one more move on the tax-preferenced status of owner-occupied housing that brings the balance a little closer again to consistency. This move is in relation to land tax.

Land tax

Like most economists – and indeed, the Tenants' Union of NSW – Henry likes the idea of land tax (it's levied on an asset that by its nature cannot be removed from the jurisdiction or from supply; it gets at increases in value that arise through no work or productivity on the part of the owner), but laments the way States levy it. In particular, the exemption of land used for owner-occupied housing is a major problem, because it narrows the tax base – land used for owner-occupied housing would otherwise account for 60 per cent of the value of the land tax base – and because the burden ultimately falls on renters. To be clear, it's landlords who are presented with the land tax bill, but as Henry observes:

it is likely that, in the long run, much of the burden of the tax is shifted to renters, as rents adjust to ensure that investors achieve an adequate return. This may be inequitable, as renters generally have low income and wealth.

It would be far better, says Henry, to have a broad-based land tax – including on land used for owner-occupied housing – levied at rates varying according to the value of land per square metre (and not, as is currently the case, the total value of the owner's holdings, which discourages institutions from investing in rental housing on a large scale). To avoid hardship, low-income owner-occupiers would be allowed to defer their land tax liability, and a range of alternative mechanisms for smoothing the introduction of a broad-based land tax are offered. And while States are at it, they should abolish their inefficient stamp duties too.

So, summing up: the Henry Review proposes to retain the current practice of not taxing the pay-offs of owner-occupied housing (capital gains, and imputed rent) as income, but would go part – and only part – of the way to reducing owner-occupied housing's tax-preferenced status relatively by reducing tax on income from other forms of savings, such as interest on bank deposits. The Henry Review proposes a further move towards better balanced taxation, by reforming land tax, particularly to include owner-occupied housing.

If the savings income proposals are a bit of a compromise, the land tax proposals are strong – and backed up by detailed options for implementation and quite strongly worded recommendations. Each set of proposals represent an advance on current arrangements.

Next: taxation and rental housing.

PART 2

PART 3

PART 4