The State of Supply

A couple of weeks ago, the National Housing Supply Council published its inaugural 'State of Supply Report', to scarcely a murmur in the media.

I see that it has got a mention now, in a Sydney Morning Herald report of a reassuring speech by the Reserve Bank's Deputy Governor to a bunch of property developers. As an analysis of factors bearing on house prices the speech is, with due respect to the Deputy Governor, pretty slight, and he didn't actually mention housing supply at all – that was the Herald helping him out with the familiar argument that Australia has a shortage of housing, so prices won't fall here.

Let's have a look at what the National Housing Supply Council actually said.

One of the things it reported on was the gap between underlying demand for housing and the supply of housing. The Council put this at 85 000 dwellings across Australia in 2008 – that is, a shortage of 85 000 dwellings (it's this figure that the Herald refers to). The Council arrived at this figure by a fairly simple calculation. It's based on:

• dwellings required to house homeless persons sleeping rough: about 9 000; plus
  
• dwellings required to house homeless persons staying with family and friends: about 35 000; plus
  
• dwellings required to house homeless persons in marginal caravan park accommodation: about 13 000; plus
• dwellings required for a rental vacancy rate of 3 per cent. The Council considers that this is the rate needed for efficient operation of the rental market. There's about 1.8 million renting households in Australia, and about 29 000 vacant rental dwellings, so to get to 3 per cent we need another 26 000 dwellings.
  

So, added up, and rounded up, that's 85 000 dwellings needed.

But then there's all those existing dwellings that are currently unoccupied. These dwellings are not factored into the above calculation, and represent a reservoir of housing stock sitting just outside the housing market. And there's lots of them – in fact, at the 2006 Census, there were 830 000 unoccupied dwellings.

That's 830 000. Unoccupied. Dwellings.

As the Council notes, no one really knows why all these dwellings are unoccupied. Some would be holiday houses, some would be waiting for sale or letting, some would be undergoing renovation or demolition – again, no one knows the proportions.

Some of these dwellings would not be in a state to be occupied tomorrow, and some of them will never be. But if only a tenth of them were to leak out of the reservoir and into the housing market, you could house the homeless and get a workable rental vacancy rate.

The Council indicates that it will conduct further research into these unoccupied dwellings. We'll await it with interest.

All this is to show that the 'housing shortage' is no simple shortage. We do suffer from a shortage of affordable housing, and especially affordable rental housing. The trouble is not an absolute lack of houses, but a housing system that produces dwellings that don't satisfy housing needs – in particular, it produces too few low-rent dwellings, and too many holiday houses and empty 'investment' properties.

More what the Council's report says about this in the next post.

Shelter NSW 'Around the House' - latest issue out

Just a quick note: Shelter NSW, the State's peak non-government organisation for low-income consumers of housing, has out a new issue of their esteemed newsletter, 'Around the House'.


The cover story, 'Housing Affordability and Tax', by Richard Krever, director of the Taxation Law and Policy Research Institute at Monash University, is excellent – a must-read for anyone who lives in a house, or who pays tax.

Plus there's Julian Disney on a four-year growth plan for affordable housing, Sue Cripps on the Homelessness White Paper, and Kevin Fox on the community housing rent policy debacle, to name a few of the additional articles.

'Around the House' is available to Shelter NSW members and subscribers only. Do join up.

A light through the FHOG (or: Down with the Boost)

In a couple of recent posts, I have grumbled about the First Home Owners Grant (FHOG) and, especially, the First Home Owners Boost.

These criticisms have been rather incidental to other issues of concern here at the Tenants' Union; for a more sustained discussion, please head over to Steve Keen's Debtwatch blog, where Steve has just posted his analysis of the FHOG. It's devastating; I commend it to readers of the Brown Couch.

And if you can't make it to the sustained discussion, I'll offer just a couple of things you might add to your own thinking on the subject:

• prospective first home buyers: is it really such a good idea to borrow a lot of money to buy an overpriced asset at the start of a recession? Does an extra $7 000 or $14 000 really make it any better an idea?
  
• Housing Ministers: is it really fair to use first home buyers to try to prop up overinflated house prices? Leaving aside fairness – how can it actually work?
  

(Down with the Boost!)

The Adventures of the SCSSHBCDAC: the Case of the Lewd Lodgers

Previously, our heroes from the Sydney City and Suburbs Sewerage and Health Board Crowded Dwellings and Areas Committee (SCSSHBCDAC) exposed the horrors of late nineteenth century Darling Harbour-side housing, with special attention paid to the water-closets.

Now they encounter... the lewd lodgers of Clarence Street.

*

Episode 2: The Case of the Lewd Lodgers.

Third day, Wednesday 17 November, 1875
Clarence Street

Met at the Volunteer Club at 10 o’clock on Thursday, 17th instant, and continued our inspection of Brisbane Ward, Sergeant Larkins and Constable Mulqueeny accompanying us as before. Proceeded to Clarence-street and first inspected a lodging-house known as the ‘Lancashire Lass’, originally portion of Irvin’s estate, but since purchased by the Hon John Frazer, a brick house, rented at 21s a week. The same complaints met us here – ‘the landlord will do nothing to keep the place in repair.’ We noticed that the kitchen is not only used for domestic purposes during the day but converted into a bedroom at night, whilst one of the lodgers is accommodated with sleeping quarters under the stairs, in a close narrow receptacle, where he can only pass the night in a crouching position. This sleeping compartment reminded us of the cell called ‘Little Ease’ in which, in old times, refractory prisoners used to be placed in the Tower of London, and in which they could neither sit, stand, or lie at full length.

No 116 Clarence-street, belonging to the same owner, is rented at 22s 6d a week. We may remark here that in almost all the houses we entered we found the attics to be crammed; these are generally close enough, but they afford a slightly better chance for fresh air to enter, which is probably the reason they are in greater favour. In none of these lodging-houses is any provision made for the toilet; we saw no signs of lavatories and no towels; the bed and nothing but the bed is provided. Some of the inmates turn in with all their clothes on, probably for security sake, as we observed in one of these houses a notice that the landlord was not responsible for the goods and chattels of his lodgers; others who find the temperature unpleasantly close lie in a state of absolute nudity, while we noticed one man who had hit the happy medium by going to bed with a pair of Hessian boots and a cap on, but no other article of attire. Attached to this house there was no water-closet – only a common cesspit, exceedingly offensive; we were told that it had not been cleaned out for four months; we should have judged it to have been four years.

No 124, called Niagara House (why we were unable to ascertain) rents at 22s 6d per week. In one room, 13 ft 6 in square, and about 10 ft high, we found seven beds; on one of them was a man lying in puris naturalibus; in another room of similar dimensions there were six beds; and in the attic, which is not more than 6 ft 6 in height at the outside and only 13 ft 6 in square, there were eight beds.

The Temperance lodging-house, which was the next place we visited, afforded us an agreeable surprise, and we only mention it to state that it was an entire contrast to any of the houses previously inspected. Here cleanliness everywhere prevails; the beds have clean sheets; there is a nice lavatory, well supplied with jack towels, and every attention seems to be applied to the comfort of the inmates. That this superior accommodation is appreciated is evidenced by the fact that a higher scale of charges are made and a superior class of lodgers obtained.

From the Temperance Hotel we went to Mrs Connelly’s lodging-house – owner or agent, Mr Alderman Day – rented at 15s 6d a week. The landlady of this house, who had evidently been regaling herself in the company of three or four friends, was in a blissful state of semi-consciousness, and unable to give us much information. We noticed in one room with a flagged floor there were six beds occupied by women. The closet in the yard was directly connected and very offensive. On the same side of the court, off Clarence-street and next to Smith’s picture-frame factory, is a six-penny lodging house, occupied by Mrs Doolan – owner or agent, Mr Alderman Day; there were three beds downstairs and four in the attic – old fashioned ventilation – rooms very close. From this house we went to the ‘Full and Plenty’, a sort of eating-house, at the corner of Clarence and King Streets, rented at 30s a week, recently purchased by Macarthur & Co. We were told that from ninety to one hundred dinners are served here daily.

No 156 Clarence-street, owner Jones, North Shore, contains only double-beds, the price of which is 2s 6d, being in fact a brothel. Here again we found the provisions of the Water Pollution Prevention Act evaded by the construction of the cistern for supplying the closet; it had no compartment in it, the closet being therefore in direct connection with the main.

No 158 is a house of the same character, provided with double beds only, and used for the same purpose; the yard was clean and the closet provided with patent cistern in good order.

This was the last house we visited, our day’s inspection being over at 12 pm.

Next episode: a Tragic Tableau.

Public housing water cases flood Tribunal

The other day I was leafing through the Consumer, Trader and Tenancy Tribunal's Quarterly Management Report – as you do – and was taken aback by the number of proceedings by Housing NSW (previously known as the Department of Housing) against public housing tenants in relation to, of all things, water usage charges.

Prepare to be taken aback yourself. In the quarter to December 2008, Housing NSW made 232 applications against tenants alleged to be in breach of their obligation to pay water usage charges. By contrast, private sector landlords made just 128 such applications.

Even more alarming, Housing NSW made an additional 633 applications for orders terminating the tenancies of public housing tenants for failure to pay water usage charges. Private sector landlords made no such applications – not a single one.

Put another way, water usage proceedings represented over 30 per cent of all Housing NSW's proceedings in the Tribunal. In fact, of all the applications for orders made in the Tribunal's tenancy and social housing divisions – by landlords and by tenants – about one in twelve was by Housing NSW about water usage.

This level of litigation over water usage charges is absurd. That this litigation should put at risk the tenancies of 633 households – who are very likely to be poor and vulnerable households who would end up homeless if they were evicted – is outrageous.

Sure, I accept the argument that public housing's poor households are more likely to fall behind in water usage payments than household generally. And I accept that Housing NSW has a legal right to take proceedings in the event of breach. But the absurdly high level of litigation about water usage really calls into question the general standard of decision-making by Housing NSW officers.

(Drips.)

It also calls into question the way Housing NSW charges for water use – though that's always been dubious. No-one in private rental or homeownership pays for water like public housing tenants do – and governments would not think of asking them to.

Since 2005, special amendments to the Residential Tenancies Act have allowed Housing NSW to charge for water usage under 'guidelines' specific to public housing. Under these guidelines, tenants of properties without water meters (and about half of all public housing properties are not metered) are charged according to their rebated rent and, hence, their household income. This 'water usage charge', therefore, has nothing to do with the amount of water the household actually uses.

For public housing tenants in metered properties, the situation is less daft, but still odd. At first they pay according to their rebated rent, like those in unmetered properties, until they've been there for a complete billing cycle from the local water authority and Housing NSW can work out the actual water usage. This becomes the basis of the water usage charge over the next billing cycle, and their actual water usage over the second billing cycle becomes the basis of the charge over the third cycle, and so on, with credits and debits added to account for differences from cycle to cycle.

It really is daft, and makes you wonder in how many of those Tribunal proceedings is there a tenant, deliberately or otherwise, reacting against the irrationality and injustice of the system.

Rent and Sales Report no 86 and the Bizarro Creatures

The latest issue of the Rent and Sales was released on the weekend and, as usual, this sound body of data was put to the service of misconceived and just-plain-wrong journalism. All the more unfortunate was the participation of the NSW Housing Minister, David Borger, in this.

The Sun-Herald got it wrong from the very beginning, with the headline to Lisa Carty's article declaring 'IT'S OFFICIAL: CHEAPER TO BUY THAN RENT'. On Bizarro World maybe, but not in Sydney.

(Bizarro World. Copyright DC Comics.)

To test the Sun-Herald's assertion, I've taken the median sale price figures from the Rent and Sales Report and run them through the Commonwealth Bank's on-line mortgage calculator, and compared the results with the median rents for the same quarter (kindly provided on special request by Housing NSW). After allowing for $14 000 from the First Home Owners Grant and Boost and a 10 per cent deposit, the cost of repaying a 25-year loan for the median sale price is, at current rates, higher than the median rent everywhere in Sydney - with one single exception.

Our first two graphs compare loan repayments and rents for 'non-strata' and 'strata' dwellings (the rents data refer to 'houses' and 'flats', which is roughly the same distinction) for the Sydney Statistical Division, the 'rings' of Sydney local government areas, and New South Wales generally.

(Source: Rent and Sales Report no 86; special request data; Commonwealth Bank's online mortgage calculator http://www.commbank.com.au/tools/homeloancalc.asp. Click on image for a better view.)

Across the board owning is more costly than renting.

Our next graphs go down to the level of Sydney local government areas, starting with the inner ring LGAs.

(Source: Rent and Sales Report no 86; special request data; Commonwealth Bank's online mortgage calculator http://www.commbank.com.au/tools/homeloancalc.asp. Click on image for a better view.)

Next, the middle ring LGAs.

(Source: Rent and Sales Report no 86; special request data; Commonwealth Bank's online mortgage calculator http://www.commbank.com.au/tools/homeloancalc.asp. Click on image for a better view.)

And there's the single exception: Canterbury LGA, where the loan repayments for a median-priced flat are slightly ($8 per week) less than the median rent. But then again, this comparison does not include other costs of ownership such as repairs, strata fees and council rates, which will be rather more than $8 per week, so tenants in Canterbury LGA flats would actually pay less than owners.

And finally, the outer ring LGAs.

(Source: Rent and Sales Report no 86; special request data; Commonwealth Bank's online mortgage calculator http://www.commbank.com.au/tools/homeloancalc.asp. Click on image for a better view.)

Everywhere in Sydney owning is more expensive than renting, including Canterbury LGA when you factor in the other costs of ownership. That headline, 'IT'S OFFICIAL' – it's rubbish.

There certainly is a problem with rising rents and a tight rental market. But as we've discussed previously, care needs to be taken with Rent and Sales Report data, because it does not refer to what all tenants are paying – just those tenants who started new agreements in the relevant quarter. And also as discussed previously, the dollar amount of 'new agreement rents' is higher than that of 'established rents', and for some time now they have been increasing at a higher rate, too.

I say care needs to be taken, because there's a risk of talking up rents; that is, landlords may be encouraged to increase excessively rents for established tenancies, and tenants may be discouraged from challenging excessive increases.

And, with respect, more care should be taken by Minister Borger, who on Sunday was trying to drum up business for property vendors by, on the one hand, urging that it is 'time to buy' and, on the other, by picking the most alarming rent figures and generalising them. So, his grim observation

"if you're in a place like Western Sydney, where rents have gone up in some cases by 20 per cent..."

is actually based only on the data for two-bedroom houses in Penrith, two-bedroom flats in Fairfield, and one-bedroom flats in Holroyd (the median 'new agreement rent' for this last category actually increased 19.5 per cent for the year, but that's close enough to 20 per cent).

This sort of statement really is a misrepresentation, and tenants suffer for it. We've come to expect it from the real estate industry, but not the Minister for Housing.

Government turns down smart reform of Rent Assistance

The ABC has reported some disappointing news about Rent Assistance, which is paid to some recipients of Centrelink payments and Family Tax Benefit.

The Federal Housing Minister, Tanya Plibersek, has ruled out increasing Rent Assistance payments, saying that the Government would prefer to increase the supply of affordable housing, and that

In a very tight rental market it's possible that an increase in the rent allowance would simply flow straight through to landlords in increased rents charged.

The Minister's comment makes a lot of sense – in fact, it would be nice to see this sort of sense applied to the First Home Owners Grant, which also flows straight through to existing property owners in increased prices charged.

The disappointment is that her government has passed up a smart proposal by ACOSS and National Shelter for an increase in Rent Assistance that directs, in a tightly targeted way, much-needed assistance to households with the worst housing affordability problems, while avoiding a general inflation in rents.

First, it helps to understand how Rent Assistance works. You get Rent Assistance if you're an eligible person whose rent is above a certain threshold (this threshold varies according to whether you're single or in a couple, and how many children you have). For every dollar of rent you have to pay above the threshold, you get 75 cents of Rent Assistance. Your Rent Assistance is also subject to a cap or maximum amount (this maximum amount also varies according to your household circumstances). At the moment, the maximum amount for a single person without kids is $110.20 per fortnight.

So, if you're in part of the country where rents are very high – say, inner Sydney, where the median 'new agreement' rent for a one-bedroom flat is $770 per fortnight – your Rent Assistance will max out at an amount that will leave you very short.

The smart thing to do is to lift the maximum amount of Rent Assistance. Doing so would help those renters most in need – without expanding the number of persons who receive Rent Assistance, and without increasing Rent Assistance payments across the board. This targeting means that the prospect of landlords simply increasing rents across the board is minimised.

A smart idea that has, alas, been turned down. What a shame that a fraction of the amount blown on the First Home Owners Grant Boost couldn't have gone to renters at the pointiest end of the affordable housing crisis.