Joanne Knight

May 9, 2014

Deregulation, not high wages, at fault

I am currently involved in a campaign to increase the minimum wage in Mountain View. The campaign has been opposed by unexamined economic thinking and neo-conservative political ideology.

Right-wing politicians at all levels seem blinkered in their economic views with a willful ignorance of the full complexity of the economic arguments. This is reflected in the response I received from a Mountain View council member opposed to increasing the minimum wage.

“There is no reasoned economic justification for politicians to selectively manipulate free exchange in business and employment by imposing arbitrary minimum wage rates or other price controls.”

Such hands-off economic thinking spectacularly crashed the economy in 2008 and ordinary people have still not recovered.

Read more at http://www.mv-voice.com/print/story/2014/05/09/letters-to-the-editor

February 28, 2010

Housing in Australia: the Hidden Economic Crisis

Leanne was a proud Sydney homeowner who believed that homeless people were alcoholics, drug addicts and no hopers. Leanne has now been homeless for a year, living in a caravan with her 5 children in a friend’s backyard. She did not believe that it could happen to her. But when her husband lost his job and they couldn’t afford their mortgage, their world and their marriage fell apart. Leanne moved to Melbourne, accepting a friend’s offer of help, thinking she would have a job and rent a house within a few weeks. But as Leanne had no rental history, the real estate agents felt they could not take a chance on her. One agent told her that having five kids was worse than having pets.

As the experts proclaim the end of the economic crisis, stories like Leanne’s are becoming more common. The House Standing Committee on Family, Community, Housing and Youth’s Inquiry into Homelessness Legislation reported in November last year that a 17% increase in family homelessness and a 10% increase in adult homelessness between the 2001 and 2006 censuses reflect issues of declines in affordable housing and the private rental market. With 22.5 per cent of Australian households in housing stress (spending more than 30 per cent of their household income on housing and household debt) in 2005-06, and household debt increasing from $795 billion in June 2006 (RBA) to around $1.1 trillion in September 2008 (ABS), it seems that a growing number of people may fall into homelessness.

As the RBA threatens to raise interest rates and Australians continue to struggle with their debt obligations, housing affordability has collapsed. To address the issue of affordability, the Rudd government has introduced the National Rental Affordability Scheme (NRAS) purportedly to increase the supply of affordable housing. At the same time, it props up soaring housing prices with grants and tax breaks. The Rudd government and RBA are playing a strange game of push me, pull you with housing.

Under the NRAS, the Commonwealth Government has pledged funds to support 3000 dwellings in Victoria. Participants include private land developers, real estate agents, non-profit organisations and local government, who will receive these payments in return for supplying dwellings to be rented at least 20 per cent below the market rate to eligible low and moderate income households. To qualify for the NRAS you simply need to be receiving income support payments or Family Tax Benefit Part A, regardless of your housing affordability situation. Unfortunately according to the Victorian government Office of Housing these funds would need to be provided for 10 consecutive years to clear the public housing waiting list.

We have a housing system where either rents need to be high or prices need to be increasing for stakeholders (that is developers, REAs and investors) to be satisfied. The Rudd government’s feted stimulus package with its raft of housing grants for first home buyers and tax concessions has kept housing prices high, according to Professor Julian Disney. If the purpose of the NRAS is to make housing more affordable, this will undermine the housing market which is based on attracting investors and developers into the market to make a short term profit. These stakeholders have an interest in ensuring housing prices remain as high as possible. The paradox is to attract private investment to build more houses to maintain supply, we need high house prices and high rents. This pushes everyone on a normal income out of the market, creates more homelessness and housing stress.

Criticisms of the NRAS further illustrate the problems with the government’s approach. ACOSS has grave concerns that the proposed system of valuations raises the potential for manipulation or inconsistency. There is a high likelihood that real estate agents and speculators will increase their rents to accommodate the subsidies thus undermining the purpose of the scheme. Further, the NRAS subsidy increases annually in line with the rent component of the CPI. Given the expectation of continued rent increases, predicted in January this year as between 5 and 7% by Australian Property Monitors, the level of assistance to developers provided by government increases continuously.

Another problem with the NRAS is that it will probably not assist as many people out of housing stress as is being claimed. Dr Rachel Ong and Professor Gavin Wood from AHURI have analysed the potential impact of the NRAS. They found that only 40 per cent of eligible households would be brought below the 30 per cent benchmark of housing stress by the Scheme.

This figure worsens when applied to the poorest 20 per cent of households, where rates of housing stress are extremely high at 54 per cent of household income. The NRAS fails to bring the levels of housing stress below the 30 per cent affordability threshold. The NRAS is not effective in reducing rates of housing stress because the housing costs of the poorest households are well above the threshold. AHURI has recommended that targeting the NRAS to lower income households, rather than a random allocation to rent assistance eligible households, would improve the Scheme’s capacity to alleviate the housing stress. However, as the housing market fails more people, increasing numbers are forced to seek access to the scheme which ends up blown out waiting lists, as we have seen with public housing.

The NRAS could reduce in the amount of rent assistance which the govenrment needs to pay out. AHURI’s modeling estimates that rent assistance payments could be reduced by $21 million or 5 per cent. This raises the concern that some tenants may be worse off under the Scheme, if they become ineligible for rent assistance or receive reduced payments.

A housing system where the market fixes the supply and value of housing and the government attempts to regulate this through indirect macroeconomic measures has resulted in housing which fewer and fewer people can afford to buy and rents which leave a large number of the population in housing stress and in danger of homelessness. People treat the housing market as a strange unpredictable beast and struggle to understand and calculate its next move. The government’s NRAS will do little to influence this monstrosity.

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