melbourne and housing.

[hnpcc]

I read this article which was published in the weekend paper and have been thinking about for most of the week.

There are several reasons for this. The main one stems from:

With 80 per cent of my wage going straight into my landlord's account for several years now

80%?!?!?

I mean seriously here, 80%!?!?!?!?!?!?!?!?

It does beg the question of how the hell she's living on the other 20% as a single mother with more than one child for starters. My guess would be credit cards, because I can't in all honesty see how else she'd be paying basic bills, let alone food and everything else.

And "for several years now"?!?!? Holy shit, I don't think I could manage that for several months, let alone years.

(Incidentally I started wondering just how much 80% of the median wage in Australia would be. The most recent data I could find on ABS was from 2002-2003, and gave $34K as the median salary. Assuming things have gone up until recently, I'm going with $40K, of which approximately $33400 would be take-home pay (yes, this is my dodgy tax calculations.) Continuing my dodgy calculations I make that approximately $513pw/$2227pcm in rent. Interesting.)

I know from various media reports that the rental market in Melbourne is pretty dire, particularly in the inner mortgage belt. But really, paying 80% of your income in rent is basically unsustainable - and I seriously wonder where exactly she's living, and whether it would be possible for her to move further out into something cheaper.

Not having been looking in the rental market for some time now I did wonder just what was being asked, and what was available. Which meant of course that I had to hop onto Domain and have a look.

Just as a comparison I searched for a 3 bedroom place (apartment/townhouse/house) in both Hawthorn (inner suburb) and Ringwood (outer suburb, same train line).

Hawthorn the cheapest place listed came in at $410pw, with a $1782 bond (which I assume is the per month rate.)

In Ringwood the cheapest place listed came in at $260pw, with a $1130 bond.

Even allowing for the extra $60 per month she'd have to spend on her train ticket she'd still be up $592 per month if she moved out a bit further.

Of course I'm assuming that she is living closer in (and that her income is near or above the median, come to that). The reason for this comes partly from this sentence:

Because I would rather die than take my kids to a place "where country charm meets city convenience"

OK, I have been known to rant a bit about the advertising of new estates too. Particularly as they're basically covering up that you're stuck in an under-resourced suburb in the middle of a paddock, and personally I'd rather move somewhere with infrastructure, like shops and public transport. Or, if I really want to live in the country, I'll move to a bloody country town. Even so though, if you're looking at trying to buy a house when you have zero savings and not a huge income (I'm going from the article again here) then basically the new estates are where you end up looking, not least because they will give you 110% loans and - more importantly - the housing is cheaper. If you don't want to live "out there" you basically need to have saved at least the deposit.

The other part of the assumption comes from:

An award-winning buyers' advocacy group, to which I turned in the hope that they would represent my modest interests to the real estate agents, would not touch me either. Despite claiming to apply the same level of integrity and experience to acting for the rich and powerful and for the average single-income Joes and Josephines, they did not extend their expertise to properties less than $500,000.

OK, I may be off the mark here, but seriously? That doesn't sound like outer suburbs to me. I actually have no idea which buyers' advocacy group this is, but I'm guessing this may have been because of the suburbs I was looking to buy in at the time. (Even googling is not helping me much with working out who she's talking about here.) Granted there are properties over $500K in the outer suburbs - we perved looked at a property quoted at over $1 million in Greensborough, for example - and there are a lot of properties now in the 400-600K range further out. But as a general trend the further from the CBD you are, the cheaper the housing prices become. Hence, the new estates currently taking over what were the green wedges. (Another rant. Later.)

The strangest part of the article for me was this sentence:

Before I did anything, however, I sought the help of my very smart and financially together friend, because, frankly, despite a so-called "world-class" PhD from the University of Melbourne, when it came to prowling the market I felt too terrified and too stupid to do it on my own.

OK, I understand the bitter-cakes about the PhD, just about everyone I've ever met who's done a a PhD ends up bitter and twisted. Particularly when they realise they've just spent 4-5 years in a slightly better paid work-for-the-dole scheme (hey, you don't screw up the unemployment figures!), and that not only are there no guaranteed jobs at the end of it - and what jobs there are are nearly all grant-based, leaving you to chase your salary year in year out - but you're actually now financially behind your peers and unlikely to ever make it up. But that's OK - after all, if you'd wanted to earn money you'd have done accountancy or economics or (and dammit, why didn't I do this?) actuarial studies (oh, that's right, would have been bored to death.) Oh and despite having a PhD you're still only an expert in one, tiny part of a field - which no one is actually interested in other than (maybe) your now ex-supervisor and three of his/her colleagues. And no one else except your parents[1] cares that you wrote a thesis, and it certainly doesn't mean any employer thinks it makes up for your total lack of real-world experience. Hm, that might be rant #2 for this entry.

But seriously, looking at the real estate market is not that difficult. I grant that understanding the home loan differences is that difficult[2] - which is why we went through a mortgage broker like everyone else - but actually "prowling the market"? Is not that difficult. You can do it in 10 mins per day on the internet. We'd worked out a rough idea of how much we could afford to repay and therefore how much we could afford to borrow just by using the online calculators available on all the major bank sites before we saw the broker. Seriously, not that difficult, even for financial sub-literates like ourselves.

(And surely the first thing her "financially together friend" would have said is: "you need to build up a deposit. Let's look at your finances. God, woman, you need to move from where you are, that's killing you." Or some such.)

Her conclusion though:

One-parent families make up close to a quarter of all families in Australia with children under 15, and I wonder how they are faring now. Are they getting their slice of the pie or only the crumbs at best? Neither low interest rates nor extended government grants can truly fix the basic affordability issue and for many single parents this is, undoubtedly, the real crux of the matter. When Peter Costello implored parents to have one for "the country", I did my bit. Can "the country" now please do something for my kids?

I both agree and disagree with. Agree in the sense of yes, affordability is an issue for many people, including single parents, the disabled, the unemployed etc. The swing from most people owning their own house to a large, constant group of renters (as in Europe) is something that we are going to have to deal better with. At the moment renters are effectively treated as being either transient (e.g. students) or second-class (everyone else) and, as other people have said, that will need to change if this trend continues. Having longer term leases for example - pretty much all leases now are year to year. Looking at fixed numbers of rent-controlled places in new developments, or (more likely) adding in more public housing in a wider variety of areas.

The disagree part? Well, that's covered in most of the rest of my response. If her figures are accurate and my assumptions are right (which they may well not be - for all I know she's living on $15K per year and paying $1000pcm, in which case she'd have to be eligible for rent-assistance and parental benefits - or, equally as likely, under the median income but above the rent-assistance threshold) then she's basically helping to dig her own hole here. I realise there are reasons why people stay in certain areas (schools, family etc) but again, paying 80% of your income in rent is just not sustainable and I can't see why you'd think you'd be able to buy, GFC or no GFC, when you have absolutely no savings. I have to admit my initial reaction to the article was "well move out of the fucking latte belt and get your finances sorted out" and I've since softened a bit while number crunching (and trying to work out just how many assumptions I'm making while reading this article.)

The articles she refers to at the start though - Grants help teens into a house of their own, and the two from The Australian that I'm having trouble finding - all make the assumption that the person trying to buy has at least a minimal deposit saved. And they're looking at buying either the same tiny apartments in the inner suburbs that she was hoping for - or they're much further out. (The other big difference? Generally speaking the teenagers and Gen Y at least don't have kid(s) and as a result have more disposable income they can save. On the other hand they're also likely to be on lower incomes than the median.)

I don't know. My initial response to her final sentence was "wasn't the baby bonus enough for you?" - again, I'm assuming that she got the baby bonus, she may well have had children before that came in. While I agree that the country needs to do something about affordability in general I just have trouble seeing that that necessarily equates into "buy me an apartment in an inner suburb because I can't possibly live further out" which is how I initially read it.

Anyway. I'd be interested in hearing other people's reactions (if anyone managed to get to the end of this series of mini-rants.)

(I should also admit that I googled the author, btw. In case anyone's wondering here. Now I'm very curious about certain current employment practices that I suspect she may have fallen victim to.)

[1] At least one of my friend's mother's reaction to her handing in her PhD thesis was: "That's lovely. Have you got a boyfriend yet?"
[2] And that would lead into rant #3 (again, a later time) about the whole process of getting a home loan. Short version - it's all very well saying "caveat emptor" and "people should be going and checking these things out themselves" but the bottom line is almost everyone trusts their broker because they don't have the time to learn the entire financial system and compare all the loans themselves. If the broker screws them over and, for example, nudges them into a sub-prime loan (for which the broker gets a better commission) when they are actually eligible for a better loan (which would pay the broker less commission) - well as far as I'm concerned that's fraud and they should be able to sue/prosecute the broker. IMHO only, obviously.

Comments

[dalmeny]

dmw and I spent something over 50% (can't remember the exact percentage) of our income on rent for some years, when we were both PhD students with one scholarship and a couple of part-time jobs between us.

As you know, after our long study years and his cancer, we finally managed to buy late last year, now that we're in our mid-thirties. We only had a small deposit and house prices in the suburbs we were looking at were going up faster than we could save. We had the choice of buying a house far distant from work (I suppose I could have overcome my hatred of driving), getting a regular loan for $$$ more than we could properly afford, or opting for a State Government loan. What we didn't understand at first was that real estate brokers would pretty much put you at the bottom of the pack if you were buying through the government scheme. We finally did buy our lovely house when there were no other potential buyers and the owner had already moved to Melbourne.

So I guess I feel some sympathy for the writer of the article. Yes, she may seem to be paying too much rent, but perhaps she has to factor in things like extra childcare costs for the commute. Still not sure how she and her kids can live on the other 20% though.

[hnpcc]

I sort of wavered between sympathy and the opposite (as was probably obvious). When I was on scholarship I think I was paying about a third on rent, but that was a share house and was cheap - and was before the rental market went really stupid. When I started renting we were paying $45pw each - you'd be lucky to find anything under $100pw now in a share house (an ad at work mentioned $150pw). One of my housemates moved out after a year because it was too expensive and he'd found somewhere that was only $35pw.

There's a government scheme in South Australia? I'm unaware of one here, although that doesn't mean there isn't one. There's the first home buyers grant and that pretty much covers it as far as I'm aware.

[hnpcc]

The childcare was one thing I wondered about, as was schools. As I said, on first reading it really didn't come across well to me - it was only later when I started number crunching and re-reading statements that I really started wondering about things.

And I've still no idea how they're surviving on the 20% though.

[essjayeff.livejournal.com]

I think when she says 50% of her wage - she is meaning her wage - not her entitlements. I assumed from doing the figures that she works part-time and pays about $1000 pcm on accommodation. So I think they have specifically said "wage" in the article rather than "income" which for a part-time working single mother would be supported by some sensible child support payments.

For about 10 years I have spent approx 50% of my take home pay on housing. It's down to 46% at the moment due to the interest rates, but was one of the main factors in making a decision to leave the bank, where I hadn't received a CPI increase in over 3 years. At least now I will get CPI guaranteed. So I may even start to pull ahead on the percentages.

[hnpcc]

She says 80% of her wage. I actually wondered if she's casually employed as an academic, which quite a few of the higher education institutes are doing these days. Much cheaper for them, but a bitch and very unstable for the staff.

I would have to check exactly how much I'm spending, but 50% sounds about right at the moment. Then again, that is specifically so that if my contract isn't renewed in two months we're ahead.

[essjayeff.livejournal.com]

Yes - I read the arrticle and I know she says 80% of her wage, my point is that that isn't necessarily the same about as her full "income."

I stopeed at thought about it at the time and re-read it and that is what i think they have done, said wage, and calcuated it as a 'shocking" 80% , not added her child suport to her wage = total income and calculated it as a percentage.

The SA Government first home owner loan is a good product, but does limit your choices for houses. We used to have something really similar here about 20 years ago. Sa is the only place that has something like this now.

[hnpcc]

Oh I see what you mean, I think I was reading at cross-purposes.

Paying 80% of your wage in rent is still bloody ridiculous though - even with the extra income.

Do you think having a similar scheme would do anything to combat housing affordability? Personally I think the only thing that would really change things around a bit is taking off the negative gearing - a very large number of people would probably divest themselves of investment properties at about that point.

[essjayeff.livejournal.com]

From ACOSS:
A single parent family with two school age children on social security must survive
on just over $400 per week. In May 2005, the total family income of a jobless single
parent with two primary school age children was just $415 per week ($241 per week
in Parenting Payment and $174 per week in Family Tax Benefit), plus up to $58 in
Rent Assistance.

We used to have a scheme in VIC similarly, it was a pile of poo. Really bad loan products. The problem is that governments aren't really very good at offering loans ... y'know? They're not subject matter experts. The SA one is good for folk who's only other option is Public Housing, but it does tend to lump like funded properties together, which isn't good social planning, and isn't well accepted by agents or vendors for that matter.

Having said that - I know a few people who started off with their first home under the scheme, and they are much further down the "home owner' scheme than I am, as they were ale to start much earlier, when you are more adaptable and have more energy for this sort of stuff.

The main problem with housing affordability is that unless you build affordable houses new (like they are planning in Tarneit and Maribyrnong) then you reduce the values of the surrounding properties, which brings a whole lot of new problems along with it. Lower rates for local councils, people not being able to sell cause their house is worth less than their mortgage etc etc

I think the best thing they can do to make housing more affordable, without sacrificing established values, is to make owner occupier mortgage repayments tax deductible, and remove the tax deductible status on investment loans.

I

[hnpcc]

It's kind of disturbing that I now want more exact information on her financial status so I can work out whether to be annoyed or not! Heh.

I started out assuming full time status on median wage and then kind of played around with figures for a bit.

[vestalvagrant.livejournal.com]

A couple weeks ago I got a train map and Domain and charted where we might be able to afford a house on different train lines. Result was: nowhere south, former zone 3 east, border of zone 2 north, and some bits of zone 1 in the west.

My point is, she can certainly compromise on where she lives, even without heading out where the city meets the country. Then again she ought to start by contemplating the concept of living within your means. Presumably she doesn't have the option of moving to same same outer suburb as family members who can provide free childcare while she commutes to work, but there's other options for balancing the cost of longer childcare hours while she spends more time commuting to her job or whatever. And getting over her urban snobbery, at least until the kids are old enough to leave home or start contributing to the rent. Childrearing mean compromise, darling!

And seriously, did she not realise you need a deposit to buy a house? Or does she secretly have $35,000 tucked away somewhere?

[vestalvagrant.livejournal.com]

P.S. Read this back to me in four to six years when I'm trying to buy a house in a suburb that doesn't remind me of Morwell.

[hnpcc]

Heh. There are some very nice parts of Morwell I'll have you know! And of Moe too!

[vestalvagrant.livejournal.com]

Just not the bits I grew up in.

[hnpcc]

See you needed to move further out! ;-)

Morwell is one of those towns that always looked kind of blah to me, mostly because when you're coming from the west all you see for miles is the power stations which leads to an overwhelming impression of industrial bleakness. (Then you stop at Mid-Valley, which doesn't help matters. Has that been renovated yet?) And yet there are nice bits, as I know from having been to 21sts in the area. *shrug*

Moe, on the other hand, I always thought of as quite a nice town with some pretty feral bits. Heh.

[epideme.livejournal.com]

To buy a house, you need a deposit. END-OF.[1] After that the article was not worth reading (though I did), let alone worrying about.

[1] Lending to people without deposits is what caused the cruch in the first place.

[hnpcc]

The 110% lending is not... hm, I was going to say "uncommon" but that's not entirely accurate. If you've a stable permanent job then they're usually happy to lend you the 110% with extra pay back features like compulsory mortgage insurance.

Some of the points she makes in the article are valid - there is a real issue with housing affordability in Melbourne, both renting and buying. It did kind of seem to get wrapped up in a "why can't I buy with my tertiary education and no savings!" theme though.

[vestalvagrant.livejournal.com]

You're right, the key issue of affordability gets lost beneath one household's budgeting priorities and a tinge of idiocy regarding real estate. Houses are too expensive, fact.

[essjayeff.livejournal.com]

You can't get 110% loans anywhere at the moment anyway so it's a moot point but not all 110% loans are "sub prime" anyway. The main problem overseas was the lack of regulation of the loan providers.

Australian loans were quite strict actually in calculating ability to repay. I even borrower 97% of the value of my home, which is really high to folk like my Dad, but now 3 years I'm under 80%.

In the USA they discounted interest rates terribly for the first three years, and were not obliged to tell folk what their repayments would be after that period. That kind of lack of regulation was the problem, not 110% loans themselves.

Still I do empathise with her, I don't really have much hope of moving from a main road, into a house with more than one bedroom, and I've got a bloody good job and no kids (well, except for the furry ones) and it feels like it took me forever to get this house!

[hnpcc]

I don't really have much hope of moving from a main road, into a house with more than one bedroom

Not even in, say, Caroline Springs? Or Laurimar? Even Reservoir/Thomastown? I'm pretty certain you could afford a 3BR house there. :-)

Yeah I know. Just making the point though - and I'm in the same boat. We bought in zone 2 for a number of reasons, including wanting a backyard and preferring to live in some locations over others.

Still, that's what the RMH raffle's for - buy a ticket and win a house in Camberwell. Heh.

[essjayeff.livejournal.com]

Nope - not even Caroline Springs (which is actually quite expensive!) $150,000 house +$200,000k land is about the cheapest you can find.

I'd just end up with MORE house and land.

Now if they built a one bedroom house on the main highway through Craigieburn on 100 square meters of land...THEN it would be cheaper.

Still - I wouldn't want to live in Camberwell :-)

[hnpcc]

They have "warehouse conversion" apartments in Caroline Springs. First, build your warehouse. Then "convert" it. I suppose at least it should be better laid out and less loud than a large number of warehouse conversions I've seen.

And you don't have to live in Camberwell - you sell the house and then buy something you want somewhere else! Heh.

(Although given I could just take one tram to get to work... I'd be tempted.)

[essjayeff.livejournal.com]

Well yes of course I'd take the house if I won it (not mad :-) but a house in Camberwell wouldn't really motivate me to buy a raffle ticket ...

[essjayeff.livejournal.com]

They'll make you take out Lender's Mortgage Insurance over 80%. Another reason why are banks are laughing. If I can't pay my mortgage, and the house sells for less than the value of my mortgage (including interest and costs) the mortgage insurer will pay the bank the difference, and chase me down to pay them back.

So the banks have NOTHING to lose by lending larger LVRs, another difference between us and the US.