Kamis, 31 Maret 2011

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.

Minggu, 27 Maret 2011

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.

*

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.

Minggu, 13 Maret 2011

Reforming Marginal Rental

We talk a lot on the Brown Couch about the situation of tenants under New South Wales renting laws.

Then there are the renters who aren't covered by residential tenancies legislation at all.


(Marginal rental)

These are the marginal renters: the boarding house residents, the lodgers in private residences, the residents of licensed residential centres for people with disability, the clients of refuges, crisis accommodation and supported accommodation, students in residential colleges, occupants of shared households, some caravan park residents.... There's about 25 000 marginal renters in New South Wales, as best we can count. And they include some of the most disadvantaged persons in our community.

Marginal renters have been forgotten by the law and neglected in government policy. They deserve better. So this election campaign, the Tenants' Union is calling on all political parties to commit to reforming marginal rental. And we're proposing the following four point plan of reform:

A four-point plan for reforming marginal renting

1. Law reform to create ‘occupancy agreements’
The problem: Legal relations between marginal renters and landlords are governed by unregulated common law contracts, with no fair mechanism for resolving disputes.

The solution: Law reform on the model of the Australian Capital Territory’s successful ‘occupancy agreements’ legislation, so all marginal renters are subject to non-prescriptive ‘occupancy principles’, with dispute resolution through the Consumer, Trader and Tenancy Tribunal.

2. Measures for more viable boarding houses
The problem: Traditional boarding houses are closing down, and too many of those currently operating are unsafe, poorly maintained and badly run. Existing subsidies and programs have not delivered satisfactory outcomes for investors or the community generally.

The solution: A ‘Boarding Houses Register’ to improve standards and liaison with the boarding house sector, a $15-million boost over five years to the Boarding House Financial Assistance Program, and business mentoring and other practical support for boarding house operators.

3. Services to promote social inclusion
The problem: Residents in boarding houses are often socially isolated, as are some landlords.

The solution: A ‘Boarding Houses Social Inclusion Program’ to get boarding house residents and landlords better connected with support services, including mental health and employment services, in their local communities.

4. Appropriate housing and support for people with disability
The problem: The accommodation and support provided to people with disability by licensed residential centres is generally unsatisfactory, and at its worst is abusive and exploitative.

The solution: Stronger action on standards and compliance, and movement from inadequate for-profit operators to social housing with funded support.

You can download the TU's four point plan in full here. Already 24 community organisations have signed on in support of reforming marginal rental. You can do your bit by writing to candidates in your electorate to ask them for their commitment to reforms for the State's most disadvantaged renters.

Senin, 07 Maret 2011

Credibility vacancy

In the news recently: rental vacancy rates. They've been rising - that is, there appears to more rental housing available to let. Welcome news for renters.

So how does the media report this? From the Herald:

Sydney rental market to tighten


And the Real Estate Institute:

"Unfortunately, without substantive reform to property investment controls in NSW, the state will continue to suffer from an accommodation availability crisis for the foreseeable future," said REINSW president Wayne Stewart.

"In addition, the new amendments to the Residential Tenancy Act passed by the Keneally government will only result in a further decline in available properties coupled with skyrocketing rents."


It's as if the media release was written before the REI even got their vacancy rate data, and decided to ignore it anyway.

And 'skyrocketing rents'? A look at Housing NSW's Rent and Sales Report reveals median new rents increased over 2010 by 7.5 per cent in Sydney, and 5.7 per cent for the whole State. And the ABS's CPI shows Sydney rents increasing 5 per cent. These increases are more than those in the cost of living generally, but are not quite in 'skyrocket' territory.

That might be all one can expect from an organisation that represents people who exaggerate for a living, but it is disappointing when the State's journal of record reports this nonsense uncritically.