Housing Affordability Tasmania
Showcasing affordable new homes in Tasmania
Retirement Living Options
This is part of a number of sessions of Finance for Pensioners and solutions to the Housing and Rental Crisis
This excellent article was written by Jason Hurst who has kindly given permission to include in our sessions
This session will explore the various types of retirement villages and accommodation models
It is still in preparation
Pensioners are often considering donating part of their estate to charities or the church.
Would it not be better if you donate now rather then waiting until you die.
It may give you more satisfactions to realise some of your wishes now.
The end result is the same but you are not only good things for the community now but also creating more disposable income for yourself.
In session 3 we discussed the Pension Loan Scheme. You can borrow $572 per FN as a single pensioner and $862.60FN as a married couple if you own your residence or an investment property. It is payable fortnightly or can be paid as a lump sum of $14,872 or $22,427.60 for the first year and fortnightly thereafter. You do not have to pay the loan as the loan + interest accumulates until it reaches approximately 50% of the value of your property at which stage your fortnightly payment may stop.
You still do not have to pay back the loan until you die or sell the property.
You can use the loan for any purpose: medical equipment, holiday or just supplement your living costs. The best use of the loan is to buy investments.
You could set up an investment funds for the beneficiaries of your will or for your grand children.
Pension affected under the asset test
There is only one strategy for these pensioners and that is to reduce assets to increase the pension.
You can do this by gifting, a holiday, medical treatment etc but also by using the Pension Loan Scheme.
People assessed under the asset test are probably the poorest people of all. They normally will have one or 2 investment properties which have increased in value over the years and moved them into the asset test.
The income from rent is less than the reduction in pension. Then there are repairs on the investment properties.
They are probably worse off than people on the full pension.
They are asset rich and income poor.
The first thing to do is to sell the investment properties and probably by a new property to take advantage of the depreciation allowances
You are in a very strange situation that the government will give you money for nothing.
The Pension Loan Scheme was originally designed for people owning their residence and use the equity in their homes to supplement living cost. You have been struggling all your life working for your home and the home is finally paying you back and is now working for you
If you borrow money against your residence it does not reduce your assets as Centrelink does not take that loan into account.
If you borrow against your investment property Centrelink takes that as a liability which reduces your assets
For every $1 dollar borrowed, your pension increases by 7.8cts or 7.8%
You must spend that money in things that will not be regarded as assets.
This could be a holiday, charity, medical, furniture, and a lease
One way of spending the money is a donation to charity
For every dollar Borrowed
Income
You If you borrow 50% of the pension, (Say $500) your disposable income will increase by:
Income from loan $572FN
Increase in pension @ 7.8% $ 44.62
Total $616,62
Cost
Loan $572.00
Interest on loan @ 3.95% $ 22.59
$594.59
Gift from the Government $ 22.03FN
You can decide how much of the income you want to donate to charity and how much you want to help you in your living costs.
The Trust has the following features
The Holy Grail of all investments.
This is a not-for-profit Trust and is the perfect and unique solution to the Affordable Housing and Rental Crisis but I am dead scared that it will fall into the hands of Superannuation Funds , Institutional Investors and the Price Waterhouses of the world.
They will run the trust themselves to make profits for themselves and completely destroy the purpose of the trust.
Therefore this session is at present confidential.
I have written to every past and present Minister and Senator, Labor, Liberal and Greens , Tasmanian Treasurer, Federal Treasurer Jim Chalmers and 3 times to Julie Collins , Federal Minister of Housing.
NO ONE IS INTERESTED IN SOLVING THE HOUSING AND RENTAL CRISIS
The following sessions are designed to shame the Government into action
If anyone in State or Federal Government is interested in solving the crisis they should contact me
On 0412 324 806 or p.griep@outlook.com
This session is part of a number of sessions on Finance for Pensioners and solutions to the Housing and Rental Crisis in Australia
Which business borrows the most ?
Banks
If you want to set up a bank you need some money to start the business.
It is called the Capital Adequacy Ratio. In Australia it is 8% which means you need 8% in funds before you can borrow 92% from the public. The borrowing is in the form of fixed deposits and money in customer’s bank accounts.
In financial terms the Loan to Valuation Ratio (LVR) is 92%
Imagine that you want to set up a business similar to a bank and you go to your bank and say:
I have $800 in the bank and want to borrow $92,000
What are you going to do with the money
I am going to lend to other people and charge 2% more than what you are charging me
Do you have any security like property or so
I have $8,000
Do you think the bank will approve the loan
Not very likely but that is exactly what banks do
They put up a limited amount of money and then borrow the rest from you
Are the banks safe?
If 8% of the people want their term deposits back, the bank is bankrupt.
But the government steps in and says we must subsidise this dangerous business and guarantee some of the funds. We do not want banks to go bankrupt because that is bad for the economy , so let’s subsidise them so they can make more profits. We will also set up Australian Prudential Regulation Authority (APRA) to make sure that the banks only provide safe loans and that deposits are safe.
Any profit the banks make is multiplied 12 ½ times. So if the bank makes 1% profit they actually make 12 ½% profit on their own money.
A normal margin between deposit and lending rates is 2% so if you put your money in a term deposit or bank account the bank makes 25% on your money and you are lucky if you get 5% ( or nothing in your trading account)
Profitable business ?. I think so
I recently wanted to borrow some money from the bank to build affordable rental accommodation for people who are struggling and approached the bank manager
Hi, things are a bit difficult for you at present as you are getting a bit of flack from the public about the enormous profits you are making while we are struggling with the cost of living.
I know, we are putting out some extra advertising to point out that we are a Community Bank and always put the interest of our customers first and also point out that we are supervised by APRA
Who is APRA
APRA is the Australian Prudential Regulation Authority set up by the Government to make sure the Banks are doing the right things for their customers and also make bank accounts and bank deposits safe.
I came here to see if I could borrow funds to build some affordable rental accommodation for people that desperately need it
We are regulated by APRA to make sure that all our loans are safe. We can for instance give no funding for, development, infrastructure , community projects or charities because we need full security, preferably good property in capital cities and we cannot take out a mortgage over a road or a community project and charities do not need funding as they get plenty of tax deductable donations and run raffles.
But I thought you were a community bank . Is that not misleading and deceptive conduct
Like the Government we are not bound by the Trade Practices or Fair Trading Act and anyway who is going to sue us
Coming back to the affordable renal accommodation. Can you fund me
The other regulation that APRA has put upon is that we only provide money to customers that can show us that they have good income or have a profitable business. It is very difficult to make a profit in affordable rental accommodation so APRA has instructed us not to provide funding for affordable housing.
WE DO NOT DO AFFORDABLE HOUSING
So you do no funding at all if people want to develop housing
The opposite is true . If say a married couple, both employed in the Public Service want to develop a $1m house we are more than happy to fund that.
But I can build 4 houses for that for people that need it
I told you before APRA will not allow it and that we do not do affordable housing
You have mentioned APRA a number of time who is APRA responsible to
They are regulated by and responsible to the government under strict regulation and are audited regularly. The Bank also has regular meetings with them.
Who is funding APRA
We set aside a small part of our profits and APRA is fully funded by us.
Sorry I have another appointment and also sorry that we cannot help you
Goodby
Oh, before you go, I have noticed that you are banking with our competitor. If you want to open a bank account with us or invest in one of our safe term deposit , we are only too happy to help you
Which business borrows the most ?
Banks
If you want to set up a bank you need some money to start the business.
It is called the Capital Adequacy Ratio. In Australia it is 8% which means you need 8% in funds before you can borrow 92% from the public. The borrowing is in the form of fixed deposits and money in customer’s bank accounts. Or the bank borrows from the World Bank
In financial terms the Loan to Valuation Ratio (LVR) is 92%
Imagine that you want to set up a business similar to a bank and you go to your bank and say:
I have $8000 in the bank and want to borrow $92,000
What are you going to do with the money
I am going to lend to other people and charge 2% more than what you are charging me
Do you have any security like property or so
No, but I have $8,000
Do you think the bank will approve the loan
Not very likely but that is exactly what banks do
They put up a limited amount of money and then borrow the rest from you
Are the banks safe?
If 8% of the people want their term deposits back, the bank is bankrupt.
But the government on the advice of APRA ( see Session 8) steps in and says we must subsidise this dangerous business and guarantee some of the funds. We do not want banks to go bankrupt because that is bad for the economy , so let’s subsidise the banks so they can make more profits.
Any profit the banks make is multiplied 12 ½ times. So if the bank makes 1% profit they actually make 12 ½% profit on their own money.
A normal margin between deposit and lending rates is 2% so if you put your money in a term deposit or bank account the bank makes 25% on your money and you are lucky if you get 4% ( or nothing in your trading account)
Profitable business ?. I think so
Are Banks servicing the community ?
Just answer a few simple questions
Do Banks finance Community Projects
Do Banks finance Affordable Housing
Do Banks fund Infrastructure
Do Banks fund Charities
Do Banks service Regional Centres
Do Banks help new companies
Is customer service improving
Are Banks interested in servicing their customer
Are Banks interested in making a profit
Do Banks make a profit
Does government subsidise Banks
We all love Banks because they are safe and secure
I am looking forward to a phone call from my Bank Manager
You be the judge !
Free of Debt. Say goodbye to your housing loan
Session 19. See also Session 29 and 29A
This is part of a number of sessions of Finance for Pensioners and solutions to the Housing and Rental Crisis
A shocking trend has emerged in the last 15 years
54% of retirees still have a housing loan
The most important strategy for pensioners is to get free of debt
There are a number of ways of getting rid of a housing loan
A housing loan for a residence is non-tax deductible
Debt on your residence is bad
Debt on an investment is good
The first priority should be to get rid of your bad housing loan
1 Withdraw Money from Superannuation
The easiest way would be to withdraw money from your superannuation to pay out your housing loan. It can be done when you are age 60 and in some cases age 55
You have previously converted Taxable Super into Tax Free Super
If not, you can Google how to do it.
You then withdraw the Tax Free Super to pay out your Housing Loan.
Simple
See Session 29 and 29A
You borrow extra money with your residence as security and invest it in bank shares. This strategy will not only pay out your non tax deductible Housing loan but also convert a bad loan into a good loan.
You can combine this with withdrawing money from your super. But always ask yourself the question can I borrow the money rather than using my own money. In the case that you are using super money you should never use it directly as in 1 above but invest it first. Invest it in Government Bonds or Bank Deposits first and then use the Government Bonds and Bank Deposits as security for a loan to buy Bank Shares.
See Session 3
This is gold.
Can be used by pensioners on the full pension, affected under the Income Test or under the Asset Test
ATO and Centrelink treat property differently. There is no Negative Gearing for Centrelink, no Division 43 depreciation Allowance and loans are treated differently.
Residential Property does not exist for Centrelink , neither does a mortgage against you residence. For ATO purposes the only things that counts is the purpose of the loan.
You can use your house or an investment property as security. It does not make any difference, but a loan for private purposes is not deductible and a loan for investment is.
Centrelink does not take a loan against your residence into account but takes a loan against an investment property as a liability . The Home Equity Access Loan is a liability. This means that if you are affected under the income test the interest on the loan is tax deductible and increases the pension and if you are affected under the asset test the loan is a liability and increases your pension.
Centrelink still takes the purpose of the loan into account but in a different way. If you are affected under the asset test and buy an asset there is no difference in your pension as the loan cancels out the extra asset . We have already seen in session 4 that we can get a free $60,000 car if you invest in a non asset which in that case was a lease.
There is one other big non-asset and that is your residence. If you use the increase in your pension to reduce the mortgage on your residence you can get rid of your loan fast.
As an example if you still had a $200,000 loan and 10 years to go you can get rid of that loan in 5 years and save yourself $125,000.
You can now buy another house or consider other Retirement Living Options. (see Session 14)
You would be surprised how many retirees use the cash from the sale of the house to buy another house or one of the retirement options
Do not hurry. Some of the retirement options are tax deductible
Never use your own money if you can borrow money.
Invest your money first and put it in Government Bonds or another Investment property and use that as security for a loan.
See Session 14. We can help. We are preparing a number of other options
Everybody’s situation is different . If anybody is interested give me a call on 0412 324 806
Never use your own money.
You sold a house or got an inheritance or want to use your superannuation to buy an investment property.
If you still have a non- tax deductible housing loan, the first thing to do is to reduce the housing loan and borrow it straight back changing a non-tax deductible housing loan into a tax deductible housing loan.
If you are paying tax, the biggest advantage of investing in property is the tax deductibility of interest on a loan as well as depreciation allowances.
In Session 10 we have seen that investment in property is more profitable the more tax you pay..
This makes investment with borrowed money so powerful.
Also, if you borrow money you are beating inflation.
You are paying back a loan with deflated money.
Only buy investment property with borrowed money.
How do you change cash into borrowed money
A convenient way is to invest the cash in bank shares ( or any other shares paying franked dividends) and then use those shares as a security for a loan.
Ideally you should pick a share with a franked dividend that pays the interest on a loan. An alternative is to use cash to buy a property but borrow 80% back to invest in shares.
Most larger company have a franking credit rate of 30% which means you effectively get a tax rebate at the 30% level. A tax rebate is tax free but your income is taxable. What is the equivalent income for a tax rebate of 30% .
Every 30cts of tax rebate is the equivalent of 42.9cts of income because if you pay tax of 30% on 42.9cts of income you get 30cts
Assume interest rate on a loan is 6% . What is the equivalent franked dividend to pay for this interest. A franked dividend of 4.2 % is the equivalent of 6% of income which will pay the interest on a loan.
Any decrease in interest rate will give a profit.
Any increase in interest rate is not so serious as in the 30% tax rate you are only paying 70% of any increase. If we use the bank shares strategy, dividends will pay the interest on a loan and any capital gain (say 6% on bank shares) is a profit. Also bank shares are liquid and you can cash in part of your shares for emergencies.
Using Superannuation for Investments
There is a large difference between using superannuation money for investments or using your taxable income for investments.
You should have consulted with your investment adviser or googled how to make your super tax free. If you withdraw money from your super it is tax free and we have seen in sessions 10 that tax free money is worth more than income from work or other investments.
If you use money withdrawn from your super to pay interest on a loan you get a direct tax deduction of 30% (or higher).
THERE IS NO OTHER INVESTMENT THAT WIIL GIVE YOU A RETURN OF 30% with 100% SECURITY
If you use superannuation to buy the investment without a loan, the effective return of your cash is the interest you save on a loan.
This session is part of a number of Sessions on Finance for Pensioners and solutions to the Housing and Rental Crisis in Australia.
There is only one way to solve the housing and rental crisis.
BUILD MORE HOUSES
What is affordable housing
Affordable Housing can be defined as housing that costs less than 30% of gross income. For home owners this means maintenance, rates and mortgage is less than 30% of income and for pensioners rent is less than $171.66 per week for singles and $258.78 for a married couple. There are no such market rents so it is obvious that Commonwealth Rent Assistance (CRA) is essential. Single Pension CRA is $105.60 per week and for a married couple it is 99.50.
So an affordable rent is $171.66+$105.60 = $277.26 for a single pensioner and $258.78+$99.50=$358.28 per week for a married couple.
There is of course insufficient supply in the rental market.
It is also a problem that market rents are rising faster than incomes.
The biggest demand for pensioners is for 1-bedroom units but the market trend in building new houses is for bigger houses ( say 250m2)
The result of this is that an increasing number of pensioners is in housing stress.
It is therefore highly desirable that tenancy for pensioners is long term, tied to the pension and that they do not have to compete with other tenants every time their lease expires.
It is obvious that the number of pensioners will increase dramatically and that the supply of rental accommodation does not change and more than likely will decrease if no action is taken.
What is the government doing so far
The Government Housing Accord is now relying on Superannuation Funds and other Institutional Investors to solve the Housing Crisis for them. “Tell them they are dreaming” . The only organisations that can administer affordable housing are not-for-profit organisations.
I have put several proposals to Julie Collins, the Federal Housing Minister and 3 times have requested a meeting with her. No response.
Superannuation Funds under their articles must make a profit for their members and cannot build affordable housing unless the government gives them large subsidies so they can make a profit.
This will be a complete disaster and you only have to look at the NDIS to see how much costs and subsidies will blow out.
Institutional Investors are very interested in Affordable Housing and Community Housing Providers but for all the wrong reasons.
Community Housing Providers do not have it easy . They are not-for-profit organisations and potentially the only organisations that can provide affordable housing and rental accommodation. Most of them are working at a loss and are subsidised by the government. Many organisations overseas ( and in Australia) have gone broke and will stop operating in the future.
Institutional Investors are sharks and are keeping a sharp eye on the next one that stops working and goes broke. The will then pick up the complexes at a discount and carry out extensive renovations which under division 43 depreciation is very good for their rich clients.
THEY THEN DOUBLE THE RENT
It is happening oversees everywhere
Sorry low income people and pensioners. We have to make a profit.
Rents will increase across the board
They are also eying the subsidies that the Community Housing Providers used to receive.
Would it not be better to give these subsidies directly to the people that actually build the houses. There are plenty of Builders and developers who are prepared to develop long term rental accommodation if they get some reasonable funding.
The $10 Billion Housing Australia Future Fund is now approved by the senate after the Greens unsuccessfully tried to get a cap on rentals.
This is a con.
The Government pretends to spend $10b in affordable housing yet only commits 5% or 500M per year to build houses. They say that over a 5 year period they can build 30,000 houses for $2,5B ( 5 x $500m). That equates to $83,333 per house ????
Instead of committing $10B to the housing sector the government is actually withdrawing $10B from the economy to invest elsewhere. They will give it to the Australian Future Fund who will invest it for them in the stock market, submarines, artificial intelligence etc probably on the advice of the Price Waterhouses of this world.
From the returns of HAFF (let’s hope the stock market does not crash) they will invest $500m per year in housing which will build 1250 houses @ $400,000 each.
Instead of 30,000 houses they can only build 6250. Not nearly enough.
The government is not very good with figures. They also have announced in the last federal budget that they will provide $350m (over 5 years) to support the funding of 10,000 houses. That is $35,000 per house which is even cheaper than the $83,333 per house under HAFF.
Some would call it deceptive and misleading conduct.
Private individuals can get a rent subsidy if they charge a reduced rent. They cannot rent out the property themselves or through a real estate agent . Rentals can only be administered by a registered Community Housing Provider. Centacare Evolve has a monopoly (very strange under the Competition and Consumer Act 2020) . No other Community Housing Organisation has been approved by the Government.
I am building affordable rental accommodation in Geeveston and applied under the Scheme to Homes Australia. They told me to talk to Centacare Evolve. Their reply was that Geeveston was not suitable and that I would not qualify.
Again strange as there is a waiting list of 154 people for Community Housing in that area.
I also know that Centacare Evolve has vested interest in the Huon Valley
All a bit strange to me
NONE OF THE ABOVE SOLUTIONS IS EFFECTIVE
To be fair to the government there are a number concessions to First Home Buyers
First Home buyers Grant $35,000
Home Guarantee Scheme where home buyers can buy a home with as little as 2% deposit (plus costs)
You can withdraw up to $50,000 from your super to buy your residence
The Government can share the house with you up to 30-40%
Government in the last budget also increased Government Rental Assistance by 15%. This seems as a reasonable initiative but does nothing for the most vulnerable and pensioners.
Rents for pensioners are set at 25% of the pension +Government Rental Assistance
So rents will Increased by the same amount as the Rent Assistance increase.
Subsidising the rent rather than building more houses is like subsidising the medicine without curing the illness. This in general is a favourite short term strategy of governments and politicians
BUT NONE OF THESE INCENTIVES WIIL BUILD HOUSES
.
Providing Affordable Accommodation and keeping it’s subjects above the poverty line is the responsibility of Federal Government and building houses is the responsibility of State Governments but we still have to build the houses.
To build a house in the first instance we have to create more land and infrastructure.
There are plenty of builders who are prepared to build if only they had suitable land and infrastructure. There is no financial institution in Australia that provides loans to private developers aided by APRA who has instructed banks to treat developers much more harshly than private individuals.
A private land developer has normally a very good case .
In my personal case we have 1.5M in unencumbered real estate, rental income of $825 per week , $200,000 in the bank and need to construct a road and infrastructure of $500,000. This road will pave the way for the development of 61 affordable rental accommodation dwellings. We applied for a loan of $330,000 from numerous financial institutions including a Business Growth Loan from the Department Of State Growth.
The loan would easily be repaid from the sale of 7 blocks of land worth $150,000 each when the road is constructed. Interest rate is not critical and no subsidy is required.
Developers would be prepared to pay interest @ 10% providing that it is short term ( 1 to 2 years).
Not a single financial institution is prepared to give a loan for a road and infrastructure.
NHIF ( National Housing Infrastructure Facility) or NHFIC (National Finance & Investment Corporation) can provide funding for infrastructure associated with affordable housing but only registered Community Housing Providers are eligible and private developers do not qualify.
HAFF could provide such finance
RECOMMENDATION 1
STATE GOVERNMENT OR NHIF OR HAFF TO PROVIDE SHORT TERM INFRASTRUCTURE LOANS AT AN INTEREST RATE OF 10% TO PRIVATE DEVELOPERS OF AFFORDABLE HOUSING .
RENTAL ACCOMMODATION
We are in the business of providing long term affordable rental accommodation. To analyse investment of rental property a rule of thumb is very helpful.
Weekly rent should be 1/1000th of the value of the property. For instance a $300,000 property should have a rent of $300 per week and a $500,000 property a rent of $500 per week.
This is a gross return of 5.2% (52 weeks in the year divided by 10). If we had to borrow the full amount of the property this would also be the interest I had to pay to the bank to break even ( interest only).The break even point ( disregarding operating costs for the moment) is the equation that not-for-profit organisations should operate on.
So a $520,000 property should have a rent or interest of $520 per week.
This is $100 per week per 1% of interest.
One can see that interest rate for a long term investor of affordable rental accommodation is absolutely critical. At present, as a company we have to pay interest @ 7.85% with the Commonwealth Bank . This would make the rent $785 per week + outgoings which would obviously not be affordable rent.
At present Centrelink is providing loans to pensioners under the Pension Loan Scheme (Home Equity Access Scheme) of 3.95%. If the government could provide a loan @ 3.95% for Affordable Housing, rent would be $395 per week.
Housing Affordability Tasmania is selling 3-Bedroom properties @ $389,000 in which case rents would be $295 per week which is affordable.
RECOMMENDATION 2
GOVERNMENT OR HAFF TO PROVIDE LONG TERM LOANS TO INVESTORS IN AFFORDABLE RENTAL ACCOMMODATION AT AN INTEREST RATE COMPARABLE TO THE HOME EQUITY ACCESS SCHEME.
Capital Guaranteed Investments.
I have been an investment adviser for 20 years, specialising in maximising pensions for retirees. This sector of the community is very conservative and the first thing a couple would ask is “ but is it guaranteed “. Pensioners do not want to take any risks.
Investment advisers in general and superannuation funds must create a diversified portfolio that must include some capital guaranteed investments like government bonds.
A 5 year Government Bond at present has a return of 4.331%
The government could set up a Government Housing Bond and use the funds exclusively as a loan to developers and builders of long term rental accommodation.
They can use the same mechanism as the Pension Loan scheme to lend it out to developers
These Bonds must be Capital Guaranteed
RECOMMENDAION 3
GOVERNMENT TO SET UP A GOVERNMENT HOUSING BOND AT THE 5 YEAR GOVERNMENT BOND RATE TO BE USED EXCLUSIVELY TO PROVIDE LOANS TO DEVELOPERS OF AFFORDABLE RENTAL ACCOMMODATION
The issue of a guarantee is essential and is expanded in our strategy to solve the Housing and Rental Crisis in Australia by setting up our Housing Affordability Trust (HAT).
HAT will solve the Housing and Rental Crisis in Australia without any cost to the government
The Trust will have the following features
This is the Holy Grail of Investment vehicles and the public, pensioners, councils, even foreign governments will invest in such a fund and will create trillions of dollars to invest in housing.
This Trust is a not-for-profit Trust and will build 100,000 s of houses at no cost to the government.
It will benefit First Home Buyers and retirees and everybody else in the public.
Our biggest fear is that the Price Waterhouses of this world get hold of the innovative and exclusive ideas underlying the Trust and will exploit them to make large profits for themselves and completely defeat the purpose of the trust.
Therefore the details of the Trust at present are confidential
I have approached Julie Collins, Minister of Housing but her department is not interested.
If anybody else in the government is interested I will be only too happy to fully explain the details of the trust
RECOMMONDATION 4
THE GOVERNMENT TO SET UP THE HOUSING AFFORDABILITY TRUST (HAT)
Politically my strategies are very favourable
This is part of a number of sessions of Finance for Pensioners and solutions to the Housing and Rental Crisis
I am building Affordable Housing in the electorate of Julie Collins. I have put several proposals including the Housing Affordability Trust (See Session 16) to Julie Collins, the Federal Housing Minister and several times I have requested a meeting with her .
NO RESPONSE
In a recent TV interview the minister has twice mentioned AHURI (Australian Housing Urban Research Institute) . I know that AHURI has researched Superannuation Fund and Institutional Investors to solve the crisis and probably more than likely recommended exploring these avenues in the Housing Accord
AHURI is doing very good work and has some prominent researchers but their possible recommendation (alleged, I have no prove) is fundamentally flawed
Superannuation Funds under their articles must make a profit for their members and cannot build affordable housing unless the government gives them large subsidies so they can make a profit.
I approached the University Of Tasmania whether I can set up a research paper with AHURI and Julie Collins may finally listen to the perfect solution for the Housing and Rental Crisis
Such Research should contain the following:
There is only one way to solve the housing and rental crisis.
BUILD MORE HOUSES
What is affordable housing
Affordable Housing can be defined as housing that costs less than 30% of gross income. For home owners this means maintenance, rates and mortgage is less than 30% of income and for pensioners rent is less than $171.66 per week for singles and $258.78 for a married couple. There are no such market rents so it is obvious that Commonwealth Rent Assistance (CRA) is essential. Single Pension CRA is $105.60 and for a married couple it is $99.50 per week.
So an affordable rent is $171.66+$105.60 = $277.26 for a single pensioner and $258.78+$99.50=$358.28 per week for a married couple.
There is of course insufficient supply in the rental market.
It is also a problem that market rents are rising faster than incomes.
The biggest demand for pensioners is for 1-bedroom units but the market trend in building new houses is for bigger houses ( say 250m2).
Community Housing Providers are not building 1-bedroom houses.
The result of this is that an increasing number of pensioners is in housing stress.
It is therefore highly desirable that tenancy for pensioners is long term, tied to the pension and that they do not have to compete with other tenants every time their lease expires.
It is obvious that the number of pensioners will increase dramatically and that the supply of rental accommodation does not change and more than likely will decrease if no action is taken.
What is the government doing so far
The Government Housing Accord is now relying on Superannuation Funds and other Institutional Investors to solve the Housing Crisis for them. “Tell them they are dreaming” . Superannuation Funds must make a profit for their members and Affordable Housing is not a profitable business.
This will be a complete disaster and you only have to look at the NDIS to see how much costs and subsidies will blow out. The government will end up providing subsidies to the Superannuation Funds so that they can make a profit.
Institutional Investors are very interested in Affordable Housing and Community Housing Providers but for all the wrong reasons.
Community Housing Providers do not have it easy . They are not-for-profit organisations and potentially the only organisations that can provide affordable housing and rental accommodation. Most of them are working at a loss and are subsidised by the government. Many organisations overseas ( and in Australia) have gone broke and will stop operating in the future.
Aged Care is the same.
Institutional Investors are sharks and are keeping a sharp eye on the next one that stops working and goes broke. The will then pick up the complexes at a discount and carry out extensive renovations which under division 40 depreciation is very good for their rich clients. .
THEY THEN DOUBLE THE RENT
It is happening overseas everywhere
Sorry low income people and pensioners. We have to make a profit.
Rents will increase across the board
They are also eying the subsidies that the Community Housing Providers used to receive.
Would it not be better to give these subsidies directly to the people that actually build the houses. There are plenty of Builders and developers who are prepared to develop long term rental accommodation if they get some reasonable funding.
The $10 Billion Housing Australia Future Fund is now approved by the senate after the Greens unsuccessfully tried to get a cap on rentals.
This is a con.
The Government pretends to spend $10b in affordable housing yet only commits 5% or 500M per year to build houses. They say that over a 5 year period they can build 30,000 houses for $2,5B ( 5 x $500m). That equates to $83,333 per house ????
Instead of committing $10B to the housing sector the government is actually withdrawing $10B from the economy to invest elsewhere. They will give it to the Australian Future Fund who will invest it for them in the stock market, submarines, artificial intelligence etc probably on the advice of the Price Waterhouses of this world.
From the returns of HAFF (let’s hope the stock market does not crash) they will invest $500m per year in housing which will build 1250 houses @ $400,000 each.
Instead of 30,000 houses they can only build 6250. Not nearly enough.
The government is not very good with figures. They also have announced in the last federal budget that they will provide $350m (over 5 years) to support the funding of 10,000 houses. That is $35,000 per house which is even cheaper than the $83,333 per house under HAFF.
Some would call it deceptive and misleading conduct.
Private individuals can get a rent subsidy if they charge a reduced rent. They cannot rent out the property themselves or through a real estate agent . Rentals can only be administered by a registered Community Housing Provider. Centacare Evolve has a monopoly (very strange under the Competition and Consumer Act 2020) . No other Community Housing Organisation has been approved by the Government.
I am building affordable rental accommodation in Geeveston and applied under the Scheme to Homes Australia. They told me to talk to Centacare Evolve. Their reply was that Geeveston was not suitable and that I would not qualify.
Again strange as there is a waiting list of 154 people for Community Housing in that area.
I also know that Centacare Evolve has vested interest in the Huon Valley
All a bit strange to me
NONE OF THE ABOVE SOLUTIONS IS EFFECTIVE
To be fair to the government there are a number concessions to First Home Buyers
First Home buyers Grant $35,000
Home Guarantee Scheme where home buyers can buy a home with as little as 2% deposit (plus costs)
You can withdraw up to $50,000 from your super to buy your residence
The Government can share the house with you up to 30-40%
Government in the last budget also increased Government Rental Assistance by 15%. This seems as a reasonable initiative but does nothing for the most vulnerable and pensioners.
Rents for pensioners are set at 25% of the pension +Government Rental Assistance
So rents will Increase by the same amount as the Rent Assistance increase.
Subsidising the rent rather than building more houses is like subsidising the medicine without curing the illness. This in general is a favourite short term strategy of governments and politicians
BUT NONE OF THESE INCENTIVES WIIL BUILD HOUSES
.
Providing Affordable Accommodation and keeping it’s subjects above the poverty line is the responsibility of Federal Government and building houses is the responsibility of State Governments and we still have to build the houses.
To build a house in the first instance we have to create more land and infrastructure.
There are plenty of builders who are prepared to build if only they had suitable land and infrastructure. There is no financial institution in Australia that provides loans to private developers aided by APRA who has instructed banks to treat developers much more harshly than private individuals.
A private land developer has normally a very good case .
In my personal case we have 1.5M in unencumbered real estate, rental income of $825 per week , $100,000 in the bank and need to construct a road and infrastructure of $500,000. This road will pave the way for the development of 61 affordable rental accommodation dwellings. We applied for a loan of $330,000 from numerous financial institutions including a Business Growth Loan from the Department Of State Growth.
The loan would easily be repaid from the sale of 7 blocks of land worth $150,000 each when the road is constructed. Interest rate is not critical and no subsidy is required.
Developers would be prepared to pay interest @ 10% providing that it is short term ( 1 to 2 years).
Not a single financial institution is prepared to give a loan for a road and infrastructure.
NHIF ( National Housing Infrastructure Facility) or NHFIC (National Finance & Investment Corporation) can provide funding for infrastructure associated with affordable housing but only registered Community Housing Providers are eligible and private developers do not qualify.
HAFF could provide such finance
RECOMMENDATION 1
STATE GOVERNMENT OR NHIF OR HAFF ON THE RECOMMENDATION OF COMMUNITY HOUSING PROVIDERS TO PROVIDE SHORT TERM INFRASTRUCTURE LOANS AT AN INTEREST RATE OF 10% TO PRIVATE DEVELOPERS OF AFFORDABLE HOUSING.
RENTAL ACCOMMODATION
We are in the business of providing long term affordable rental accommodation. To analyse investment of rental property a rule of thumb is very helpful.
Weekly rent should be 1/1000th of the value of the property. For instance a $300,000 property should have a rent of $300 per week and a $500,000 property a rent of $500 per week.
This is a gross return of 5.2% (52 weeks in the year divided by 10). If we had to borrow the full amount of the property this would also be the interest I had to pay to the bank to break even ( interest only).The break even point ( disregarding operating costs for the moment) is the equation that not-for-profit organisations should operate on.
So a $520,000 property should have a rent or interest of $520 per week.
This is $100 per week per 1% of interest.
One can see that interest rate for a long term investor of affordable rental accommodation is absolutely critical. At present, as a company we have to pay interest @ 8.05% with the Commonwealth Bank . This would make the rent $805 per week + outgoings which would obviously not be affordable rent.
At present Centrelink is providing loans to pensioners under the Pension Loan Scheme (Home Equity Access Scheme) of 3.95%. If the government could provide a loan @ 3.95% for Affordable Housing, rent would be $395 per week.
Housing Affordability Tasmania is selling 3-Bedroom properties @ $389,000 in which case rents would be $295 per week which is affordable.
Why not cut out the middle man ( the profitable sharks called banks) and provide loans directly by the Reserve Bank at Reserve Bank Interest rates.
RECOMMENDATION 2
GOVERNMENT OR HAFF TO PROVIDE LONG TERM LOANS TO INVESTORS IN AFFORDABLE RENTAL ACCOMMODATION AT AN INTEREST RATE EQUAL TO THE RESERVE BANK INTEREST RATE.
Capital Guaranteed Investments.
I have been an investment adviser for 20 years, specialising in maximising pensions for retirees. This demographic is very conservative and the first thing a couple would ask is “ but is it guaranteed “. Pensioners do not want to take any risks.
Investment advisers in general and superannuation funds must create a diversified portfolio that must include some capital guaranteed investments like government bonds.
A 5 year Government Bond at present has a return of 4.331%
The government could set up a Government Housing Bond and use the funds exclusively as a loan to developers and builders of long term rental accommodation.
They can use the same mechanism as the Pension Loan scheme to lend it out to developers
These Bonds must be Capital Guaranteed
RECOMMENDAION 3
GOVERNMENT TO SET UP A GOVERNMENT HOUSING BOND AT THE 5 YEAR GOVERNMENT BOND RATE TO BE USED EXCLUSIVELY TO PROVIDE LOANS TO DEVELOPERS OF AFFORDABLE RENTAL ACCOMMODATION
The issue of a guarantee is essential and is expanded in our strategy to solve the Housing and Rental Crisis in Australia by setting up our Housing Affordability Trust (HAT).
HAT will solve the Housing and Rental Crisis in Australia without any cost to the government
The Trust will have the following features
This is the Holy Grail of Investment vehicles and the public, pensioners, councils, HAFF and even foreign governments will invest in such a fund and will create trillions of dollars to invest in housing.
This Trust is a not-for-profit Trust and will buy 100,000 s of houses at no cost to the government.
It will benefit First Home Buyers and retirees and everybody else in the public.
Our biggest fear is that the Price Waterhouses of this world get hold of the innovative and exclusive ideas underlying the Trust and will exploit it to make large profits for themselves and completely defeat the purpose of the trust. Skim off 2% ( $300 million per year for HAFF) for us. The Trust at an income and growth of 3% and a government guarantee is still a very good investment. Or may be….
Therefore the details of the Trust at present are confidential
I have approached Julie Collins, Minister of Housing but her department is not interested.
If anybody else in the government is interested I will be only too happy to fully explain the details of the trust
RECOMMONDATION 4
THE GOVERNMENT TO SET UP THE HOUSING AFFORDABILITY TRUST (HAT)
See Session 16
Politically my strategies are very favourable
The aim is to build more Affordable Housing
The research paper should also include the following:
THE DEVELOPER’s POINT OF VIEW
Infrastructure in Australia is ageing. Town planning and Councils have taken the attitude that developers must pay for that. Town Planning rules in Tasmania are now uniform (which is good) and all Council Development permits will insist on:
Road Reserves must be 17.5m wide ( used to be 9m)
Footpaths must be concrete and 1.5m wide (used to be dirt and 1m wide)
Sewerage pipes must be anywhere between 150mm and 300m (used to be 100mm)
Stormwater pipe sizes have dramatically increased
There is a standard clause in any DA approval
“Any upgrade of any existing infrastructure for the works to be completed is to be undertaken at the Permit Holder’s expense.”
No specification or time limit
These are completely unspecified items and if the Council in the future decides that the sewer pipe has to be increased from 100mm to 300mm from the works to the sewer processing plant which is 5km away, the developer is bankrupt. Taking this to court would not help because the clause is clear and you have agreed to this clause or otherwise the permit will not be issued. Talking about risk!
Al these conditions increase the cost of a block of land by $100,000 which the developer passes on to the purchaser and makes land very expensive. It also increases the value of existing land. Capital Gain on land in the future will more than likely be more than Capital Gain on buildings
Under new Town Plan regulations Council has no discretion to relax these demands.
Another problem for the developer will be the buildings.
If you are proving community housing buildings they must be built according to silver level Livable Design criteria . Nothing but the best. These criteria are in excess of a 5 star building. Energy efficiency pays for itself in 5 years but costs more to the developer . If you are providing rental accommodation for community housing, efficiency increases the cost but you cannot increase the rent. The same applies to solar panels and insulation.
This has large consequences for a developer. A slope of 1 in 14 means for footpaths means you can only build on flat land and the number of buildings you can build on a certain size land decreases.
On an ordinary block of land you can build a 3-bedroom house plus an ancillary dwelling as long as it is less than 60m2
Our ancillary dwelling is a highset with 2 x 1_Bedroom units on top of each other, being 30m2 each. So you can build 3 dwellings on one block of land. A simple thing under Livable Design is that corridors bust be 1.2m wide ( instead of 1m in our design) and that a bedroom must have a wall of 3m minimum size.( instead of 2.9m in our design) This increases the size from 30m2 to 42m2. .
This of course increases the cost and I can only build 2 dwellings instead of 3. Instead of having 3 perfectly liveable buildings I can only build 2. The rents I can charge in community housing with the improved dwelling is actually lower than for open market rental.
So will the developer build Community Housing ?
I was building a retirement village in Kingaroy, 99% compliant ,which was exactly half the cost of a 100% compliant village in Brisbane. Community rent was the same
NEGATIVE GEARING
A lot of people use negative Gearing , indeed 69% of all rental properties is negatively geared.
Pensioners cannot use negative gearing as it is not recognised by Centrelink but developers can.
To encourage developers to build more houses negative gearing is an important incentive for developers. Negative gearing is particularly useful because of depreciation of new buildings.
Negative gearing can also be used by pensioners by renovating existing properties. Division 40 depreciation is available. We have seen in another session that $1 of depreciation is worth 3.88 of ordinary income. This could also be used to install a solar panel or buy insulation.
GST
Government could consider GST exemptions for people building affordable rental Accommodation
If developers provide long term rental accommodation (longer than 5 years) there is no GST payable but they also lose their GST refunds on the building. This could be reversed by the government
STAMP DUTY AND LAND TAX
Stamp duty and land tax could be relaxed for developers providing affordable accommodation
RENTAL ASSISTANCE TO DEVELOPERS
Commonwealth Rent Assistance (CRA) at present is provided to renters or Community Housing providers. Most community rents are based on 25% or 30% of income + CRA. CRA will automatically increase rents. If the Rental assistance was provided to the Developer of long term Rental accommodation it will decrease the rent.
COMMUNITY HOUSING PROVIDERS OR PRIVATE DEVELOPERS
Community Housing Providers do not have it easy. They are not-for-profit organisations and are the only organisations at the present that can provide affordable rental accommodation.
Tax concessions are no use to them as they don’t make a profit.
They are not-for profit but have a very high cost structure. They need a board and committees and auditors who take salaries or consultancy fees, They also provide property management which is probably more expensive than provided by the local real estate agents
A large number of Community Housing Providers in Australia and Internationally have gone broke or have an operating deficit subsidised by the government. These complexes are then sold to hungry superannuation funds and the like who do some renovations ( deductable depreciation allowances) and in some cases double the rent.
FIRST HOME OWNERS GRANT . SHARED EQUITY SCHEMES ETC
These and other subsidies should only apply to new properties
DIVISION 43 DEPRECIATION ALLOWANCES
They have recently been increased from 2 ½ % ( 40 years) to 4% (25 years) but only for organisations that build a minimum of 50 dwellings. This could be made applicable to all new affordable housing
NRAS NATIONAL RENTAL ASSISTANCE SCHEME
This scheme does not exist any more but what have we learned from it.
Participants had to provide reduced rents for a 10 year period to get the subsidies. Most periods have now expired and rents have been increased dramatically. It would have been much better to provide subsidised interest rates to the developers in the first place
DEATH OF PARTNER AND DIVORCE
The biggest and unavoidable time bomb for pensioners is the death of a partner or divorce.
(see session 8)
More than anything the research paper will come to the conclusion that THE AFFORDABLE HOUSING TRUST (HAT) is the only solution
This session is part of a number of Sessions on Finance for Pensioners and solutions to the Housing and Rental Crisis in Australia.
I have written to every present and past Minister from Labor, Liberal and The Greens, Treasurer Jim Chalmers pre and post election,Tasmanian Treasury, Federal Treasury, ABC .
NONE OF THESE PARTIES IS INTERESTED IN SOLVING THE HOUSING AND RENTAL CRISIS.
In this session we will give you copies of correspondence with the government.