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Why our most creative architects are coming from Tasmania

Australia’s ten best houses of 2016: amazing design and architectural ingenuitySeven Australian architects who should be on your radar in 2017Tasmanian house from 1820s is updated for 21st-century living
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Tasmania appears to have such disproportionate design clout that each year since 2013 a Tasmanian-trained designer has been at the top of the lists in the Australia’s peak residential awards.

Is there something in the water? Something unique about the education?

Is there a creative culture so stimulating and concentrated, that we might be witnessing the emergence of a Tasmanian maker’s mark with a craftsmanship brand value similar to a country like Denmark?

Each year in November the Australian Institute of Architects’ National Awards filters hundreds of new and renovated houses from around the country.

And here is how it has panned out for the University of Tasmania’s (UTAS) alumni of late:

In 2013, Tasmanian-born, Sydney-based Drew Heath won the National award for his own Northern Beaches home, Tir na nOg – a mythic name for “the otherworld”. According to the jury, it is a house “with a wonderful predominance of ingenious innovation”.

Heath, who works with the tools on many of his buildings, remains ever the maverick inventor.

In 2014, Melbourne-born, Tassie-educated Jeremy McLeod and his Breathe Architecture team won a sack of awards and ultimately the National multiple residential gong for the sustainable and socially responsible, rail-side apartments, The Commons, in Brunswick.

The jury called it “a flagship triple-bottom-line residential development”. It stands as only the first of a revolutionary, affordable, multi-res model being rolled out. The third is in development.

In 2015, and with the first project from the Hobart-Melbourne Archier practice, country-Victoria raised, UTAS and RMIT trained Chris Gilbert won the National award for new residences under 200 square metres for the marvellous Yackandandah pavilion that redeployed much recycled material and played with many experimental ideas.

The Victorian jury described Sawmill House as “a wonderful synergy between rusticity and resolution, raw materials and bespoke detailing”.

In 2016, Melbourne-based Austin Maynard Architecture – the partnership of two UTAS graduates, Andrew Maynard and Mark Austin, won a National residential title with a witty modification to a terrace they called “Mills, The Toy Management House”.

The jury said it was “a bold and whimsical project”… suggesting “how one might (re)-occupy this small historic building type to accommodate the expansive program of contemporary family life”.

Maynard has a history of being playful and inclusive of children’s needs in always interesting houses. The year before, the practice’s multiply configured Tower House in Alphington had similarly won a National residential title.

So, what do these graduates of one of Australia’s smaller architecture faculties, with a student body of 250 at the Launceston campus, reckon is happening there?

All immediately cite inspiring, “catalytic teachers”. And Maynard feels such individuated expressiveness was also nurtured by an emphasis on hands-on experience.

“It was an advantage to be part of a small intake class where everybody knew each other well and where there was a very strong tradition of learning by making. The students built things.” They still do.

“And” he adds, on an island that gives us Huon and King Billy pines, “timber dominates the discourse”.

“In Tassie we all had the instinct to be very good custodians of timber.”

McLeod is much admired as a mentor by the broader island coterie, who include Cumulus Studio’s Melbourne-based women architects, Claire Austin, Alysia Bennett and Bernadette Wilson – and in an important publishing role, Katelin Butler, editor of the influential Houses magazine.

He says when in the 1990s UTAS “went back to basics and began emphasising sustainable design in everything, it gave us a really good competency in sustainability”.

“Studying in Tasmania you are so close to nature and you see how powerful and beautiful and susceptible it is. Being in a place so connected to nature makes you think about the world very differently than you do in an urban environment.”

Gilbert was educated first in Launceston, which he calls “elemental, human-oriented design teaching that made us think about the fundamentals”. Studying later at Melbourne’s RMIT, he found that experience “more about being intellectual than being a maker”.

“Maybe it was the island culture that made us pursue our own thing so doggedly and want to get out and make a stand?” he says.

Heath, appearing this year as a judge on the Channel 7 renovation show, House Rules, spent his first three years in Hobart before the campus decamped to Launceston.

He believes that because the (Hobart) architecture school was part of the arts faculty “to which it naturally belongs”, and because he had to walk past and work with sculptors and painters – and studied life drawing as an elective, it taught an alternative variation of the slowest of all the art forms.

Later in Launceston, “we had fantastic workshops and were trained to use tools and timbers and work in a truly creative way”.

“We were able to experiment freely.”

Perhaps, in a nutshell, that summarises the approach of our emerging architecture influencers: Creative, experimental, and free.

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‘A huge problem’: People like Amy are leaving Sydney for Melbourne

Amy Carlson, 33, moved to Sydney from Melbourne seven years ago.
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Two weeks ago, after witnessing a massive surge in property prices, she moved back – with her partner Jamie Hodgson and son Olli.

Having rented a three-bedroom house in Randwick for $1000 a week, they realised it would be faster to save for their own house if they moved back to Melbourne, where rent was cheaper.

Now they’re in Malvern East, paying $790 for a “massive” three-bedroom-plus-study house.

“The prices that we were seeing in Sydney, for the locations we wanted to live in … it just wasn’t going to be what we wanted. The block sizes are a lot smaller and you seem to pay an exorbitant amount of money for that,” Ms Carlson said.

They are one of the many young families who have flocked to Victoria, Queensland and Tasmania to find cheaper property prices and a better lifestyle, Australian Bureau of Statistics data shows.

While the ABS doesn’t define ‘young families’ as a category, the interstate migration of children, and adults up to the age of 45, paints a clear picture of those who fit this demographic.

Net migration figures – the difference between those migrating into a state or territory and those leaving – found more 10 to 14-year-olds left NSW in in 2015/2016 than in any year since the GFC. A similar pattern was seen for children in the 0 to four and five to nine age brackets.

But while there had been a slowing outflow of those in their 30s and early-40s since 2011, this reversed in 2015/2016.

The only category where, overall, NSW had net growth in that time was from 25 to 29-year-olds, which could be explained by growing student numbers.

Urban and Regional Planning and Policy chair at the University of Sydney Professor Peter Phibbs said the statistics could start to mirror the early 2000s, where there was a surge away from Sydney after a house price boom.

“What we’ve seen is a pattern in Sydney which does respond to house prices,” Prof Phibbs said.

“High [property] prices are a huge problem for people starting a career or a family, and it causes talent to leave – usually to Melbourne,” he said.

“Ultimately, it could undermine the economic basis of the city.”

In Victoria, the net internal migration statistics show every age group experienced a net increase in 2015/2016. Those in their 20s led the pack, followed by those in their 30s and the 0 to 4 age group.

And looking at the median property prices and rents, it’s not hard to see why Melbourne is proving more popular to families in Sydney.

BIS Shrapnel senior manager residential Angie Zigomanis said young families could find new land blocks within 35 kilometres of Melbourne CBD, in areas such as Melton or Tarneit, for under $250,000.

“In Sydney, it’s $400,000 and you’re 40 or 50 kilometres out in Camden,” Mr Zigomanis said.

For those looking to buy a house, the median Sydney price is above $1.1 million – $300,000 more expensive than in Melbourne.

For renters, it’s also a much more favourable situation in Melbourne.

Domain Group data from December shows house and apartment rents in Sydney at $540 and $520 a week respectively. In Melbourne, the median asking rent was $410 and apartments were $380.

YourLand Developments director Mark Erskine first noticed more Sydney buyers for their house and land developments in Melbourne’s western suburbs 18 months ago, and said the trend had been increasing ever since.

About 30 per cent of buyers for their River Valley Estate in Sunshine North and other project called Seventh Bend in Melton South are from Sydney, and the majority of these were home buyers.

“Even where Melton is located, it’s still far closer than where first home buyers have the opportunity of buying in Sydney, on the outskirts of Sydney,” he said.

Victoria isn’t the only state attracting young families and couples. Queensland has also been a location of choice.

Brisbane’s median house rent was $400 a week, with house prices less than half that of Sydney’s – at $540,758.

PRDnationwide national research manager Diaswati Mardiasmo said the lower median price, steady price growth and strong commercial and infrastructure investment was making the area attractive.

She said there had been a big increase in inquiry from the southern states. An analysis of purchasers’ addresses for Queensland projects found an increase in interstate buyers from 4.4 per cent in 2010 to 13.6 per cent in 2016.

But some are going even further afield.

Hannah and her partner Alan moved from Melbourne to Tasmania recently due to the cost of rent. Photo: Supplied

Former Melbourne residents Hannah Gooley, 29, and her partner, Alan, 26, were on a commercial lease in Melbourne, with an open door co-op when they were told their rent was being increased by 15 per cent.

They believed it would continue to climb.

“It was a sad realisation and we considered doing it for one more year, but what was the point when the rent would only soar again the following year,” Ms Gooley said.

As they worked for themselves the need to be near an employment hub – such as Sydney or Melbourne CBD – was not as pressing. So they relocated to Tasmania. The median rent for a house in Hobart is $355 a week.

“While income may be lower, access to beautiful natural spaces means we can work and play at a slower pace,” she said.

First-Home Buyers Australia’s Taj Singh said key workers, including those working in nursing, childcare and hospitality, would also be more likely to move.

“We may see a growing number of young Australians move interstate not only for cheaper housing and a better lifestyle,” Mr Singh said.???

But a survey they undertook found just 5 per cent of first-home buyers were set on purchasing interstate, with a further 11 per cent “undecided” on whether they’d yet make that move.

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Pirates show path to investing success says manager of millions

NCH NEWS, Property Council lunch Debating light rail for Newcastle. Image shows Professor Stuart McAuliffe, during a Panel discussion at City Hall.11th October 2013 pic Darren Pateman Photo: Darren Pateman DJP”Barbarians at the Gate” may have been a one-time popular description of New York’s Wall Street, but if one local investor gets his way, Australian markets will be populated increasingly by pirates.
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Benjamin Hornigold, John Bridgeman and Henry Morgan are the names of famous pirates and local investment funds.

John Bridgeman and Henry Morgan are already listed – on the National and Australian stock exchanges respectively – while Benjamin Hornigold is in the final stages of completing a small sharemarket float, raising an initial $20 million.

The funds’ namesakes were mostly active in the Atlantic, although Bridgeman, an alias for John Avery, was also engaged for a time in the Indian Ocean, where he achieved notoriety for carrying out one of the most successful heists of the era, seizing booty from an Indian fleet.

The common link for all three investment vehicles is fund manager Stuart McAuliffe, an associate professor at Bond University.

“Pirates are very mobile and very flexible in decision-making,” McAuliffe said. “And have a very democratic system: if the leader is unpopular, he is voted out and goes back to join the rest of the sailors.

“And the whole focus is on profit.”

Benjamin Hornigold is intended to be a “high conviction” investment vehicle, focusing on “five to 10 key trading ideas”, he said, while Henry Morgan is focused on as many as 20-25 key ideas, carrying with it less risk.

John Bridgeman, which is listed on the NSX, is the management company for the group. McAuliffe wants to shift its listing to the ASX at some stage.

You could be forgiven for thinking he is obsessed with pirates – and you’d be wrong.

“My fixation is actually military strategy,” he said, having studied the military campaigns of Julius Caesar, Napoleon and General George Patton, crediting this interest for his approach to investment markets.

“As investors, as you’re looking for a bigger piece of the pie, speed is essential. Pirates were opportunists.”

McAuliffe and his listed vehicles have enjoyed outsized returns over the past year, with several months spent in Britain ahead of the ‘Brexit’ vote last year to quit the European Union convincing him of the outcome, with the same approach also seeing him call the US presidential outcome last year, with the success of Donald Trump.

Now, he is convinced that Emmanuel Macron will win the French presidential elections, the technocrat who has never stood for public office, despite the relative showing of Marine le Pen, the head of the National Front.

“I’m very keen on Europe,” McAuliffe said. “The Europe economy is doing well this year. Stocks there could rally as much as 30 per cent going into the end of the year.

“In France, Macron will win [the presidential elections] and the market will react strongly to that – maybe not immediately but over the following few months. Europe is the real wild card.”

The first round vote gets under way in France this weekend, with the run-off vote in early May.

McAuliffe is not afraid to switch his investment focus, concentrating on equities then, as markets shifts, changing to favour foreign exchange markets, if that is where he can see outsized returns.

“I was focused on the opportunity of that time,” he said of his shifting focus as he eyes prospects to profit across the realm of investment markets locally and abroad.

That free-ranging scope saw him snap up a 6 per cent shareholding in Hunter Hall International this year, when the founder Peter Hall sold out to Washington H. Soul Pattinson and Co, with McAuliffe optimistic of the outlook for this fund manager which is yet to finalise a planned merger with another fund manager, Pengana Capital.

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7-Eleven sparked reforms will bring franchising chaos

Fair Work Ombusdman Natalie James. Photo: PENNY STEPHENS. The Age. 6TH DECEMBER 2016 Photo: Penny StephensThe Turnbull government has introduced tough, potentially game-changing laws that may see the end of franchising in Australia as we know it.
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The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (Bill) is in response to grievous acts of exploitation by employers, which was ignored by the franchisor, more specifically the 7-Eleven franchise.

Last week the bill was referred to the Senate Education and Employment Legislation Committee for review. The sector’s peak body the Franchise Council of Australia and many franchisors put forward their submissions to the committee.

It is the bill’s proposed legislative amendments that have thrown the $146 billion industry into chaos as franchisors and franchisees ponder if the franchise industry is being read its last rites.

There are four key amendments that will affect the franchising sector.

First, amendments to s558A creates a broader, and arguably unfair, definition of “franchisor”. This has the scope to inadvertently capture businesses that are not franchises.

Second, establishing the connection between a franchisee and franchisor and their “significant degree of control” casts a wider net than is necessary. Control should reflect the issue of “employment” and not the general affairs of a franchisee.

Concerns exist that, unlike the recently publicised case of Yogurberry or the Fair Work Ombudsman’s inquiry into the systems of 7-Eleven, not all franchisors maintain the same level of control over the financial and operational systems of their franchisees.

The introduction of the proposed legislation may drive a wedge between franchisor and franchisee relationships as fingers are pointed over increased costs associated with the compliance of a franchise system.

Third, the word “significant” referred to above is ambiguous. This could mean a small franchisor that provides template employment contracts and template procedures is liable for deliberate and malicious acts of a franchisee.

Finally, the phrase “could reasonably be expected to have known” in changes to s328 creates a liability that is too uncertain in the context of a typical franchisee arrangement where there is constant communication between the franchisor and franchisee.

Essentially this phrase will be subjected to a test that pays no regard to the type of franchise system or the size or resources of the parties.

A franchisor is supposedly liable for breaches of s328 and can face fines of $54,000 for their franchisee’s underpayment offences when “they knew or ought reasonably to have known of the contravention and failed to take reasonable steps to prevent them”. Motive misapprehended

The amendments also suggest a view that the entire franchise industry, and franchisors, are negligent or knowing accomplices in the exploitation of workers.

In fact, most franchisors in Australia take pride in carrying out their due diligence in ensuring a properly run franchise network.

These amendments go well beyond the purpose of preventing exploitation of vulnerable workers by extending to workplace obligations, which rest with an employer not with a franchisor. (Section 328 in fact deals with high-income employees. This is inconsistent with the purpose of protecting “vulnerable” workers.)

The amendments are a terrible outcome for the franchising sector in general, and the smaller operators in particular. They are unduly prejudicial towards franchisors with respect to accessorial liability provisions, and franchisees will be hit hard with additional compliance costs as increased audit fees are passed on by franchisors. Industry mobilised

The FCA – whose membership includes 7-Eleven – wants the legislation to be either blocked or severely modified.

Representing the 1100 brands and supporting 79,000 separate small businesses that between them employ 472,000 people, the FCA has asked for clarification on the bill’s changes, including what constitutes “reasonable steps”, the inclusion of a requirement to consider the size and resources of a franchise system, the provision of an approved compliance guide, greater emphasis to “Right Size” the law to consider appropriately the mixed scale and diversity of franchises operating within the industry, and increased focus on the underpayment of employees.

The 7-Eleven problems are in the minority in the franchising sector. The fact is the law does work in its current form.

Left unchanged, these laws will significantly impact this diverse and evolving industry by increasing exposure to liability for franchisors, holding companies in uncertainty with compliance requirements, and weakening both domestic and foreign investment as the focus of investors shift to less regulated pastures.

All up these changes add up to a catastrophic event for the franchising sector, affected industries and Australia’s economy.

Bruce McFarlane is managing partner at law firm BlueRock Partners.

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Beny Steinmetz lawsuit scorches George Soros

CBD is still blinking away the glare after reading the explosive writ filed over Easter by Israeli magnate Beny Steinmetz against hedge fund supremo George Soros.
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Steinmetz leaves no grievance unturned in the claim filed in a New York court accusing Soros of all manner of misdeeds against his BSG Resources and its ill-fated attempt to mine iron ore in Guinea.

Amid the allegations of a “shakedown” and “racketeering by Soros, and several uncomfortable references for Rio Tinto, there were some points that raised CBD’s singed eyebrows.

For example, Steinmetz claims to have poured $1 billion into the “socially constructive project”. Yet the case also claims that after Soros’ “mendacious and illegal” conduct – that’s a tame bit – BSG lost its development rights, meaning “nothing has been done to develop the resource”.

In CBD’s world there’s a fair bit of daylight between $1 billion and nothing.

Beny also reckons Soros got one Barack Obama to meet with the Guinean President Alpha Conde and not long afterwards an investigation was launched that led to BSG losing its licence.

Not only that but the claim goes on to detail how the OECD nations together with NGOs partly funded by Soros all got in on the act together to dance on the grave of the failed project.

Yep Steinmetz, who does not appear to be wearing a tin foil hat in any of the public photographs available, believes that the criminal investigation he now faces as he sits under house arrest in Israel is all thanks to some sort of multinational law enforcement pile-on.

Strap yourselves in. Creditors pricked

We couldn’t let it pass without mention, especially given all of the fun we’ve had with it over the years, but Unilife, the one-time plaything of Alan Shortall, has finally succumbed.

With losses approaching $US500 million ($659 million) so far, the retractable syringe maker sought relief from its creditors late last week, even though it is only a couple of years away from having saleable products on the market.

Avid readers of CBD will remember Unilife finally dumped Shortall, its long-time boss, last year, paying for him to move back to Australia as it sought to close the door on his reign, while also launching investigations into possible “violations of law and regulation” by Shortall that ultimately failed to come up with anything “material”.

Once Shortall was out of the way, Unilife was trying to reconfigure itself to focus on the “wearable injectors” market, but profits remain elusive and shareholders could be forgiven for fearing the worst. Old timers say good luck

The New York hedge fund, Elliott Management Corp, which owns 4.1 per cent of the mining giant BHP, may want to have a quick look back in time to see just how hard it is to take on BHP – still seen as the epitome of Melbourne establishment stocks.

In the mid-1980s businessman Robert Holmes a Court did the unthinkable by having a crack at BHP. It was known then as the Big Australian from an ad campaign featuring actor Bill Hunter, and “Hacca” did his utmost to unseat the board, led by Brian Loton, through a series of raids via the exchange-traded options market.

Even the so-called “Melbourne Club”, led by the blue blood John Elliot, who, with Hacca, managed to amass well over 20 per cent in BHP, could not wrest control of the mining giant. So old stockbrokers are now scratching their heads as to how a New York-based hedge fund with 4.1 per cent will succeed. Tour de cash

The 55-strong peloton of “middle-aged men in Lycra” (MAMILs) has put other fund raisings in the shade by collecting a whopping $820,000 for the Tour de Kids charity. Last month they made their way from Albury to Wollongong on what is likely to be the last Tour de Kids charity bike ride.

Led by the chairman, David “the Cheshire cat” Cobcroft, the Tour de Kids is the original multi-day bike ride in Australia. Since its inception 16 years ago, the event has raised nearly $7 million for the Starlight Children’s Foundation and other child-based charities.

The original four cyclists, Richard Hunt,Andrew Gibbons, David Kirkby and Bevan Towning who flew from London, were joined by Vince Kernahan, Andrew Clarke, David Baxby, John Marsh, Trent Illiffe,Tom Hardwick and Ian Holmes among many others.

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ACT economy riding high on housing boom and federal gridlock

The ACT economy is among the fastest growing in Australia, on the back of the housing boom and gridlock in the federal parliament, Deloitte Access Economics says in its latest business outlook.
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The “two big levers” in the Canberra economy were federal government spending and interest rates, because the city was “one big fat mortgage belt” built around the public service.

“From a Canberra resident’s viewpoint, long may gridlock reign, because it’s bad for the nation, good for us,” partner Chris Richardson said.

“Somebody at some stage will be back in charge of Australia. We haven’t really had a government with its hands on the wheel for a while. And you’d have to think that that could be a dangerous phase for Canberra when that eventually does happen, simply because the deficit remains pretty entrenched and you’d expect us to be part of the grand bargain – the lower spending and the higher taxes that get us on to to a sustainable setting for the budget.”

Mr Richardson said the Reserve Bank’s two cuts to interest rates in 2016 had helped push along the ACT economy.

“It may not have quite the excitement of Sydney housing prices, but things are pretty solid and that increase in wealth is making people happier – and hence happier to shop than they’d otherwise be,” he said.

“We’re essentially past that phase of notable cutbacks in the public service, and that combination, interest rates down and the negative of public sector cutbacks now mostly in the rear vision mirror, means that the ACT economy is actually travelling pretty well, among the fastest growing in Australia.”

Mr Richardson said the 2016 interest rate cuts had pumped up the country’s “already overly botoxed housing prices”, resulting in Australia’s 9.23 million households having a net worth of $9.4 trillion. This meant that Christmas 2016 “saw the average Aussie family become millionaires”.

But interest rates would rise. Global markets were already pricing in more inflation and growth, and while he didn’t expect Australian rates to start rising until 2018, “rise they will”.

“Housing prices are dangerously dumb, and the Reserve Bank won’t want to add further fuel to that fire,” he said.

While Canberra was vulnerable to interest rate hikes, it was reducing its reliance on stamp duty tax on house sales, a move “totally to be applauded from the viewpoint of economists”, and one that would lessen the impact on the ACT budget of the eventual turn in the housing cycle.

The ACT’s economy, as measured by state final demand grew 7.3 per cent in 2016, on the back of increased federal government spending and a big jump in both federal government investment and private investment – mainly in housing.

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‘This thing’s gonna blow’: Top economists’ interest rate warning

mj041112 BIZNEWS/CLARE 041112 The Trends Luncheon at the Hyatt……speaker Chris Richardson, Access Economics. A dangerously overcooked housing market and rising interest rates are poised to plunge thousands of Australian families into mortgage stress in coming years, top economists have warned.
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As the Turnbull government grapples with how to address the housing affordability crisis in its May budget, some experts are predicting a housing correction that cannot and should not be stopped.

Deloitte Access Economics’ quarterly business outlook, released today, predicts the official cash rate of 1.5 per cent will climb slowly in 2018 and 2019 to reach 3 per cent in the early 2020s.

The Reserve Bank was well aware “interest rates are now a massively more potent weapon for slowing the Australian economy than they’ve ever been before”, the forecaster said.

It noted Australian families have overtaken the Danish in recent months to become the world’s second most indebted households after the Swiss, relative to income – a consequence of “dangerously dumb” house prices.

Director Chris Richardson told Fairfax Media a crisis could be averted if, as he predicted, interest rates rose slowly and steadily. But cheap credit and high leverage still posed risks.

“In global terms our housing prices are asking for trouble,” Mr Richardson said, arguing many workers have found their homes make more money each day than they do. “That’s kind of God’s way of saying: this thing’s gonna blow.”

Sydneysiders were particularly vulnerable, Deloitte found, having benefited enormously from low interest rates but now witnessing “silly prices” that continued to grow – a “rather worrying development” in Deloitte’s eyes.

“The seeds of future slowdown are already well and truly sown. The better that NSW looks now, the greater the troubles that this state is storing up for the future,” the outlook warned.

“The joy of rising wealth eventually gives way to the pain of servicing gargantuan mortgages. Interest rates are beginning to rise around the world and although official interest rates in Australia may not follow suit until 2018, that augurs badly for the disposable incomes of Sydneysiders.”

Martin North, principal of Digital Finance Analytics, expressed concern Australia could be heading for a version of the US sub-prime mortgage crisis that preceded the Global Financial Crisis.

The parallels involve spiralling household debt, stalled incomes, rising levels of mortgage stress and interest rates that are on the way up.

Mr North’s modelling shows 669,000 families (or 22 per cent of borrowing households) are in mortgage stress. That would rise to 1 million households, or one third of borrowers, if interest rates rose by 3 percentage points.

But the main factors in Mr North’s reckoning are the static nature of wages and the rising tide of under-employment.

“This falling real income scenario is the thing that people haven’t got their heads around,” he told Fairfax Media.

“Unless we see incomes rising ahead of inflation and under-utilisation dropping, any increase in interest rates is going to have a severe impact on [people’s] wallets and therefore in discretionary spending and therefore on growth.

“I have a feeling we are meandering our way, perhaps a little bit blindly, into a rather similar scenario to the US.”

Mr North said mortgage stress was not only an issue for battlers and people on the urban fringe, but increasingly affected more affluent, highly leveraged households.

He dismissed the possible solutions put forth by Treasurer Scott Morrison as “political theatre” and invoked former prime minister Paul Keating by arguing Australia may be heading for “the correction we have to have”.

“I’m not sure that there are other levers that are available,” he said.

The Deloitte report also poured scorn on cutting immigration to boost housing affordability, an idea backed by former prime minister Tony Abbott among others.

Immigrants made infrastructure projects more rational, but were unfairly targeted by “populist politicians” and “shock jock echo chambers”, the group said.

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The green, amber and red of housing affordability

It costs $47,880 each year to service a typical loan on a median-priced house in Sydney, research by the Housing Industry Association shows.
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Numbers like that have pushed public anxiety about housing costs to an all-time high. The latest Ipsos Issues Monitor poll found 41 per cent of people in NSW now rate housing as one of the most important challenges confronting the community, up from 29 per cent in 2013.

The experience of people such as Daniel Stone is driving the public’s apprehension about property.

Despite owning his own business and having a good income, the 29-year-old says he still can’t break into Sydney’s “crazy” housing market.

“When people start seeing houses like a game of monopoly, it becomes impossible for the rest of us,” Stone says.

He believes government policies have made getting in the game much harder for young people now.

“It was always tough, but the first rung of the ladder was easier to access than it is now,” he says.

“We just keep removing barriers for demand and government policies are adding fuel to the fire, it’s creating competition for magic money.”

State and federal governments are promising action to make property more affordable for first home buyers.

But what would be the best policies to achieve that?

As the Treasurer, Scott Morrison, warned in a speech last week “there is no silver bullet” to improve affordability. For start, housing policy depends on all three levels of government, which makes a co-ordinated response difficult.

But some policies would be more effective than others. We’ve divided potential affordability policies into three categories. Green – the best policies on offer. Amber – measures that would help but are probably not game-changers. And red – policies to be avoided. Green light: the best options

Reduce the capital gains tax discount

When it comes to policies to promote housing affordability paring back the 50 per cent capital gains tax discount is the lowest of the low-hanging fruit. The discount, introduced by the Howard government in 1999, has enhanced the appeal of property investment and stoked demand for housing.

Independent economist, Saul Eslake, says this preferential treatment of capital gains also “distorts savings and investment decisions” and detracts from the overall equity of Australia’s personal income tax system. The 50 per cent discount will cost the federal budget $6.8 billion this financial year rising to more than $9 billion by the end of the decade.

The 2010 review of the tax system by former Treasury boss, Ken Henry, recommended the capital gains tax discount be reduced to 40 per cent.

Many experts, and the Labor Party, think there’s a case to go further. Before the last election the ALP promised to “reduce the capital gains tax for assets held longer than 12 months from the current 50 per cent to 25 per cent”.

Paring back the discount would ease pressure on house prices by making property investment a little less attractive. The federal government has no better option at its disposal to limit upward pressure on property values.

More supply … but in the right places

Politicians of every stripe go on about the importance of increasing the supply of housing. They are right with one proviso – our biggest cities, especially Sydney, need more houses in well-located areas.

While the number of dwellings built in Sydney has increased markedly in the past five years not all that new supply has necessarily come in areas of most demand.

Many new apartments have been built in and around the CBD and a considerable number of new dwellings have been constructed in outer metropolitan districts including Blacktown, The Hills and Liverpool. But the supply boost has not been nearly as strong in the so called “middle-ring”.

John Daley, chief executive of the Grattan Institute, says substantial demand for housing in those well-located, middle-ring neighbourhoods is still not being met.

“While some of those people might settle for an inner-city apartment many are not keen on that so instead, they will keep bidding up the price of middle-ring houses,” he says.

“Unless you turn a lot of those middle-ring homes into townhouses … you may not get that much change in buying behaviour.”

Daley says good planning that allows a significant increase in housing supply in the middle-ring would be “the biggest game changer” of all for housing affordability.

But that poses a stiff political challenge, especially for state and local governments, because many long-term residents of middle-ring suburbs resist major changes to the character of their neighbourhoods.

In the longer term, the supply of well-located urban properties can also be increased with fast, efficient public transport.

Cut taxes on bank savings

A little remembered recommendation from the Henry tax review was that all forms of savings should be taxed at the same rate, to avoid distorting investments.

Along with recommending a reduction in the discount on capital gains on property and shares from 50 to 40 per cent, Henry also recommended the discount be extended to interest earned on term deposits and other bank accounts.

This would level the investment playing field between cash, shares and property, taking some heat out of the property market.

It would also give a boost to first-time buyers who typically save their money in term deposits.

While this would come at a cost to the budget, if introduced as part of a package to wind down the capital gains discount on property and shares, it could be cost neutral, or even boost the budget bottom line.

More public and social housing

There’s a curious twist to Australia’s housing boom. While investors have been piling into the property market, governments have reduced their public housing stock. Morrison noted last week that Australia now has 16,000 fewer public housing dwellings than in 2009.

Richard Denniss, the Australia Institute’s chief economist, quips that the only people in Australia who seem to think housing is a bad investment are governments.

“Those with planning powers who can borrow money cheaper than everyone else apparently think housing is a dud,” he says.

With the national waiting list for public or community housing approaching 200,000 there is a strong case for a sustained increase in the supply of public and social housing.

“If we had any interest in the affordability of housing then the state would be building affordable housing in convenient locations and renting it to teachers, nurses or whoever they think deserved it,” says Denniss.

“If they wanted to sell it in 20 years’ time they would make a fortune and then build some more.”

One alternative proposal championed by Morrison that may be included in May’s federal budget is the establishment of a “bond aggregator” to help community housing providers borrow at cheap rates to build affordable rental housing. This seems a sensible proposal. Amber: next best

Sensible, consistent surcharges on foreign investment in housing

Housing markets across the Pacific Rim, including Sydney and Melbourne, have recently attracted a lot of interest from foreign investors, especially from China. This is likely to grow as China becomes more integrated into the global economy.

Research published by merchant bank Credit Suisse last month found foreigners are buying 25 per cent of new housing supply in NSW and 16 per cent in Victoria. The analysis, based on information obtained through freedom of information requests, said almost 80 per cent of foreign demand for housing in those two states is from China.

NSW and Victoria introduced foreign investor stamp duty and land tax surcharges last year. Several Pacific Rim housing markets, including Vancouver and Hong Kong, have similar schemes.

“Over the longer term we believe there is good reason to expect more, not less Chinese demand for Aussie housing,” the Credit Suisse report says.

That means well designed – and possible much higher – levies on foreign investment in housing will be probably justified to ensure local first-home buyers are not disadvantaged.

Phase out stamp duty and replace it with a broad-based land tax

It’s high time we did away with our worst tax – stamp duty – and replaced it with a broad-based property tax. A host of studies have shown stamp duty is gravel in the gears of the economy. One of its many distortions is to discourage families from moving to housing that best suits their needs.

Modelling by KPMG last year found a switch from stamp duty to a broad-based land tax would boost gross state product in NSW by $5 billion a year.

This change would reduce the upfront cost of a home (stamp duty on a median-priced Sydney home is now more than $40,000). And because this reform would encourage land to be put to its most productive use, it would help improve the affordability of housing over time.

A cap on negative gearing

A swag of economists have called for an end to negative gearing as well as a reduction in the capital gains tax mentioned earlier. Labor’s policy is to only allow newly-constructed housing to be negatively geared by investors.

If a reduction of the capital gains tax discount fails to curb excessive investor demand for housing, changes to negative gearing could be considered.

The Reserve Bank has said there “is a case for reviewing negative gearing”.

But there are also good arguments for leaving it alone.

Negative gearing – running losses in the short term – only works as an investment strategy if eventually the property appreciates in value enough to overcome those losses. As such, it is the prospect of capital gains that is the real driver of investment in property, which could be better addressed by winding down the capital gains tax discount.

Secondly, negative gearing is consistent with how other types of investment are treated in the tax system. A small business person who sets up a new business and employs staff is entitled to deduct any costs incurred in doing so. Too much complexity in the tax system can come at a cost.

Still, a sensible cap on the number of properties that can be negatively geared could help to curb some of the worst excesses in the market. Red: policies to avoid

Allowing first-time buyers to use their super to fund a home deposit

Several prominent Coalition MPs have recently backed a plan to allow young people to put superannuation savings towards the purchase of a house. It’s not a new idea – the former Treasurer, Joe Hockey, was the last politician to moot such as scheme in 2015.

But it’s difficult to find an economist who thinks this is a good option.

Daley has labelled it a “fundamentally bad idea”. Eslake calls it “fundamentally bad” and professor of economics at University of NSW, Richard Holden, labelled the plan a “complete own goal”. The list of expert critics goes on.

The reason for their scepticism is that any policy that gives a large number of potential buyers more cash to spend in a hot market is likely to just push up prices.

The upshot? Wealth is shifted from young savers to older property sellers.

Let’s leave superannuation to do what it was designed for – provide a stream of income in retirement.

Tax breaks and grants to first-home buyers

Eslake warns that Australian politicians have experimented with “demand-side interventions” – various methods of support for home buyers – for 50 years without success.

These experiments have taken various forms from cash handouts such as first-home buyer grants to tax breaks like stamp duty concessions.

But none have stopped the steady decline in home ownership among younger households.

Eslake reckons it’s difficult to find a government policy that has been tried for so long despite such overwhelming evidence that it doesn’t work.

– with additional reporting by Pallavi Singhal

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Federal public service travel bill nears half a billion dollars

Senator Mathias Cormann during debate on the ABCC bill in the Senate at Parliament House in Canberra on Wednesday 30 November 2016. fedpol Photo: Alex Ellinghausen Photo: Alex EllinghausenFederal government departments spent nearly half a billion dollars on travel and accommodation in 2016, equivalent to more than $2700 for each of the nation’s 155,000 public servants.
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Department of Finance figures show the bill for the whole of government travel system totalled $427 million last year, including bookings of domestic and international flights, hotels and car rentals.

The travel bill has grown by as much as $50 million since the 2013-14 financial year, when domestic flights made up 65 per cent of the $377 million spent.

The following year, the government booked travel across 1.4 million sectors, costing about $420 million.

The figures don’t include some travel costs by government owned businesses.

As part of the spending, the Department of Foreign Affairs and Trade told Senate estimates travel booked with departmental corporate credit cards in 2015-16 totalled $4.64 million, up from $3.35 million the previous year.

The top domestic routes flown by government travellers include Sydney-Canberra, Melbourne-Canberra and Canberra-Brisbane. Internationally, the top routes include Perth-Christmas Island, Sydney-Los Angeles and Sydney-Singapore.

Governments have previously declined to release the total amount spent on travel as part of the centralised arrangements for non-corporate Commonwealth entities, with the bill to taxpayers estimated at about $500 million in 2012.

Established in July 2010, the government-wide system is designed to reduce costs and simplify some booking and administration processes. It makes the federal government the largest air travel user in Australia, ahead of BHP Billiton, Rio Tinto, large consulting firms and the big four banks.

Administered by Finance, the system permits bureaucrats and officials to buy the lowest practical airline fare – the cheapest ticket that suits the “practical business needs of the traveller”. Public servants are required to book semi-flexible economy seats, unless they are entitled to business class travel or are given specific approval to upgrade.

For overseas travel, the best international fare must be selected from at least three quotes with public servants required to apply “an appropriate level of rigor” in finding value for money.

Amid ongoing cost saving drives, governments from both sides of politics have required public servants to reconsider their need to travel for work and to use video conferencing and other technology as much as possible.

Official guidelines tell public servants to “book like a private traveller”, seeking cheaper, less flexible fares wherever possible an not to seek out specific aircraft or full-service airlines.

Public servants must not consider access to airline lounges or status credits among reasons for choosing fares. Tickets in the system do not attract frequent flyer points.

Carriers including in the latest system, announced last year, include Qantas, Virgin, Jetstar, Regional Express, Air New Zealand, British Airways, Cathay Pacific, Emirates, Air Niugini, Etihad and Singapore Airlines.

A new panel of 18 airlines allows for competitive fares and discounts for departments and federal agencies, delivering savings over market fares as well as some flexible conditions for government travellers.

The government also negotiated some simplified contract management provisions and receives reports on travel patterns.

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How negative gearing made the poor worse off

SYDNEY, AUSTRALIA – SEPTEMBER 23: Brendan Rynne of Centre for Independent Studies speaks on a roundtable at the Australia Financial Review Tax Reform Summit on September 23, 2015 in Sydney, Australia. ?? (Photo by Christopher Pearce/AFR)_CP84849.jpg Photo: Chris PearceAustralia’s poorest people are taking on negatively geared property investments, despite their inability to manage the risks, a new report from KPMG shows, putting them at severe risk of financial distress when interest rates begin to rise.
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While the proportion of households facing economic hardship has remained static in recent years, the total number of very poor households has risen and reached almost half a million people.

Household incomes have grown, not because of rising wages and salaries, but rather due to higher investment income and government transfers, according to KPMG Economics’ report Financial Stress in Australian Households: the haves, the have-nots, the taxed-nots and the have-nothings.

The report found that the bottom 20 per cent of households recorded the highest rate of growth in investment income, at 8.5 per cent per annum, compared to an average of 2.3 per cent over the past decade for the other households.

This increase reflects a greater exposure to investment activities such as negatively geared property investment, putting people on lower incomes at risk of being unable to meet their mortgage repayments should interest rates rise. Negative gearing under fire

According to the 2014-15 taxation statistics released by the Australian Taxation Office last week, 1.27 million people who negatively geared recorded a rental net loss, slightly down from 1.3 million claimed the year prior.

The number of Australians with a rental property has increased to just over 2.05 million, up from 1.98 million in 2012-13.

But the amount of losses claimed by Australians on mortgage interest payments and other items against their taxable income reduced in line with lower interest rates. In 2014-15, the net result from rentals was a loss of $3.6 billion, down from $5.7 billion in total loss in 2012-13.

While people across all income spectrums claimed losses, those on the highest incomes were the biggest beneficiaries in dollar terms.

The data also shows that the number of investors with one rental property has grown by 2.4 per cent over the two years to June 2015, but the number of investors with two or more rental properties has grown by nearly 34,000, or 6.2 per cent over the same period.

“It seems that once you’re hooked on the drug of investing in property, you want more and more,” KPMG chief economist Brendan Rynne said.

“Any increase in our historically low interest rates would cause serious problems given the growth of outstanding residential loans over the past decade.”

Given housing costs are the largest single expenditure that households face, he said “fresh policies to target this issue are sorely needed”.

In recent weeks, there’s been a growing chorus of voices including the Australian Institute of Company Directors and the chair of the government’s financial system inquiry David Murray calling for policy changes to negative gearing and capital gains tax concessions.

Reserve Bank governor Philip Lowe has also said that one of the reasons investor loans and interest-only loans were climbing rapidly and contributing to higher house prices is due to “the taxation arrangements that apply to investment in residential property in Australia”.

But Treasurer Scott Morrison ruled out any changes to negative gearing in May’s federal budget. About 460,000 households in ‘hardship’

The KPMG report examines Australian households over the past 20 years, drawing data from the Household Income and Labour Dynamics in Australia (HILDA) 2017 survey, and Australian Bureau of Statistics (ABS) Household Expenditure survey, which covers the years 1998-2010.

Around 10 to 15 per cent of households appear to be consistently unable to pay bills and debts as they fall due. These are the “have-nots” and they comprise nearly 1.4 million households.

Then there is the “have-nothings” – households who live with entrenched disadvantage – unable to afford heating and meals, need to pawn possessions or require assistance from welfare organisations. The report says they represent about 3 to 5 per cent of Australian society.

The “have-nothings” category now constitutes about 460,000 households. Since the turn of the century, 94,000 households joined the “have-nothings”.

Spending on non-essential items has also fallen, the report said. One-quarter of Australia’s households cannot afford annual holidays for one week a year away from home. One-fifth of households are unable to entertain themselves away from home once a fortnight. And 10 per cent of households cannot afford to have a special meal with their families or purchase new clothes. Call to tighten welfare payments

KPMG warned against taxing the rich more. It suggests the Turnbull government instead tighten up welfare payments.

Policies to deliver welfare to the very poorest are less effective than to slightly better off recipients, the second-lowest 20 per cent of households.

“While overall, the social safety net appears to be working as intended, it is curious that the second-lowest category receives proportionately more in transfer payments than they pay in tax compared with the very poorest people,” Mr Rynne said.

“This suggests welfare payments might need better targeting.”

The report said over the past 35 years, transfers payments have risen from representing about 30 cents per dollar of tax revenue to now represent about 40 cents per dollar of tax revenue; an increase of 33 per cent.

Income from the top 40 per cent of Australian households is being redistributed to pay for the transfer benefits received by the bottom 60 per cent of Australian households.

The wealthiest households still receive a small amount of government support, most likely through some form on non-means-tested payments, such as the $7500 childcare rebate.

The report said targeting of transfer payments loosened in 2009 when the then Rudd government made payments to households under its $52.4 billion package designed in response to the GFC, but “was never tightened up sufficiently once the need for the stimulus subsided”.

“Once middle-class welfare is given, it is politically difficult to take it away,” the report said.

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