Households

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The removal of the carbon tax was meant to save the average household about A$550 per year.
So a year after the repeal of the tax, have we got our savings?
An analysis by the Herald Sun newspaper says no.
It claims that (Victorian) “households saved less than A$300” over the course of the year. This was made up of about A$112 in reduced electricity prices and A$98 in cheaper gas. The Herald Sun was unable to find anything else, so the amount of concrete savings they tracked down is certainly well under A$300.
This is not surprising. Even if they had looked much harder, the journalists would have failed to measure the household savings. A moment of reflection will tell you that trying to isolate any effect of the carbon tax outside the regulated energy sectors is a pretty silly task.
Why? Well, let’s think about what else has buffeted household budgets and general prices over the past year.
A big factor has been the exchange rate. The <a href="https://www.rba.gov.au/chart-pack/exchange-rates" target="_blank">trade-weighted index</a> of the Australian dollar has dropped about 10% in the past year.
Of course, this reflects a range of changes in exports, imports and exchange rates. But if we pick a currency that matters to import prices (and therefore to households) like the <a href="https://www.xe.com/currencycharts/?from=AUD&amp;to=CNY&amp;view=2Y" target="_blank">Chinese Yuan</a>, the Aussie dollar has fallen about 20% in the past year.
Against the <a href="https://www.xe.com/currencycharts/?from=AUD&amp;to=USD&amp;view=2Y" target="_blank">US dollar</a> the fall is even bigger: almost 22% over the past year.
Despite a bumpy ride, the Aussie dollar has ended up <a href="https://www.xe.com/currencycharts/?from=AUD&amp;to=USD&amp;view=2Y" target="_blank">pretty constant</a> against the euro (in case you’re planning a holiday in the Greek islands). But the dollar’s weak performance against other major currencies will undoubtedly have pushed up pretty much all import prices for households.
Imported goods account for <a href="https://data.worldbank.org/indicator/NE.IMP.GNFS.ZS" target="_blank">about 20% of Australian household expenditure</a>, which means that a household on an after-tax income of A$45,000 per year (roughly middle income) has faced a rise in the cost of imports of about A$900 over the past 12 months.
So the exchange rate changes alone have probably eaten up the carbon tax savings, and then some. If you wanted to isolate the carbon tax effect on prices, you would first need to pull out all of the exchange-rate effects from those same prices.
Issue of interest
Of course, not everything has run against households, and the carbon tax savings have not been the only windfall. The Reserve Bank of Australia has <a href="https://www.rba.gov.au/statistics/cash-rate/" target="_blank">lowered the cash rate</a> by 0.5% over the past year. If your household has an “average” home loan of A$300,000 and your bank has passed on half of the cut in the RBA’s interest rate, this should be saving you about A$750 per year.
Of course, interest rate changes affect business costs and prices in all sorts of ways. So if you want to work out the effect of removing the carbon tax, you’ll also need to pull out all interest-rate effects on prices.
These are just a few of the big changes. There are many more little changes that push prices up or down every day. Trying to separate out the effect of the carbon price repeal from all these other effects is either a mug’s game, or a year-long project for a PhD student!
So what about the Herald Sun’s effort? The article doesn’t contain too much serious analysis. It mainly looks at how energy prices have changed, energy being the main sector that paid a direct price under the carbon tax. Yet even here, the story is confusing.
In its <a href="https://www.aemc.gov.au/Major-Pages/Price-trends" target="_blank">2014 price trends review</a>, the Australian Energy Market Commission noted that:
…residential electricity prices are generally flat or falling around the country and we expect that to continue due to a combination of falling demand, increased competition and tighter rules on network costs.
In other words, even without the removal of the carbon tax, there were already significant pressures pushing electricity prices down. These will continue over the next few years.
So, where’s my $550 then?
Does this mean that the claimed savings due to the removal of the carbon tax were hokum?
No, just impossible to prove. Holding everything else constant, the carbon tax pushed up prices to households. That was the point of the carbon tax.
Unfortunately, the government at the time didn’t do a great job of selling the scheme and, unlike British Columbia in Canada, didn’t bring the public along to support the scheme.
The change in government in 2013 and subsequent removal of the carbon tax last year undoubtedly brought prices back down. The “rockets and feathers” phenomenon means that prices probably went up faster when the tax was introduced than they fell when it was removed. But over a 12-month period, prices will have fallen, holding everything else constant.
But the point is we can never hold everything else constant, and so we will never be able to show exactly how much households have saved through the removal of the carbon tax. We may get empirical analysis over time but until someone gets down and dirty with the household pricing data (dirtier, ironically, than a tabloid newspaper), we will not be able to separate out the carbon tax from the huge range of other factors that have affected the spending power of Australian households over the past year.
So if you can’t find your A$550, don’t worry. No one else can find it either. It might be there somewhere, or it might not.
But if you’re going to worry about it, you should probably be worrying about interest rates, currency markets, electricity demand, and a heap of other things too.
Stephen King is professor, department of economics, Monash University and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/stephen-king-1374" target="_blank">here</a>.
<a href="https://theconversation.com/profiles/stephen-king-1374" rel="author"></a>
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po-LsXgBTHBmX

Measuring savings from the carbon tax is a mug’s game

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Australian home owners are staying put longer, with the average number of years that capital city residents hold their homes trending up since 2005 from 6.7 years to 10.7 years for houses and 5.9 years to 9 years for apartments, according to McGrath's latest report.
It noted the number of sales transactions has declined in line with this trend according to CoreLogic.
"Essentially it boils down to financial reasons and changes in the way we live today," John McGrath suggested.
Affordability and the costs of buying and selling are major factors.
"Stamp duty and agents’ fees alone currently run to about $55,000 on a median priced house in Sydney today."
Renovating is also on the rise, which tends to happen at the end of a boom when affordability falls. Instead of trading up, owners draw on new equity to renovate and extend instead.
"t’s not surprising that Melbourne and Sydney are our renovating hot spots right now," the report noted.
<a href="/images/2016/10/31/Renovation%20spending.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/31/Renovation%20spending.jpg" alt="">
"A strong economy is also encouraging people to stay put.
"Despite the GFC, it’s been 25 years since our last recession so the biggest economic factors that prompt people to sell – unemployment and financial stress – are less at play. People in secure jobs can stay put until personal circumstances demand a change of address.
"Which brings us to the second major element affecting hold periods – changes in the way we live.
"There has always been a strong correlation between people’s life stages and their housing needs, however in today’s modern world the traditional trends in the way we live are shifting and this is reducing the necessity to move," it noted.
Couple-only households and people who live alone are the fastest growing types of households in Australia today and they don’t need to move as much as growing families.
Recent Australian Bureau of Statistics figures show 46% of couple-only and lone person households have lived in their current home for 10 or more years compared to 28 percent of families with kids.
Young people are staying home longer, prompting many parents to delay their downsize or seachange.
When they buy their first home or rent with friends or a partner, they can stay there longer because they are delaying marriage and kids until much later in life.
Previously, as people’s incomes grew, they would look to upgrade to a better property but wage growth is not nearly keeping pace with property prices, so there are plenty of couples staying put in apartments or small houses until their first or second child comes along.
The average family size is also getting smaller, with a steady decline from 3-4 kids in the 1960s to 1-2 kids today.
"This means many families can stay put longer in properties with fewer bedrooms."
<a href="/images/2016/10/31/East%20Coast.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/31/East%20Coast.jpg" alt="">
We’re also seeing a rise in multi-generational households with couples and in-laws pooling funds to buy a large home that will suit them for the long term.
ABS data shows the majority of multi-family households stay put for 10-20 years or more.
The ageing population is also contributing to longer hold periods.
Mortgage-free home ownership is highest amongst older Australians and they prefer to stay put long term if they can, with 47% of owners without a mortgage living in their homes for more than 20 years.
<a href="/images/2016/10/31/Twin%20graphs.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/31/Twin%20graphs.jpg" alt="">
Staying put means avoiding moving costs and preserving pension arrangements, which can change after selling.
The GFC also prompted many empty-nesters to delay retirement and stay put while they continued working to replenish lost superannuation.
<div>
Buying and holding is the key to success in Australian real estate.
Although owner-occupiers are primarily motivated by lifestyle factors, it’s important to remember that your home is your greatest financial asset and the best capital growth always occurs over the long term.
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j.ballantyne1990-6AQqhLzZaK

Homeowners are staying longer: McGrath

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Across Australia, total unoccupied dwellings rose to 1,039,874, or 11.2 percent of the total 9.2 million private homes.
It was at 10.7 percent of the total five years earlier. 
Perth had the highest proportion of empty dwellings, with 11 percent. Melbourne was second with 9.6 percent.
In Sydney 7.7 percent of properties were unoccupied, up from 7.2 percent. Melbourne's 9.6 percent was up from 9 percent.
On census night there were 167,500 dwellings in Melbourne left vacant, 26,000 more empty homes than in 2011.
Unoccupied houses are often holiday homes or properties that can't be rented out.
Kristina Clifton, economist at the Commonwealth Bank, noted there had been a lot of talk in the press about foreigners purchasing new apartments and then leaving them empty.
The Federal government is trying to deter this type of activity with a new vacancy tax for foreigners introduced in the latest Federal Budget in May.
The Victorian Government is also introducing a similar tax.
"It’s been difficult to work out the extent to which this is happening.
"But the Census data tell us that the proportion of dwellings that are unoccupied increased by 0.5 percentage points (ppts) to 11.2 percent over the four years to 2016.
"The increase was 0.2 ppts larger than over the four years to the 2011 Census.
"Of the additional stock built over the four years to 2016, around 17 percent has been left unoccupied."
Clifton noted one caveat however is that we don’t know the ownership split between domestic and foreigners owners for this unoccupied housing stock. 
The average home had 2.6 occupants.
But the number of households with six or more people jumped in Sydney over the past five years.
There were 76,323 homes in Sydney with six or more, up 20 percent from the 63,168 five years earlier.
The next biggest increase was among five-person households, which picked up 10.2 percent to 130,712.
Kids staying at home longer, share houses, or multi-generational households, the higher number of people living under one roof is becoming more common.
 
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Empty homes on the rise, but so are more crowded homes: 2016 Census

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Amid the blame game between NBN Co and telecom companies over slow broadband speeds, the problem has a cheap fix.
If telcos paid just $9.75 extra a month per connection, speeds for the National Broadband Network would vastly improve, an analysis by The Australian suggests.
But telecom companies are more focussed on pressuring the network to drop charges to increase profits at taxpayers’ expense, the article in The Australian said.
Here’s how it works.
NBN Co charges telcos an access virtual circuit, or AVC, charge per user per month, based on whether the user is connecte­d to a maximum speed connection of 12 megabits per ­second, 25Mbps, 50Mbps or 100Mbps.
It also charges a bandwidth fee known as CVC — connectivity virtual­ circuit — which is the amount of data that flows to those connections.
The NBN pricing is already high by international comparisons because the network is using the charges to make repayments and a return on the federal government’s $49 billion investment.
On average, nationwide, telcos buy just 1Mbps of CVC.
This means that if every home were using the NBN at the same time they would each achieve speeds of just 1Mbps, well below under most ADSL connections.
Telcos can operate effectively buying bandwidth at lower levels than advertised speeds because not all users are online at the same time. But during peak times when most users might be online, the very low level of bandwidth being purchased under the NBN is seriously affecting speeds, said the analysis.
This is even after NBN Co cutting prices for 1Mbps of CVC per user per month to $14.25 from $21.
On June 1, NBN Co offered incentives for telcos to buy more bandwidth per customer. While 1Mbps per user per month costs $14.25, 2Mbps costs $20.50 and 3Mbps costs $24, meaning bandwidth, and so peak speeds, would triple if telcos paid an extra $9.75 per user per month.
However, despite the low costs to fix the bandwidth issue, especially during peak hours, the telcos are refusing to buy more capacity and focussing on lobbying NBN Co for further price cuts.
The issue is particularly pointed for Telstra and Optus, which between them control more than 60 per cent of all NBN connect­ions, because they are being paid $9.8 billion of taxpayer funds — $1,400 a customer — up to 2020 to compensate for customers mig­rating from their cable networks.
NBN connections were slow — in many cases slower than ADSL and cable  — because of the price war between the telecom companies and their reluctance to buy ­adequate bandwidth, according to telecommunications expert and Launtel chief executive Damian Ivereigh.
“Because there are so many cheaper plans, the (telcos) are refusing­ to put their prices up because­ they are afraid to lose market share,” Ivereigh said.
“We are not talking about a lot of money — for about $10 a month they could fix this whole thing.”
He said it was difficult for telcos to charge more for NBN connections because customers were used to paying low prices for ADSL and historically, technology and teleph­ony charges had gone down.
In spite of this, in order to fund the massive cost of the NBN, charges would have to rise because of the federal government’s nearly $50 billion investment in NBN Co.
The silver lining, according to him was that ultimately, while internet costs would be higher, NBN speeds would be well above ADSL.
Around 40 percent of eligible households have chosen not to connect to the network and economic modelling shows that <a href="https://www.urban.com.au/expert-insights/investing/74251-the-nbn-needs-subsidies-if-we-all-want-to-benefit-from-it" target="_blank">subsidising the NBN is key</a> to encouraging more Australians to connect. 
Recently, NBN chief executive Bill Morrow said the company was facing an image problem and the company was <a href="https://www.urban.com.au/expert-insights/investing/73504-nbn-chief-admits-to-image-problem-will-review-pricing" target="_blank">reviewing its pricing model</a>.
Both Telstra and Optus did not disclose the average amount of bandwidth they purchased per customer, however, experts said it was close to the industry average of 1Mbps per user per month.
Both telcos said the money they received for NBN connections was compensation for the federal government taking control of their expensive high-speed internet cable networks in each of the capital cities, except for Darwin and Hobart.
A Telstra spokesman said the group received payments from the federal government for every cable customer within NBN coverage and it was expected to have a negative earnings impact to the tune of $2 billion-$3 billion.
An Optus spokeswoman said the $1400-odd per cable customer payments it received were compensation for “significant histor­ical investments” Optus had made in its cable network.
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jonathanchancellor-7SQnKwU6yx

$10 a month could fix slow speeds, but telcos lobby NBN to drop prices

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GUEST OBSERVER
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The recent report by the Committee for Economic Development of Australia (CEDA) highlights the importance of improving planning systems and in providing infrastructure. 
The CEDA report titled Housing Australia is a welcome contribution to the growing debate on housing affordability in Australia. 
There are many aspects in the recommendations and contained in the chapters by experts that the Urban Taskforce supports. The focus on the need to relax planning restrictions imposed by local councils is an important national message.
Many councils are very focused on local issues and on protecting the concerns of their existing residents which creates a less than positive attitude to change particularly if it entails increased density and height. 
This leads to an adversarial situation with those who propose change who are generally developers. The consequence of this adversarial relationship is long delays, the imposition of excessive restrictions and frequent requests for more detailed information. 
The end product of this tension is to add significant extra cost to housing projects that inevitably increase the price of a home to the purchaser.
The CEDA report has a strong focus on the provision of transport infrastructure and this is where governments at all levels need to contribute. In NSW there is a very strong transport infrastructure commitment by the state government, particularly for metro rail, which underpins where new housing is to be located. 
As stressed in the CEDA report this will entail increased housing densities and governments at all levels need to champion this approach.
The report advocates encouraging a long term rental market like other global cities and a number of Urban Taskforce members are actively pursuing this new asset class.” 
The Urban Taskforce is concerned at suggested changes to capital gains tax as this would slow down the investment market which would reduce housing supply. 
Another issued raised by the report is the need to encourage downsizing of older people from larger houses into more appropriately sized dwellings. 
Currently there are taxation issues that discourage this desirable outcome.
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A broad based land tax is advocated in place of transactional taxes like stamp duty and the Urban Taskforce has championed this for some time. There does seem to be a growing number of key organisations advocating this approach and with leadership across the three levels of government this may be getting closer to realisation.
The Urban Taskforce supports most of the recommendations from the CEDA report on Housing Australia and appreciates the excellent input by the individual authors.
Chris Johnson is chief executive officer of property development industry group Urban Taskforce and can be contacted <a href="https://www.urbantaskforce.com.au/index.php?option=com_content&amp;view=article&amp;id=97&amp;Itemid=126#.Vdaart55dFI" target="_blank">here</a>.
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