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Tuesday, 10 October 2006
Page: 73

Mr BOWEN (7:14 PM) —I take the opportunity to make some brief remarks on the Housing Loans Insurance Corporation (Transfer of Pre-transfer Contracts) Bill 2006. This bill enables the government to transfer to private ownership the pre-existing mortgage insurance policies that were in place before the privatisation of the Home Loans Insurance Corporation. The total amount of the premiums that we are talking about is $5 million, approximately. This bill enables the government, as previous speakers have said, to negotiate a consideration for the transfer to the private sector of these existing policies. The explanatory memorandum says that there is no fiscal impact to this bill. I am not sure that is the case, and I will return to that point shortly, but I do acknowledge that any fiscal impact is likely to be relatively minor. This is a sensible approach. The previous government began the process and this government has continued it. The ALP have supported it at each stage and we will continue to support it.

Mortgage insurance is a very important issue in my electorate and elsewhere in Western Sydney and in other areas, particularly capital cities. During the peak of the housing boom many families had to take out mortgage insurance to finance the purchase of their home. Commonly, if you need to borrow more than 80 per cent of the value of the house that you are purchasing, you need to have mortgage insurance. We can be talking about very significant amounts of money. We are not talking about premiums of $500 or $600. We are talking about premiums of $10,000 to $15,000 not being uncommon in parts of Sydney. In some circumstances you can get this money back if the proportion of your loan falls below 80 per cent. In some circumstances you can reclaim a percentage of the premium. But the easiest way for that to happen is for the property price to increase through some combination perhaps of you making extra repayments on your home loan and property prices rising. Many people, hopefully, will be able to reclaim their mortgage insurance premium, or a percentage thereof, some time within the first two years of their mortgage. But we are seeing this become harder and harder. In Sydney, property prices have fallen by two per cent. In Fairfield and Liverpool, the area that I represent, property professionals are very clearly of the view—and you do not need to be a genius to work it out; all you need to do is look at the prices in the newspaper or get your house valued—that property prices have fallen by 20 per cent in the last two years.

There is a very real connection between mortgage insurance and defaults. I have referred to defaults in this House previously. There was a 58 per cent increase in mortgage repossessions between 2004-05 and 2005-06 in Victoria—a 58 per cent increase. In New South Wales, repossession orders have also reached record levels: they are 59 per cent higher than they were in 2004 and there was a further increase in the first six months of this year. They are even higher than they were in 1982, when interest rates hit 20 per cent. In the ACT, the Consumer Law Centre reports that repossessions increased by 39 per cent between 2004-05 and now.

This has several ramifications for the bill under consideration by the House tonight. Firstly, the increase in repossessions indicates an increase in risk for whoever holds those premiums. If they are transferred to a private sector operator, I expect that the private sector operator will seek a higher level of consideration than they might otherwise have done to take over the risk. I do not want to overstate this. I think that it is fair to say that the majority of repossessions that are occurring would be of loans that were taken out in the latter part of the housing boom. I do not think that many of them would be mortgages taken out pre the 1997 privatisation of this government instrumentality. But I have no doubt that a private sector entity considering taking over these loans would say: ‘Repossession rates are at a record level and people are defaulting on their mortgages at record rates across the country. If we are going to take over the risk of these insurance policies, we want an increased level of financial consideration. We want increased compensation for taking over this risk.’ I have no doubt that any private sector manager would attempt that, and it would be their job to do it. So I do think that this bill will have financial implications. We are only talking about $5 million in premiums. I do not suggest that we are talking about sums that will break the budget, but I do think that there will be an increased level of compensation sought.

It is clear that many people have been placed under financial pressure because of the combination of the collapse in property prices—in Western Sydney in particular. Why have property prices collapsed? Primarily, as anybody in the real estate industry will tell you, it is because the seven consecutive interest rate increases we have seen since 2003 have put downward pressure on property prices. This includes the three that we have seen since the last election when, of course, the government promised to keep interest rates at record lows and many people considering taking out a mortgage took that promise at face value. They thought that the Prime Minister was saying that interest rates would remain at record lows. He was re-elected, so they did not build interest rate increases into their calculations. People should always do that; people should always build interest rate increases into their calculations. But, when you have the Prime Minister and Treasurer saying that, under them, record low interest rates would remain, you can understand that some people would take extra risks.

What is the impact of this financial pressure—the combination of the reduction in housing prices, the increase in petrol prices and the increase in repayments through interest rate increases? We have seen the figures from the Reserve Bank showing that the percentage of household income going to repay mortgages is the highest it has ever been, higher than under the Hawke or Keating governments, higher than under the Fraser-Howard government. Today it is the highest it has ever been, under the Howard-Costello government. In the area I represent we have seen unemployment double in the last 12 months. The government walk in here at question time and crow about the unemployment rate, but we never hear them talking about unemployment in Western Sydney having doubled over the last 12 months. It has now reached 11 per cent. The collapse in the property market has meant that new construction has also declined and that there is a general reduction in economic activity. Couple that with higher interest rates and increased petrol prices and you are seeing the economy of south-western Sydney contracting very significantly.

When we try to engage the government on this issue and ask the Prime Minister, he says: ‘I know what we should do. We should get the state government—it is all the state government’s fault—to release more land.’ That will reduce housing prices further, but I am still at a loss to know what it will do for somebody who bought a house when housing prices were a lot higher than they are, who has had seven interest rate increases, who is paying more for their petrol and has therefore had to reduce their expenditure, and who is also dealing with 11 per cent unemployment.

The Prime Minister says, ‘Blame the states; they should be releasing more land.’ I happen to think that releasing more land will not put massive downward pressure on housing prices, but it would put on some pressure. If there were a massive housing release, there would be a further reduction in housing prices in Western Sydney. And you know what we would see then? We would see repossession rates go even higher, we would see unemployment increase even more and we would see more pressure on family budgets.

The Prime Minister ignores the impact of unemployment in Western Sydney. The government responded to unemployment in South Australia—and I do not begrudge that; I think that it was a good decision. We saw a factory close down in Adelaide and that day the government announced a $30 million rescue package because 500 jobs, I think, were lost. We see unemployment in Western Sydney doubling in 12 months, and the government is struck dumb. Unemployment in Western Sydney has doubled because this government has done nothing to put downward pressure on interest rates by fixing the skills crisis and fixing the infrastructure bottlenecks, which the Reserve Bank governor has said are one of the major causes of interest rate increases. It has done nothing about them and nothing about the record levels of repossessions—

Dr Stone interjecting

Mr BOWEN —which are higher than they were in 1990, for the benefit of the minister at the table, and higher than they were in 1982. We see the impact of this.

I noticed a very good article in the Sydney Morning Herald last week, on 4 October, by somebody who has shown an interest in what is happening in Western Sydney and has written a series of good articles about the economic impact of what is happening there. It is a very worthwhile quote by the economics correspondent of the Sydney Morning Herald, Matt Wade, who said:

... the rise and fall of house prices over the past decade has inflicted disproportionate damage on the most vulnerable parts of the city. In Sydney’s west and southwest, fragile suburban economies have been harmed, jobs have evaporated and lives have been ruined.

They are not my words, although they could easily be; they are the words of the Sydney Morning Herald, which I have referred to in the past as ‘that well-known socialist journal’. It is not always a newspaper which picks up the arguments of the ALP but, in this case, they have done a very thorough analysis of what is happening in the economy of Western Sydney, and I wholeheartedly endorse those comments.

It would be nice if the government turned its attention to this issue and recognised that there are major financial pressures, that more and more people in Western Sydney have had to take out mortgage insurance to purchase their home and that the skills crisis, for example, saw the cost of construction of a house increase by 58 per cent. We saw this property boom going on and people struggling to amass enough capital to buy a house and taking out mortgage insurance to do it, hoping perhaps that property prices would continue to rise and they could reclaim part of that premium, which, as I said before, was $10,000 to $15,000 in some cases—more in some cases and less in others, obviously. I am aware of lots of mortgage premiums of $10,000 to $15,000 that people have had to find in order to buy a house in the Western Sydney market.

The Prime Minister’s solution to all this is for the states to release more land. When in doubt blame the states—but blame the states in a way which makes absolutely no sense. There is not even a cover of respectability or logic; it is simply an easy political solution for the government to flick responsibility for this onto another level of government.

As I indicated at the outset to the House and whips, I only had brief remarks to make. The ALP will continue to support this bill, but it would be nice to see the government take a bit of interest in, do something about and show empathy towards the people dealing with the economic situation in Western Sydney.