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Wednesday, 15 May 1985
Page: 1967


Senator ARCHER(11.37) —I recall very well the establishment of the first Australian mortgage insurance scheme in 1965. I enjoyed very cordial arrangements in those early days with Mr Frank Blundell, who was then the Victorian Manager of the Housing Loans Insurance Corporation, and subsequently with Mr Jim Fitzpatrick. I would speak for thousands of people in saying how much I regret that Frank Blundell retired recently from the position of Deputy Chairman due to ill health. He was with the organisation from day one and made a very valuable contribution to it.

I find it difficult to support the Housing Loans Insurance Amendment Bill, for the same reasons as Senator Lewis has given. I do not disagree that it will make the business of the Corporation a better business, but I am not sure that that is in the best interests of the country as a whole. I do not believe that this Corporation, as a government instrumentality, needs an extension. I might well have expected it to be one of the items on the list last night. I think that, had it been in the free market-place, it would have been a worthy participant and would have performed a very valuable function. I think we have to look at the fact, while the shopping list is being written and the tin is being passed around, that the value of such a move as a means of raising money would probably amount to $100m to $150m. The efficiency of the Housing Loans Insurance Corporation would not be impaired if it were, in fact, the Housing Loans Insurance Company.

I was interested in the question of providing insurance for the secondary mortgage market. Inasmuch as such a move would facilitate the second mortgage market, I certainly support the principle. A fully operating second mortgage market would, in my opinion, be the next most valuable adjunct to the housing industry that we could have in Australia. It would be second only to mortgage insurance. I am surprised to see that clause 9 (c) of the Bill proposes to insert the following new sub-section:

(3C) The Minister may, from time to time, by instrument in writing, direct the Corporation to enter, under sub-section (2), into contracts in respect of loans included in a class of loans specified in the direction, being loans-

(a) made for purposes that accord with the policies of the Government of the Commonwealth in relation to housing; and

(b) in respect of which the Corporation would not so enter into contracts in the ordinary course of business . . .

There is no way in the world that I could support a clause that binds a trading corporation to take direction from the Minister, even if a saving clause ultimately appears. I find this proposal quite extraordinary. If the Government at any stage should see that it requires to prop up a scheme of any sort, such provision should be included in the Bill covering that scheme. It should not under any circumstances be obliquely covered in a piece of legislation of this nature. I find it quite exceptional and quite objectionable. I find it difficult to understand that the Australian Democrats are unable to pick that up and to see that it has many connotations that are unpleasant and unreasonable.

As I have already stated, there has been nothing either before or since that has made so much difference to the housing market and home ownership in Australia as mortgage insurance. It came at a time when people were able to borrow only 50 to 60 per cent of the valuation of their house. The fact that the HLIC was able to accept mortgages for amounts of up to 90 per cent of the valuation made a tremendous difference to the market. It changed the whole Australian housing position and the benefits initially flowed through the market for a period of probably 10 or 12 years before reaching the hump. It provided many people with houses who would never otherwise have been able to obtain them. It created all sorts of ripples for quite a while in regard to housing costs and housing prices. It put up the price of houses and the price of land considerably. It also considerably increased the home ownership percentage in Australia. About 11 or 12 per cent more people were able to own homes as a result of mortgage insurance. I should also say that the entry of a private insurer into the market at the same time added competition, gave a comparison and increased the awareness of mortgage insurance and the part that it played not only in regard to the housing industry in Australia but home ownership generally.

The main statistics of the HLIC are interesting. It has done a very good job. I would not like anybody in this place to assume that my objection to aspects of the Bill is any reflection on the operation of the HLIC. In the 19 years in which it has operated HLIC has insured about 640,000 loans covering about $16 billion. It has collected $56.5m in premiums and paid out about $24m in claims. It now has accumulated assets of $68m and has paid dividends amounting to $14.5m. The private insurers have also been excellent operators and the industry in Australia, in my opinion, is very fortunate to have such good representation. I first became involved in the housing market in 1947. There has certainly been a vast improvement since then. The features over that period have been built very largely around mortgage insurance.

By following the market fluctuations it is easy to identify the economic ups and downs of the country. Apart from the early years of mortgage insurance, no other government policies have ever really made any significant changes to what the macro-economics of the country did anyway. All of the other schemes that have come and gone have never really affected the market in any appreciable way for very long. Usually new government schemes have tended to increase the price curve when prices were rising anyway. The cutting out of schemes or reducing them has accentuated the declines in the past, which is exactly what the adjustments to the first home owners scheme will do in the present.

The position for mortgage insurers is not terribly good for the next year or two ahead because currently the housing situation is poised very lightly. It looks as though it could face a decline in many areas in 1986. All the signs are there. In 1984-85 there is a new housing estimate of 147,000. The figure for this year will include considerable borrowings in the future, in the next year or the year after. Prices in many areas-Canberra, in particular-have risen to the point at which buyers are developing a reaction against price. Real interest rates in Australia are the highest that they have ever been in Australia's peacetime history. Interest rates appear to have no alternative but to rise further. Deficits, et cetera, will create more competition for finds generally and housing funds in particular. The effects of devaluation have not yet shown up in new house prices, but they will do so. I think we can expect another increase in wages which will further increase housing costs. Very naturally, higher costs, less government assistance and higher monthly payments will turn the market. It just remains to be seen by how much.

In the 20 years of the Housing Loans Insurance Corporation's existence, the biggest type of insurance, of course, has been inflation. We must not overlook the extent to which inflationary effects have saved losses by increased realisations on forced sales on the one hand and an increased ability to repay from higher wages on the other. But the number of people who have got into trouble has been fairly high. The economic circumstances have prevented this from showing up in the figures. Unfortunately, a majority of the cases of which I know that have resulted in sales and claims on mortgage insurance have been by people who are self-employed. It seems that their struggles have been far greater than the struggles of people who are receiving wages.

The Minister for Housing and Construction (Mr West) has stated that the HLIC is to operate on a fully commercial basis, similar to the private sector. In view of that, there are two areas on which I would like some clarification. Firstly, as I recall it the Insurance Commissioner requires gearing of not more than 25 times the shareholders' funds plus reserves. I ask: Is that the level of funding being maintained by the HLIC? Secondly, the other matter which is not clear to me from the Bill is whether there is a similar requirement for the buying of reinsurance on commercial mortgage insurance as there is on residential cover. Perhaps the Minister for Education (Senator Ryan) in her summing up will clarify both of those issues. I have also contemplated the fact that Mr Fitzpatrick occupies the position of Chairman and Chief Executive of the HLIC. I regard this as being somewhat unusual for a government trading body. In view of his impending retirement, I suggest that the Government appoint an independent chairman, as is the case in other government instrumentalities. I have spoken with Mr Fitzpatrick, who also believes that the situation is unusual. I do not wish to have him believe that I am antagonistic towards his position or the way in which he has carried it out; nor do I wish it to be a reflection on whoever may be the heir apparent. However, I certainly feel that because of the nature of the business, the time it has run and the way in which it is run, it is something which has been overlooked by the Government at this time. Under the circumstances, I do not favour the extension of the powers to the HLIC which is proposed in this Bill. I support Senator Lewis's amendments.

(Quorum formed)