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Wednesday, 3 December 1986
Page: 3222

Senator CRICHTON-BROWNE(10.08) —We are debating the Home Deposit Assistance Amendment Bill 1986. This Bill will end the Fraser Government's home deposit assistance scheme. That scheme, at least insofar as it still exists, provides assistance to people who purchased homes between 18 March 1982 and 30 September 1983. It has been substantially superseded by the first home owners scheme introduced by this Government. The Minister for Finance (Senator Walsh), in his second reading speech, indicated that the home deposit assistance scheme is effectively obsolete, with applications for assistance coming at a rate of but four a week. As such, this Bill is little more than an administrative measure.

However, what I do challenge is the contention raised by the Minister in his second reading speech that the Government accords home ownership a priority. He said-I quote his words exactly:

We are committed to providing affordable and adequate housing for all Australian households.

Senator Cook —Quite right.

Senator CRICHTON-BROWNE —I say to Senator Cook: Let us talk about interest rates and the effect that this Government's interest rate policy is having on Australian home ownership. On 2 April this year the Government quite properly lifted the interest rate ceiling of 13 1/2 per cent on home loans. Of course, this was after it realised that the number of home loan applications was falling at a great rate because by and large funds had almost dried up.

It is not without significance to note that the decision to lift the ceiling past the 13 1/2 per cent rate was made after the Western Australian State election, after the South Australian State election and notwithstanding the fact that the Treasurer (Mr Keating) had, on a number of occasions, declared unequivocally in the House of Representatives that there would be no lifting of the ceiling on home loan interest rates. It was another broken promise. It just so happened that on that occasion he finally made the right decision. Of course, the reason was that people could get higher interest rates on their money elsewhere. Banks could not afford to offer these rates. The reason is obvious. Because of this Government's policies, interest rates on home loans were so low that savings banks were attracting no funds. In fact, in one month last year the Westpac Banking Corporation lost $60m of its savings bank deposits because of its very low level of attraction to savers.

The removal of the ceiling was a further step towards the deregulation of the Australian financial system that started under the previous Government. That is to be commended. What is to be roundly condemned, however-I say to Senator Cook as he leaves the chamber-is that the Hawke Government, both before and after that move, has followed an interest rate policy which has driven up the cost of home loans and personal loans. It has followed a tax policy which has contributed very significantly to the cost of houses.

Its attempt to claim some commitment to Australian home ownership is revealed for the laughing stock it is when we consider the reasons why the Hawke Government has seen fit to thrust high interest rates on home buyers and the effect that this is having. The Hawke Government has maintained historically high interest rates as a means of supporting the Australian dollar. High interest rates, of course, as we all know, attract capital into Australia and dampen down domestic demand, thus reducing the desire to spend on imports. Capital inflows are therefore increased and outflows reduced, holding the value of the dollar higher than it might have been. It is a conscious and wilful decision of this Government to dampen down demand, to seek to draw the balance of payments closer to parity. It is a failed attempt, of course, but it is the best attempt that this Government can make to correct its previous wrong decisions. The Government has been forced to do this because it knows that if the dollar falls any further it will have an inflationary effect and that, of course, will sponsor greater union wage demands. So we will see inflation rise further, a blow-out in our balance of payments again, interest rates will rise and the value of the dollar will again fall. This vicious cycle will go on and on.

The real problem for the Government in the devaluation of the dollar is that it has the potential to create greater inflation. That, of course, means that the Government, with respect to wage demands, will have to deal with the union movement. It has not been prepared to do that in the past. One has no reason to believe that it will do so in the future. As a consequence, Australians will pay higher interest rates. The effect this is having on Australian home buyers is of particular interest in this debate. Since the lifting of the bank interest rate ceiling in April this year, bank interest rates, naturally-as was expected, intended and desired-have increased. Home loan rates are presently as follows: Westpac-15.5 per cent, the Commonwealth Bank of Australia-15.5 per cent, the Australia and New Zealand Banking Group-15.5 per cent. The rates for the National Australia Bank vary from 15.5 per cent to 17.5 per cent, depending on how long the person has been a customer of the bank and, presumably his financial strength. I suspect that that bank is really testing the market. I am quite sure that it does not expect to lend any money at 171/2 per cent. I am certain that it is just testing the market. Two of Western Australia's leading building societies, the Perth Building Society and the Town and Country Building Society, also now charge 15.5 per cent interest on home loans.

Naturally, the rise from 13.5 per cent to 15.5 per cent has lifted monthly repayments on home loans. I seek leave to incorporate in Hansard a table showing the extra amount that home buyers must pay on loans over 25 years. I apologise to Senator Grimes because I have not shown him the table. I did not expect that I would be speaking so early in the debate.

Leave granted.

The table read as follows-

Monthly Payments: 25 year loan

Loan size

Interest rate



















Senator CRICHTON-BROWNE —I thank the Senate. By way of example I refer to a loan of $50,000, almost the average or median loan in this past financial year. Repayments per month last year, at 13.5 per cent, were $582.82 a month. Now, at the new rate, repayments are $659.87. That is an increase in the range of $80 a month. The Real Estate Institute of Australia has indicated that the median sale price for houses in Perth, for instance, for the year to the June quarter was, in fact, $53,900. That was the median price for a home in Perth over that period. For this group of home buyers, the cost of just that 2 per cent increase, from 13 1/2 per cent to 15 1/2 per cent, on a loan of $50,000 has amounted to an extra increase in repayments each month from their pay packets of $77.50. If the home loan interest rate had gone down 2 per cent and was now 11.5 per cent rather than 15.5 per cent-if it had gone the other way by 2 per cent-the repayments on the same loan would be $508.32. That is $150 a month less that average home buyers would be repaying out of their wages if interest rates had moved the other way.

Last year the average grant under the first home owners scheme was $4,053. Coincidentally, the average price of a house bought with assistance from the first home owners scheme was $53,200, very close, in fact, to the median price paid last year in the State of Western Australia. In effect, the assistance scheme therefore is not so much providing net assistance as simply compensating for the effect of this Government's high interest rates. In other words, that $4,000 that is going from other taxpayers to individual home purchasers represents the value of the interest rate rises resulting from this Government's policy. In fact, if interest rates fell by 4 per cent, down to the figure of 11.5 per cent to which I referred, the value of the average grant under the first home owners scheme would be saved in just 26 months, or slightly over two years, of interest repayments. In other words, that 4 per cent is equivalent to the amount that taxpayers are paying people who are eligible for the first home owners scheme grants.

In respect of interest rates, I might say that if it had not been for the self-indulgence and big spending of this Government-particularly in its first two years of office, when government outlays increased in the first year by 15.7 per cent and in the second year by 12.9 per cent-of course we would not have the problem we have with interest rates now. If the Government, instead of spending and wasting the $4 billion windfall it got from the breaking of the drought in its very first year in office-if it had saved that and been prepared to cut and not spend, and if with this last Budget it had been prepared to cut rather than defer-of course we would not have the problem we have with interest rates now. We would not have interest rates at 15 1/2 per cent crippling people-young families, new families and middle income families-trying to buy homes.

The average size of home loans in the last 12 months has grown very significantly. In fact, to June of this year in Western Australia the average size increase in the amount of loans was 4 per cent, and in Victoria it was 25 per cent. In part, of course, I acknowledge and accept that that is due to the fact that, with the lifting of the ceiling of interest rates from 13 1/2 per cent to 15 1/2 per cent, banks now have a greater capacity to lend. They are also not required to the same extent that they have been in the past to limit the amount of each loan to satisfy all their customers and they are able, of course, to lend each customer a greater amount.

It is not without significance to note that, at a time when interest rates are up and the size of repayments is going up, so is the size of the loan required. So the average home buyer who is borrowing money is being squeezed from both sides. The Real Estate Institute of Australia computes a ratio of average home loan affordability by comparing the ratio of average home loan repayments to median family incomes. I seek leave to incorporate in Hansard a table recently published by the Institute.

Leave granted.

The table read as follows-




1986 %



1985 %

Australian Capital Territory...



Western Australia...












New South Wales...



South Australia...






Real Estate Institute of Australia Home Loan Affordability Ratio of average home loan repayments to median family income.

Senator CRICHTON-BROWNE —I thank the Senate. The table is calculated on the basis of the amount of home loan repayments as a percentage of the gross income of the borrower. Australia-wide that figure has moved from 22.3 per cent of gross salary being paid on home loans in the June quarter of 1985 to 26.5 per cent in the June quarter of 1986. In South Australia, for instance, the figure has gone from 22.6 per cent to 28.3 per cent. So there has been a very significant increase in the percentage of the average income being absorbed in repayments on home loans. The Institute clearly shows that it has become more difficult for Australians to buy homes over the last year. Of course the primary reason for that must be laid at the feet of this Federal Government, as it well knows, for consciously and wilfully pursuing high interest rate policies. There is no doubt that high interest rates are having an effect on the ability of people to buy homes.

New home approvals peaked in August of 1985 at 13,340 and have not reached that level since. The figures for the early part of this year may have been due to the interest rate ceiling and the simple absence of funds. Funds were not there so people could not borrow money and that dampened down the obvious demand and so we saw a decline in successful applications for funds. That, of course, does not explain the fact that in July 1986 approvals were 16.8 per cent lower than in July 1985; in August they were 26.6 per cent lower than in August of 1985; and in September they were 23.4 per cent lower than in September 1985. In 1984-85, 160,415 new dwellings were approved; in 1985-86, 140,000 were approved. This year the figure is expected to be about 130,000. So we are seeing a steady decline in the number of new dwellings approved for construction. The Australian Financial Review of 19 August this year stated:

Following the government deregulation move in April, the provision of housing finance is no longer a major problem for the housing industry but, instead, movements in interest rates have a bigger impact on the demand for funds from potential home buyers.

In other words, there is lots of money around now; the banks are only too willing to lend it. That does not inhibit demand; what is inhibiting demand is interest rates. We have seen a decline in applications for home loans not because the funds are not there but because people simply cannot afford to service loans because of high interest rates, which are due to this Government's decision to maintain interest rates at an artificially high level. There is no doubt that the fall in the number of dwelling approvals has had an effect on the building industry in general, but it ought not to be forgotten that the building industry, of all industries within Australia, has one of the highest multiplier factors. Not only do an enormous range of items go into building a house but also an enormous variety of goods are purchased when a home is built. Indirectly, the health of the white goods industry, to cite just one example, depends on the level of activity in the building industry. Related industries have been hit more directly by the Government's high interest rates policy. Personal loans now start at around 19 per cent and the percentage tapers out into the middle twenties. One would expect to pay about 23 per cent interest on a personal loan, depending upon one's finances. It is not hard to understand the effect that is having on consumer demand. The ability of people to furnish their own homes, if they can afford a loan, is savagely impaired by these high interest rates.

I turn to another aspect of the housing industry. This Government's interest rates policy and its taxation policies are intimately connected with housing for the poorer sector of Australian society-a sector, I might say, with which this Government has so often, but so falsely, claimed to have an affinity. These are the people who cannot afford to buy a home at all and are forced into renting homes. The policies of this Government have, and will continue to have, an inflationary impact upon rents. Firstly, of course, there are the higher interest rates themselves. A property bought for rent is classified as a commercial property and is subject to higher interest rates. Rates for such properties vary, depending on the customer's circumstances, but indications are, for example, that the Commonwealth Bank is presently charging 19.5 per cent for commercial properties, the Westpac Banking Corporation from 19 per cent but mostly around 20 per cent or more, the National Australia Bank starts at 18.75 per cent, the Perth Building Society charges 18.25 per cent and Town and Country charges 18 per cent. The effect of these interest rates must be coupled with the recent changes that the Government has made to the taxation laws with which all Australians are now becoming so familiar.

Previously, if a landlord paid more in interest on a property he was renting than rent he obtained in any one year, he could deduct the loss against other income he might have earned. Therefore, it was not so imperative that a profit be made in the first part of the ownership of the property so rented. Previously there was negative gearing. Previously there was a tax incentive for people to invest in commercial properties. Of course, the Government has since changed the taxation laws so that a landlord can no longer deduct losses made on interest payments for housing and, at the same time, it has introduced a capital gains tax. Because of these two measures, a landlord is now forced to obtain a much higher gain from his home rents. His remuneration in the form of capital gain is reduced while the effective interest costs have increased, both from the taxation point of view and in absolute terms as we have seen. In other words, the owner of a commercial property, directly and indirectly, is paying more for his money and, therefore, he is required to recover that by higher rents. That, in turn, means that low income earners, those who cannot afford a home, those who rely on rental properties for accommodation, are paying more and more in rent as a result of this Government's deliberate decisions. Yet, as I have said, this Government claims an affinity with the poorer groups in the community. As I have said, the combined effect of the Government's interest rate and taxation policies harm those people least able to afford it-those who rent their homes.

I have spoken at some length about interest rates and the adverse impact that they are having on the whole gamut of housing. I would like to dispel any contention that, somehow, Australians cannot avoid the high interest rates from which they are now suffering. I have some interest rate figures for other countries. Admittedly, they are interest rates on government borrowings of five years or more and not housing interest rates. Nevertheless, I believe that they give a comparison of Australian levels of interest rates and those prevailing in the rest of the world. It is reasonable to assume that the current premium that Australian Government paper is holding over government paper in other countries would be similar for housing rates. Furthermore, in view of the fact that real estate lending is a particularly secure form of lending, I do not imagine that overseas housing rates would be more than perhaps a few percentage points above those for overseas government paper. I seek leave to incorporate the table in Hansard.

Leave granted.

The table read as follows-













United Kingdom...


United States...


Source: Main economic indicators OECD Reserve Bank of Australia Bulletin

Senator CRICHTON-BROWNE —I thank the Senate. The table shows Australia's interest rate as 14.3 per cent, Canada 9.16 per cent, Germany 5.7 per cent, Switzerland 4.20 per cent, the United Kingdom 9.13 per cent, and the United States of America 7.72 per cent. In other words, Australian interest rates in real terms are a great deal higher than any of our trading partners or comparable countries. While this Government is claiming to be assisting home buyers with various schemes and its broader macroeconomic policies, the contrary is true. As a result of its policies, rents and home loan repayments are higher for those who can least afford them. The cost of properties is being driven up by the Government's policies. I find it obnoxious that this Government had the audacity in its second reading speech to say that one priority was to have a concern to ensure that all Australians had access to a home of their own. The Minister for Housing and Construction (Mr West) stated:

We are committed to providing affordable and adequate housing for all Australian households.

I find that the absolute antithesis of the Government's policies. I will conclude by touching on a matter that was raised last night in Senator Haines's closing remarks. She said that there is some merit in having tax deductions for interest rates on housing loans. I think she said that method is used in the United Kingdom. I am not certain about that, but it is used in the United States of America, as I recall. I do not think it is a terribly desirable feature of the economic landscape. It would have the effect of providing the greatest benefit for those on the highest income and it would necessarily cause a misallocation of resources, inasmuch as there would be a temptation for those on the highest incomes to purchase the most expensive homes and so gear their properties to ensure that they get the greatest tax deduction by the provision. This will allow them to withdraw from their gross income the amount they are paying in interest rates on their private homes.

The best way that any government can help home buyers is by making it possible and affordable for them to buy their own homes. That can be done in the general larger macroeconomic sense by having economic policies which directly reduce interest rates. Everybody had a capacity to be able to afford his own home, to reduce costs indirectly and also make wages in Australia comparable with overseas wages so that our balance of payments is such that we do not have a poor and falling dollar which causes interest rates to be at the level they are at present.