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Wednesday, 31 March 1965


Senator CAVANAGH (South Australia) . - I would support this Housing Loans Insurance Bill with a lot more enthusiasm if I were of the opinion that it would achieve all the things that Senator Laught believes it will achieve. Let us face the facts. This Bill does nothing at all. It will not result in the construction of an additional house in Australia. It will not give additional security to anyone lending money at the present rate. All this Bill does is to state that if money lenders will lend money, under terms and conditions that are unknown as yet, the Commonwealth Government is prepared to insure the loan against any risk of loss or expense incurred in the effort to recover. Therefore, there will have to be compliance with a set of conditions which, as I said, we do not know at the present time.

This Bill establishes a Housing Loans Insurance Corporation with wide powers for the purpose of insuring loans if certain requirements are met. It will not contribute one extra penny in itself for housing if the money currently available for housing can be lent at an interest rate outside the terms set by the Corporation. First, one of the main objections to the Bill - and it is a point which I thought Senator Laught would have taken up because he has been most active about this matter previously - is that we are passing legislation without knowing what it is. We are passing legislation to insure loans but we do not know what loans we are going to insure. The class of loans to be insured is something to be decided by the Minister for Housing (Mr. Bury). The particular type of insurance is to be decided by the Corporation.

From the second reading speech of the Minister honorable senators would gather that the Bill is intended to permit insurance on loans more beneficial to the borrower than at present apply. But whether this is so or not is something which only time will toll. Whether lenders desire to lend money on terms more beneficial to the borrower^ with the safeguard of insurance, is something which will have to be determined. We were told in the second reading speech that this legislation follows legislation passed in the United States of America and Canada where similar legislation has been introduced and that officers of the Department of Housing have had great assistance from those sources in the formulation of this particular Bill. The Government has taken from the Canadian legislation only that part which relates to insurance. The Canadian legislation established an authority for the purpose of dealing with reclamation, demolition and general home construction, as well as making provision for housing loan insurance. The measure now before us could 'better be described as being a money lenders insurance bill than as one which makes any contribution to relieving the housing shortage.

There is an acute shortage of homes in this country. The returns of (he various housing authorities reveal a backlog of 75,000 homes throughout Australia. It is extremely difficult for people in the middle income group, and impossible for those in the lower income group, to purchase homes. The Government must find some method of getting over these difficulties and so fulfil its election promise to provide more homes. This Bill and the Homes Savings Grant Bill are the outcome of the Government's election promise to relieve the housing situation, but this measure at least will not result in any more money being made available for that purpose unless the security offered induces people with available finance to enter the home building field. The Housing Industry Research Committee of Victoria pointed out in its March newsletter, which was referred to by Senator Bishop, that investigations had revealed that there was an acute shortage of money available for housing at first mortgage but that there was an abundance of money available at second mortgage. The newsletter added that several estate agents had said that the second mortgate market had more sellers then buyers, that interest rates were reasonable and that good terms were being offered. The lender seeks the highest rate of interest possible. The amount of money that is available at first mortgage will not be increased simply by offering a form of security that is not needed at present. Where have there been any losses on the part of lenders who have made money available for housing?


Senator Scott - That is not the point.


Senator CAVANAGH - Where have there been any such losses? There is a possibility of loss if the amount of money lent is as high as 90 or 95 per cent, of the total purchase price. But we assume that the Corporation will say to lenders: "If you lend up to that extent, we are prepared to insure the loan under certain conditions so that in effect we, too, will take very little risk." Provision is made in clause 23 that a house must be of good construction. It is also provided that the ability of the borrower to repay must be considered. Indeed, the Minister said in his second reading speech -

The capacity of a borrower to repay a loan is a matter of importance.


Senator Paltridge - What is the honorable senator's objection to that?


Senator CAVANAGH - What I am saying is that the Bill provides for insurance against a risk that does not exist. It offers insurance to lenders on first mortgage, but those lenders are able to lend their money at a rate of interest greater than that which the Corporation will determine as the maximum for a guaranteed loan. People are unlikely to seek the benefit of this legislation when they can dispose of all their available money elsewhere at a higher rate of interest. The Minister further said -

The Corporation may refuse to insure a loan if it thinks that the amount of principal and interest payable on the loan, and rates and any other payments in respect of the property, would exceed a certain proportion of the borrower's established income. Assuming this proportion were 25 per cent, of income, a loan repayable by regular instalments at intervals not longer than 12 months over a period of 25 years at an interest rate of, say, 6 per cent, per annum, would be about three times the borrower's established annual income.

During the debate in another place it was pointed out that a loan of £5,000 - that would be an average high ratio sum to borrow to purchase land and buy a house - at an interest rate of 6 per cent, and repayable over a period of 25 years would neces sitate the borrower having an income of £31 a week if he were to be within the limit of 25 per cent, of his income.

The question arises as to whether this legislation will achieve the objective of providing homes for people who are in the lower income bracket. I submit that that is one of three essentials in any scheme that is designed to meet Australia's housing requirements. I again submit that this legislation will not result in more money being made available for housing while it is possible for lenders to obtain a higher rate of interest for second mortgage finance. Unless this kind of legislation makes more money available to people who are interested in obtaining first mortgage finance, it must result in a reduction of the rate of home construction rather than in an increase.

As to the difficulties that are being experienced by people in the middle income group, it is the policy of the Australian. Labour Party, as Senator Bishop has pointed out, that higher percentage loans at cheaper rates of interest should be made available. The repayment of principal and interest on homes, the cost of which has skyrocketed in recent years, is beyond the capacity even of people in the average or middle income group. What possibility is there of people in the lower income group, who are trying to raise a family, being able to buy a home? In the post-war years the Governments of Australia have embarked upon the construction of rental homes to house people who cannot afford to purchase their own homes. Because good tradesmen have left the industry due to its insecurity and have not been replaced owing to the break down of the apprenticeship system, homes now being built are not up to the standard that was achieved many years ago. Possibly the most important factor which has contributed towards a lower standard of housing has been the entry into the building industry of get-rich-quick builders and land agents who have become builders in order to develop sites for profit on the land rather than because of an interest in building. If the homes are built for rental purposes, the costs of maintenance fall upon the builder and it is necessary to devise a means whereby the occupants of the houses can take over the responsibility of maintenance, rates and taxes and so on.

In most States houses are now available on a deposit of only £50. Established lending institutions will lend an amount equal to from 60 per cent to 75 per cent, of the value of the house. Where a house is bought on a deposit of £50, the difference between that amount and the normal deposit payable when money is borrowed from an established institution is arranged by a second mortgage loan. Organisations which in other times would have built homes for rental and which have become liable for maintenance and other costs, now sell homes on extremely low deposits so that the problem of payment of maintenance, rates and taxes is passed on to the occupiers of the homes. These costs when added to the interest charges and repayments of principal are beyond the pockets of the ordinary home owners and the result is that in many cases homes must do without badly needed maintenance.

The Bill includes provision for loans to meet the cost of construction of roads and footpaths. It is conceivable that the money now available in over supply at the rates of interest applicable to second mortgage loans could well be diverted to meeting' the cost of maintenance of homes and the construction of roads and footpaths by local government authorities. It seems to us that the Government is refusing to provide finance for people in particular income groups to purchase well constructed homes and because of that refusal it is seeking to find a means to make grants where sufficient savings are accumulated and to provide insurance for those lenders who will risk loans for housing.

The Labour Party supports the measure mainly, I think, because it represents an entrance by the Commonwealth Government into the field of insurance. This is a most profitable field and undoubtedly the Commonwealth has constitutional power to enter it. I have no doubt that in some cases the legislation will provide first mortgage finance as an alternative to obtaining a second mortgage loan, but our objection to the legislation is that it does not make additional money available for housing and it is unlikely that money lenders will seek protection for their loans on mortgage if no risk is involved. In the absence of cheaper money for the purchase of houses, this legislation increases the borrower's liability in that he must pay an insurance premium on the mortgage which becomes part of his loan and therefore subject to interest. In other words, he must pay interest on the money advanced for the purpose of payment of his insurance premium. Thus he bears an additional charge at the very time when everybody acknowledges that cheaper interest rates should be available. The borrower must pay interest over a period of years on the money advanced for his insurance premium, which seems to increase rather than ease his burden.

I have said that there is some doubt whether a reasonable loan could be obtained by workers in receipt of low incomes because they lack security and represent a risk that the Corporation would not be prepared to accept. The possibility also arises that they may not be able to arrange a loan until certain money has been spent in commencing the construction of a x home. I direct the attention of honorable senators to clause 22 of the Bill which states -

The Corporation shall not enter into a contract of insurance in respect of an insurable loan mads for the purpose of enabling the borrower to acquire a prescribed interest in land and construct, or complete the construction of, a dwelling-house on the land, or for purposes including that purpose, unless it is satisfied ' that construction of the dwelling-house has commenced or the completion of the construction of the dwelling-house is being proceeded with, as the case requires.

Upon asking for a loan of 95 per cent, of the value of the project a prospective borrower may be told by the lending institution: " We are prepared to lend 95 per cent, of the value of the project if the loan is insured by the Corporation ". But that cannot be decided until certain work has been done and the Corporation has been satisfied that contruction of a dwelling-house has commenced or is proceeding towards completion. Before the borrower can ascertain whether he can obtain a loan he must have commenced the operation.


Senator Wright - No; before the insurance contract is entered into.


Senator CAVANAGH - That is. so, but clause 27 states-

Nothing in this Act obliges the Corporation to enter into a contract of insurance in respect of any particular loan.

The borrower might believe that he is qualified for a particular class of loan and he can obtain insurance from the Commonwealth, but he could be disqualified under clause 27. The lending insitution he approaches might well refuse a loan until it is satisfied that it can obtain coverage by the Corporation. A prospective borrower may not be able to reach the stage at which insurance will be granted by the Corporation unless he receives a loan. This would suggest to me that coverage is provided for persons with sufficient cash to initiate a transaction, and not for persons in the case of whom any risk might be involved. People in the lower paid section of the community may wish to build their own homes, but they may represent risks either because of the very fact that their income is low or because of the possibility of their becoming sick or suffering an accident. It appears to me that the risks associated with such people will not be covered. Then the Corporation goes somewhat further. It is prepared to pay the insured lender under this legislation despite the fact that he has not taken every step available to him under his agreement to recover his money from the borrower. While paying the lender in these circumstances the Corporation takes over his rights to recover. If there is a case of hardship, or if the situation is becoming nasty or there is a chance that the borrower will be held up to a good deal of scorn, then the organisation is available to take over and put pressure on the borrower while paying the lender.

We support the Bill for the reasons given by Senator Bishop. It represents the introduction of a new scheme and provides the basis for a more worthwhile scheme under which provision could be made for certain risks to be taken. A more effective scheme would provide for loans of amounts representing a higher proportion of the costs involved in particular cases, with long periods for repayment and at low interest rates. It would make money available for lending in these circumstances and on these conditions and it would provide for loans to people with low incomes where some risk might be involved. In this way it would help the people who should be helped and who, we hope, will be helped after amendments have been made to the legislation. As it stands the legislation gives security to people who do hot want such security, and who possibly will not avail themselves of it because they will have no reason to do so. Instead of availing themselves of the provisions of this legislation they will dispose of their money in other directions at interest rates which they will set themselves and not at rates set by the Government.

Let me also make a protest that has been made in respect of other Bills that have passed through this Senate. We are bringing down a Bill to become an Act of Parliament when we do not know exactly how that Act will operate. We should be the body to say what kinds of loans shall be insured against, but we are not saying this; we have not even a hint about it. We should be the body to say what the cost of insurance should be, what should be a reasonable interest rate and what should be the period of repayment. We say nothing about these things. All we know is that the Bill provides that the Minister shall decide the class of insurance and the Corporation shall decide the particular insurance. We are really passing legislation that we do not know anything about.

Senator Sir WILLIAMSPOONER (New South Wales) [5.3]. - I think I can say, with respect, that Senator Cavanagh made a sad error of judgment in his speech by grossly overstating the case he wanted to advocate. I think this was a pity. I made some notes during his speech. They may not be quite accurate, but they indicate that Senator Cavanagh made these statements: "The Bill does nothing. It does not build houses. It will not contribute an extra penny to housing if the money can be lent otherwise. It is a money lender's insurance Bill. It makes no more money available for home building. It is insuring against a risk which does not exist. The lenders can dispose of what money they already have at higher rates of interest." I think these remarks indicate more than a negative and defeatist approach. I think they represent a criticism of the Bill which is unsoundly based and betrays some personal feeling. These remarks do not show an objective approach to the legislation.

Let us consider the Bill from this angle: What are the facts and what is the experience throughout the world? In Canada and the United States of America provisions of this kind have proved an important part of the financial arrangements for housing. Experience in Australia establishes the importance of the principle behind the legislation. I hope there will not be much dissension from that proposition. The terminating building societies have proved one of the most valuable contributors to home building in Australia, and they conduct their operations under the principle that is embodied in this Bill. It is true that the State Governments do not insure, but the State Governments guarantee the building societies, so that the principle is the same although different in legal form. Then the strongest request from the permanent building societies has been for this same form of insurance or guarantee from the Government. We have before us new legislation with which we are charting new seas, plotting a course in a new direction, and I just make the brief remark to Senator Cavanagh that it is grossly unfair and unsound to approach the legislation in the way in which he has approached it. All the indications are that there is an opening, an opportunity, a chance for this legislation to make a significant contribution to housing arrangements in Australia.

I would like to tilt another lance with Senator Cavanagh. If my note is correct he said that the lower income groups in Australia have no chance of building homes, that the various Governments have, under the Commonwealth and State Housing Agreement, been building homes for rental because people cannot buy them. From my experience this is entirely incorrect. What is happening is that the State Governments are building homes and selling them. It is not a case of people not being able to buy the homes that have been built under the Commonwealth and State Housing Agreement. The fact is that there are so many people willing and able to buy these homes that in my opinion the Commonwealth and State Housing Agreement is not doing the national work that it should be doing, because not enough houses are being built for rental purposes. This, I think, shows how Senator Cavanagh has made a pretty serious error of judgment. I ask him and other members of the Opposition to reflect on the fact that one of the interesting developments in connection with the Commonwealth and State Housing Agreement has been the complete rejection -by all State Governments - let me emphasise State Governments, of all political colours - of the Socialist approach of the original 1945 legislation. This to me is a very interesting political and practical matter. The 1945 legislation, as honorable senators will remember, was based upon the approach of providing large sums of money for the building of homes for rental purposes. It was attacked by the then Opposition upon the ground that it was wrong and that there should be provision in it for home ownership. This contention was rejected by the then Labour Government with the famous words: "We are not interested in little capitalists. This is a rental homes scheme."

The practical result of that scheme was that State Governments asked for amendments to make it easier for them to sell homes. The Commonwealth Government agreed to those amendments upon the basts that it believed that housing was a matter for State Governments and not the Federal Government and that State Governments should administer housing finance in accordance with the principles which they themselves determined. The result was the sale of those homes in increasing numbers and on various conditions, determined to a great extent not by the practice that Senator Cavanagh mentioned but by another Socialistic theory that proved wrong in practice, namely, the maintenance of rent control. We got into a situation in which we were providing great sums of money at subsidised rates of interest, which instead of serving the purpose of providing rental houses, were used for the purpose of competing with private investment, because rent control had driven private investment completely out of rental housing.

I make that comment merely in passing, or perhaps not merely in passing; perhaps I have some satisfaction in the argument against Senator Cavanagh. Then, in his peroration, he said that he would be more satisfied with the Bill if it provided for loans for long periods on reduced margins of security. 1 may not have the phrasing accurate. His point was that he would have more support or enthusiasm for the Bill if it meant long term loans on small deposits. All that I can say in reply is that that, I believe, is one of the main purposes of the Bill. It is to get money on smaller deposits for building, at reasonable rates of interest spread over longer periods.


Senator Cavanagh - But we do not know.


Senator Sir WILLIAM SPOONER -

None of us can foretell the future, but this is what the Bill aims to do.


Senator Willesee - A few honorable senators opposite are not interpreting the past too well, either.


Senator Sir WILLIAM SPOONER

The honorable senator means my interpretation of the Commonwealth and State Housing Agreement?


Senator Willesee - Yes.


Senator Sir WILLIAM SPOONER - I invite the honorable senator to stand and prove me wrong. I hope that I did not overstate the case but gave the factual story. My recollection is so clear because we amended the original Agreement in many ways at the request of the States to give them more and more power to do what they thought was the right thing. The net result was to turn the Agreement into .a home selling instrument instead of a home rental instrument.


Senator Willesee - What was the first year in which Commonwealth moneys were made available to the States for use in the sale of houses?


Senator Sir WILLIAM SPOONER -

Relying entirely on my memory, I should say 1951, 1952 or 1953. I believe that what I have said is accurate. We should look at the Bill in perspective, remembering that Commonwealth legislation upon housing includes the War Service Homes Act, the Commonwealth and State Housing Agreement Act, the Aged Persons Homes Act, and the Homes Savings Grant Act, by which the savings of young people are supplemented. This new measure has as its objective the attraction of additional moneys for housing at reasonable rates of interest. It also aims - this is of substantial importance - to create a market for housing mortgages in Australia. This is an interesting development. It is good that we should clear our thoughts upon what Government housing policy should aim at. My thoughts are clear. It is a great national matter. There should be direct governmental activity at some levels for what might be called social service purposes and for repatriation purposes. There is certainly justification for governmental activity at that level and perhaps for other purposes, but the principal governmental objective should be to attract private investment back into the field to do the task which it did in the past but which has been terminated by the operation of rent control.

If we can get private investment back into the field, this will be the right course to pursue. I do not advocate that view entirely on ideological or political grounds. I advance it from the point of view of sheer common sense, because in Australia we have so many things to do, many of which can be done only by governmental finance, that when there is a sphere of activity that private investment can cover, as it very largely did in the past, our objective should be to encourage private investment to take up that burden. We start upon that basis; we consider that to be a desirable objective. Whilst no-one can be certain about what will be the volume of transactions under this legislation, I believe that it is of an importance comparable with that of the legislation in which I always take a lot of satisfaction, by which the States allocate 30 per cent, of Commonwealth housing moneys to building societies. I think that it was a great help to the building societies, which are doing such magnificent work in Australia. I hope that this legislation also will assist them but I do not think it will assist them to the same extent or in the same dramatic way as the previous legislation. Nevertheless, I hope that it will operate along those lines.

When this scheme becomes successful, the way I see the pattern is that not only will it provide insurance to approved lenders over a narrow field, but it will also develop confidence on the part of investors in housing mortgages and transactions. I share the view that Senator Laught expressed - I think following some comment by Senator Bishop. I have no objection to the scheme proceeding slowly at the commencement. I have no objection to these transactions being conducted over a restricted field in the early stages. Nothing succeeds like success.

A new scheme is being inaugurated. When it is operating on a sound basis and attracts public confidence, it will grow, not only in governmental transactions, but also to the extent of attracting confidence in the mortgage market which has been so badly hit. As Senator Cavanagh mentioned, there are very few losses in bona fide housing mortgage transactions. There was a time when a modest couple, providing for their retirement, would put their money into housing mortgages because they were a safe investment. The rentals from the houses which they owned provided them with a safe investment, and the possibilities were that the houses would increase in value. But the mortgage money market in the real estate business was destroyed. I believe that it is now reviving. I believe that more money has come back into housing transactions over the last few years, and that the legislation will help in the transition period. 1 also make the point that, with the inauguration of this legislation, we in Australia will have practically the best of all the housing finance schemes that are operating throughout the world. Traditionally, in Australia housing finance has been provided by the savings banks. In my view, that will continue to be the case.


Senator Wright - What proportion do the savings banks provide?


Senator Sir WILLIAM SPOONER - I cannot remember the statistics, but, in my opinion, for many years past the major portion of money for housing has been provided by the savings banks. The proportion and the volume of the money has increased very materially since the private banks established savings bank departments. They have attracted additional deposits and have loaned more money for housing.


Senator Wright - It was a condition of their establishment, was it not?


Senator Sir WILLIAM SPOONER - I say " Yes ", but the plain answer " Yes " is only half the story. It was one of the things in the charter of the savings banks. We have superimposed on the savings bank departments what I think is a very good part of the savings and loans arrangements which are the foundation of North American housing finance. We have an equivalent in our terminating building societies. In Australia we have permanent building societies which, whilst not in any way approaching in size and importance the permanent building societies in the United Kingdom, are attracting an increasing volume of funds and are transacting a greater volume of business. By this legislation we aim to take the next step in providing insurance for loans and in creating a mortgage market for loans. When these two proposals are developed - and I believe that they will develop concurrently with additional confidence on the part of private investors - in my view we will have a very good and sound foundation for financing housing arrangements in Australia.







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