The budget hit to rental yields

Investors in the cheaper end of the property market are set to suffer a good dose of pain along with their tenants, whose spending power has been reduced by billions of dollars.

Around twenty welfare lobby groups held a joint media conference at Parliament House yesterday to explain how the people they represent will suffer from Abbott-Hockey welfare cuts.

While their concerns are important, and are being well covered by other media, today I will examine the other side of the coin – the effect on the segment of the housing market in which these people live. 

While the people represented at that media conference live fairly frugal lives – young jobless, old and asset-less, disabled, non-English-speaking background (NESB) jobless, people with drug or mental-health problems – they nonetheless pay rents in tens of thousands of dwellings owned by private sector investors.

A tax-funded ‘money-go-round’ has previously propped up rents in areas where social exclusion would otherwise make them much lower.

Owners of inner-city dwellings, with comparatively well-off tenants, have little to fear from the scaling back of welfare payments.

However owners of rental properties in the outer suburbs, or in regional centres – prime examples include the former auto-manufacturing-supported communities in Elizabeth in Adelaide, Broadmeadows in Melbourne, or Geelong, but there are many others – will now have tenants whose spending power is to be dramatically reduced, or no tenants at all.

Rental prices, like anything else, are set at the margin, and the lobbyists assembled at Parliament House were extremely clear about the effect of the welfare cutbacks. In many cases, more than half of a welfare recipient’s income is spent on rent and many will have to look for cheaper accommodation.

I asked Emma Robertson of the advocacy group Youth Coalition whether the budget was aimed at getting young people to move back in with their parents. “Yes,” was her clear and unequivocal response.

Young people who do not come from family backgrounds of poverty or abuse are likely to do just that.

But the budget changes do not only reduce the incomes of unemployed youth. Some of the relevant savings listed in the budget papers include:

– $1.1 billion over five years by scrapping the Seniors Supplement.

– $2.6 billion over four years by pausing indexation on Family Tax Benefits part A and B for two years.

– $1.2 billion over four years by reducing and freezing indexation on FTB end-of-year supplements.

– $508 million over five years by raising the age threshold for Newstart Allowance and Sickness Allowance from 22 to 24 years old.

– $449 million over five years by changing the indexation rate for numerous pension-like payments in including the ‘Parenting Payment Single’ allowance.

– $1.5 billion over four years by freezing eligibility thresholds for payments such as the FTB, Child Care benefit, Newstart, Parenting Payments, Youth Allowance, Disability Support Pension, and Veterans’ Service Pension.

– $1.2 billion over four years by requiring dole recipients to ‘earn or learn’, including waiting six months to receive benefits, losing benefits after six months and being required to ‘work for the dole’.

To that list can be added dozens of other smaller savings measures -- dollops of around $100-$200 million across a range of obscure welfare provisions.

What it all adds up to is billions of dollars in reduced spending power for tenants renting at the cheaper end of the property market.

While some would like to think ‘bludgers’ will just cut back on cigarettes, alcohol, illicit drugs or the like, the lobbyists in Canberra gave a very clear picture of tenants who will double up in rooms, sleep on each others’ couches, move back in with parents or as one said “become destitute”.

Of course none of that will happen if the Abbott government’s ‘learn or earn’ plans work -- if, for instance, the government’s $50 billion infrastructure stimulus package, which leveraged with state money will fund $125 billion of projects, gives them all jobs.

But ‘learn or earn’ is a very blunt imperative to give to people who are young/old/disabled/NESB, who for various reasons can be very difficult to employ.

Many just won’t have as much to spend on rent. Property investors in the less glamorous suburbs of metropolitan or regional centres may feel the sting of welfare cuts as much as their tenants.

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