Monday, July 28, 2014

What the RBA really said about renting versus buying

A Reserve Bank Research Discussion Paper on whether Australian housing is over-valued attracted considerable media attention. The bottom-line was that Australian housing is currently fairly valued, but that the average household might be better off renting now if, 'as many observers have suggested,' future real house price growth is less than the historical annual average rate of around 2.5% since 1955.

As it turns out, the 'many observers' actually referenced in the paper are the Reserve Bank itself, which makes one wonder whether the paper's conclusion is part of its broader jaw-boning effort directed at talking down expectations for future house price appreciation.

In fact, the Reserve Bank's paper makes an excellent case for being indifferent between renting or buying before the fact. The Bank makes use of the 'user-cost' approach, which focuses on the cost of occupying or renting a dwelling. This is in contrast to other widely cited but flawed measures of housing affordability that focus on the cost of acquiring rather than occupying a dwelling.

The user-cost of owner-occupation and renting should be equal in the long-run, because people can always substitute between the two if one becomes relatively more expensive.

The Reserve Bank shows that this has been true for Australia historically based on matched data for house prices and rents. In the short-run, there can be significant deviations from this long-run relationship. In principle, one could profitably substitute between owner-occupation and renting based on these deviations. But this is made difficult by the very high transaction costs associated with buying/selling and moving. It is these transaction costs that explain the short-run deviations in the first place, because they prevent a rapid adjustment to changes in the relative cost of owner-occupation and renting.

There will always be periods of time for which it is possible to show that, after the fact, a household might have been better off renting or buying. But before the fact, there is no reason to favour one over the other. We should be indifferent between renting and buying, especially at long time horizons.

A reduction in the transaction costs associated with buying and selling, for example, the abolition of stamp duty, would shorten this time horizon and bring the costs of renting and buying into an even closer relationship.

The bottom-line is, don't sweat on the rent-buy decision


Australian teachers face significant classroom challenges

In 2008, the Organisation for Economic Cooperation and Development conducted a survey of teachers, asking them about their working conditions and the learning environment in their schools.

The survey, called the Teaching and Learning International Survey (TALIS), is to be repeated every five years. The results of the 2013 survey, with 34 participating countries including Australia, were released recently.

Among other things, it reveals that Australian teachers have some of the most challenging working conditions among participating countries, and far more challenging circumstances than countries with which Australia competes in international tests such as the Program for International Student Assessment (PISA).

The following statistics apply to lower secondary teachers (usually years 7 to 10):

    33% of Australian teachers work in schools where for more than one in ten students the language of instruction is not their first language. The average for participating countries is 21%, and the averages for high-performing PISA countries Korea, Japan and Finland are between 0% and 9%.

    26% of Australian teachers work in schools where more than one in three students is from a socioeconomically disadvantaged home. The average for participating countries is 19%, and the averages for high-performing PISA countries Korea, Singapore, Japan and Finland are between 3% and 8%.

    66% of Australian teachers work in schools where students frequently arrive late. The average for participating countries is 52%.

    59% of Australian teachers work in schools where students are frequently absent. The average for participating countries is 39%.

    25% of teachers work in schools where students frequently intimidate and verbally abuse school staff. The average for participating countries is 3.4%.

These statistics reveal the different context within which teachers in different countries must work, requiring caution when making cross-country comparisons. They confirm the need for teachers to be well-prepared for these challenges with rigorous and comprehensive teacher education. According to the TALIS report, Australian teachers are among the most highly-educated in terms of completion of tertiary educational qualifications, but the content of the courses is not as strong as it might be.

In addition, the TALIS statistics on the working conditions of teachers are a reminder of the need for school management at all levels to support teachers to deal effectively and early with disciplinary issues, both for the sake of teachers themselves and other students.


Greens blast work for dole for jobseekers

The Greens has condemned plans by the federal government to force all jobseekers to work for the dole, saying there's nothing to prove it's effective.

Greens family and community spokeswoman Rachel Siewert says in a statement today the tough new rules fail to address barriers to employment such as lack of available jobs and training or discrimination.

Ms Siewert says the announcement is all about punishing people and that it's nonsense to say people have to apply for at least a job a day if jobs aren't available.

Almost all jobseekers will be required to work for the dole under tough new federal government rules expanding the scheme.

The government is making it mandatory for jobseekers aged 18 to 49 to work for their welfare payments from July 1, 2015.

Those aged 18 to 30 will be required to work 25 hours per week while people aged 31 to 49 will have to work 15 hours.

Those over 50 will have the option of participating in the program.

The new rules will ensure jobseekers are actively looking for work, Assistant Employment Minister Luke Hartsuyker says.

"It also allows jobseekers to give something back to the taxpayers and community that supports them," he told AAP in a statement on Sunday.

Work for the dole currently applies to jobseekers aged up to 30, who have been out of work for a year, in 18 locations of high unemployment around the country.

They have to work 15 hours per week for six months to receive welfare payments.

The expanded scheme is part of a new employment services model to be announced by Mr Hartsuyker and Employment Minister Eric Abetz on Monday.

While some aspects will come under legislation, it's understood the new work for the dole rules could still be implemented if the Senate rejects them.


NSW ALP disowns its corruptocrats

SEVEN of Labor’s most notorious former members — including Eddie Obeid, Joe Tripodi and Ian Macdonald — have received life bans in a symbolic move aimed at regaining the public’s trust in the beleaguered party.

Ordinary members will also have a say in choosing the party’s NSW leader to remove power from the factional bosses as part of the reforms adopted at today’s NSW ALP State Conference.

However, a proposal by party elder Senator John Faulkner to amend the rules to allow party members to also directly elect upper house candidates in NSW and federally was voted down with even some members of his own Left faction opposing the move.

In a passionate debate held at Sydney Town Hall largely focused on pointing fingers at who led the party into decline, Left faction leaders attacked the Right for allowing the party to be infiltrated by “greed and self-interest”.

NSW ALP assistant general secretary John Graham, who had had backed the Faulkner amendment, launched a scathing attack on his Right factional opponents for being more focused on themselves than a vision for the party.

“Right now, party members simply feel that power in the Labor Party is in the hands of too few people,” he said.

“At times, I’ve felt like a member of that other totalitarian party — the Chinese Communist Party.

“It’s generals launching crackdown after crackdown on corruption, while failing to acknowledge that central insight of democracy — that power corrupts.”

Senator Faulkner blamed the existing system which allowed the factional bosses to choose the upper house candidates for elevating “corrupt individuals” such as Mr Obeid, Mr Macdonald and former Labor minister Tony Kelly.

While acknowledging his bid to clean up the party would be “slaughtered”, he implored the party faithful to adopt his change to ensure the “mistakes of the past” would not be repeated.

“Obeid, Macdonald and Kelly were preselected by the current system over and over again,” Mr Faulkner said.

“It is our responsibility to change that system that not only indicted them on our party, but the people of NSW.

“We bear responsibility not only for the actions of those corrupt individuals, but for elevating them to such high office. It’s time we take steps that it never never happens again.

“The truth is, those with power will never give it up.”

NSW ALP general secretary Jamie Clements, who opposed the Faulkner reforms, admitted the past few years had been difficult but said the move to allow members to have a say in the parliamentary leader from March next year was a significant step towards democratising the party.

“NSW Labor had to change and we did,” he said.  “We have undertaken root and branch reform.”

Both factions supported the largely symbolic move to impose life bans on seven former members, which also included former Health Service Union chiefs Craig Thomson and Michael Williamson and Mr Tripodi’s former aid Ann Wills.


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