Haynes Housing & Politics

The Treasurer, Minister Joss Frydenberg, has said he will implement 75 of the 76 recommendations of the Haynes Commission Report. The 76th deals with remuneration of mortgage brokers. The Treasurer says he will not deploy this as its not in the interests of Australia. I wonder at his reasoning.

Commissioner Haynes is suitably scathing of service providers who without any qualms of conscience will accept money from a trusting client, and act not in the interests of their client, but in their own self interest.

It was bowing to the God of Money that created the cultures vilified in the reports; Cultures which deadened each worker’s natural inclination to care for others, and provide them with value, and so forced the Commission into being. Self interest, greed, and lack of honesty are repeatedly noted as the causes of the heinous behaviour that hurt so many innocent and trusting customers. Customers had been educated by reputable associations and media to believe that mortgage brokers would be the best sources of independent advice and support. However, the opposite was the case as brokers are paid not by the customer but by the banks, and only if the loan is granted. Thus a conflict of interest exists.

For some less scrupulous brokers ( the vast majority are hardworking and caring people), the self interest of assuring their own income paid for by the banks, pushed them to initiate loans beyond the repayment capacity of the borrower, some going as far as falsifying records to do so. Customer pain and grief were the results in many cases.

Protection of the innocent – not now

Now the Treasurer is saying that changing broker remuneration to protect the needs of the vulnerable is unimportant in the grander scheme of the Economy. That to instigate fee for service and so severe commission payments would deflate the already deflated housing markets of Sydney and Melbourne. It seems he understands the importance of the recommendation to the future of independent advice, but the timing is wrong. I put it to you that his argument is flawed, although it has strands of truth. The tightened lending practices have already had some effect (AFR 5th February). Yes, there may be additional adjustment when the recommendation takes effect but the markets have already started adapting, and in any case there are many more factors which impact the housing market, including the shenanigans of the global powers which will be significant in 2019. So to say that this action is ill timed is interesting.

Commissioner Haynes shone the spotlight on the Culture of the Big Banks, saying that “culture, governance and remuneration march together”. The Federal Election will be held in a few months.  The cities of Sydney and Melbourne hold nearly 40% of Australia’s population. A politician has a much higher income, and much more prestige when in power than when in Opposition. I wonder how much self interest is driving this decision.

Australia’s blinkered love of housing

The underlying theme in the Haynes Report is that people need to care about their impact on others, and that life is about much more than just money. When money become God then life loses its lustre as the essential connectedness of society is put at risk.

Australians have been encouraged by the Big Banks, the Government and also the RBA to develop a blinkered love affair with housing. The constant reporting of interest rates and housing prices has kept housing prices front of mind but in a way that limits us and our understanding. We are told to believe that housing prices will always go up, and if they don’t then something is wrong. We like to pretend that this statement is true because then we don’t need to work as hard in developing our fiscal abilities nor put in time planning for our future.

The system is working when housing prices drop

House and land prices go up and down. It’s depends on supply and demand. A house may hold value for a few years, but like a car it eventually runs down to zero. Unless there is some quirk that makes it a ‘collectable’ it will be scrap heap material and little else in 30 years or so. Country housing prices show clearly the connection between prices and demand. The mass migration to the city has meant that many houses are selling for little more than land value. Even our belief that land prices will always go up is a falsehood. Land prices will rise whilst the suburb retains its gleam, and there is demand, but will fall when the opposite occurs.

What goes up will come down, when the demand lessens. That we are told that things are going wrong when housing prices drop is to misunderstand reality.

Our house is a sunk cost

Our house is a cost we choose to incur so that we can explore our lives as we desire. If we treated our houses as an in-use asset, like our cars, we would focus on what is really important in keeping our lives stable and secure – our ability to pay off our loans. By doing so we would be much less worried: We cannot control housing prices but we can control our repayments.  Indeed when we sell our homes we are mainly reclaiming our repayments so they can be assigned to a new property. That’s all.

Our government laments the atrocious financial literacy of the Australian population yet whilst we told that our largest financial asset is our house we are being encouraged to stay blinkered to the fact that our largest financial asset is our ability to repay.

It is the desire to keep the masses uneducated that Commissioner Haynes discusses in his report too. He didn’t say that this was something the banks did with intent, but rather that they used this lack of ignorance to further their own goals

Recommendation 76 needs to be implemented

The decision for the Treasurer to hold off on implementing Recommendation 76 will be under discussion I expect for many weeks to come as the election starts to ramp up. Given experts in the AFR said its implementation will have limited market impact I can only assume that the Commissioner Haynes comments and recommendations relating to about Culture, governance and remuneration apply to the Government too. This is of much greater concern than market price movements.