This is why apartment living is different for the poor

From The Conversation.

There’s been a lot of talk about apartment living of late. Whether it’s millennials who can’t afford to buy a house, downsizers making a lifestyle change, owner-occupiers struggling to get defective buildings fixed, or foreign investors buying into new development, there’s no shortage of opinions and interest.

Except for one group: lower-income and vulnerable residents.

In Greater Sydney, the latest census data show that almost one in five households (17%) living in apartments and townhouses have weekly household incomes of less than A$649.

Among this group the largest sub-group (36%) live in private rental housing. That’s more than 72,000 households living on $649 or less per week in a housing market where average weekly rents for apartments are $550.

Our research for Shelter NSW identifies multiple challenges such households face.

Why does this matter?

It matters because some things about apartment and townhouse living are fundamentally different to living in a house. These differences have particular impacts on lower-income and vulnerable people living in higher-density housing.

The significant differences include:

  • You live closer to your neighbours, so it’s more likely you’ll see, hear or meet them.
  • You share services and spaces with neighbours, from gardens to laundries to lifts.
  • You have to co-operate with other residents and owners to manage and pay for building operation and upkeep.

If you live in a private apartment building then the fact that a large proportion of apartments are sold to investors and rented out will likely have three key impacts on you:

  1. Developers often cater for investors when designing new apartment buildings, so you will likely find a limited variation in apartment designs and sizes available.
  2. Resident turnover in your building may be high, as private renters move more frequently.
  3. Tensions between owner-occupiers and investor-owners may result in disagreements and disputes over budgeting and maintenance.

While these unique aspects of higher-density living can be tricky for anyone, they present particular challenges for lower-income and vulnerable residents. They tend to have less choice about their living arrangements, so they can’t up and move to better-designed, constructed and managed properties if things aren’t working out.

Building flaws affects some residents in particular

Poor building quality is one of the major issues in high-density development in Australia. The problems relate to design, defects and maintenance.

The design issues include noise disturbances as a result of poor design, inadequate solar access and cross ventilation, the availability and flexibility of shared spaces, and safety and security considerations.

Another issue is design that fails to help meet the needs of particular groups (such as people with a disability, and families with children).

Beyond design, the construction quality of higher-density developments is a major issue in Australia. Key concerns include the quantity and severity of building defects, as well as the difficulties owners face having defects fixed.

Among the problems are quality of workmanship, management of construction, private certification, limited warranties and the often-prohibitive cost of legal action.

As with poor design, lower-income households are particularly susceptible to construction issues. This is because there are more incentives to cut corners when constructing more affordable housing. Examples include rushing jobs, hiring cheaper but less experienced tradespeople, or using substandard materials.

Once residents move in, negotiating to fix defects is particularly difficult for private renters, as they typically must go through the real estate agent or landlord. This means renters may be stuck with unsatisfactory living conditions.

Lower-income renters are also likely to be over-represented in poorly maintained buildings, as these are usually cheaper to rent. Compared to a detached house, maintenance in higher-density properties is complicated by the complexity of the buildings themselves and the governance structures.

As a result, required maintenance work is often not carried out, or is reactive rather than proactive. This is especially true in buildings occupied by lower-income renters with no direct recourse to the strata committee. They often cannot afford to move and may fear retaliatory rent increases if they report maintenance issues.

Social relations can be challenging

Neighbour disputes happen everywhere, but evidence suggests disputes are more common in areas with more lower-income and vulnerable residents and with more apartments.

Common causes of neighbour conflict in higher-density housing reflect different expectations about noise levels, parking practices, or spending on maintenance and improvements.

Neighbour disputes can have significant impacts on health. This potentially counteracts the health benefits associated with the walkable nature of many higher-density neighbourhoods.
When disputes arise, the number of stakeholders involved complicates efforts to find a resolution. They might include renters, resident owners, investor owners, building managers, strata managers and strata committee members.

Research with strata residents in New South Wales shows residents find formal dispute resolution mechanisms complex and slow. Most disputes are resolved informally.

Lower-income residents, and renters in particular, are likely to have less influence over the outcomes of such processes.

Fostering positive neighbour relations can be more difficult where resident turnover is high, such as in buildings dominated by private renters. It is also more difficult in poorly designed buildings without quality shared spaces.

New norm promotes inequity

Apartment living is the new norm in Australia. As the nursery rhyme says, when it’s good it’s very, very good, but when it’s bad it’s horrid. If these homes are poorly designed, poorly built, poorly maintained or poorly managed, they are poor places to live.

The market-led housing model that underpins Australia’s compact city policies has meant that people with less money get a poorer product. Few planners or politicians have adequately acknowledged these inequities.

Authors: Hazel Easthope, Senior Research Fellow, City Futures Research Centre, UNSW; Laura Crommelin, Research Associate, City Futures Research Centre, UNSW; Laurence Troy, Research Fellow, City Futures Research Centre, UNSW

How Australia’s apartment frenzy echoes the 1870s cattle boom

From The Conversation.

Imagine in the years ahead that you were to come across a photograph of the Melbourne streetscape from 2017. Two things would immediately signify it as being from today – the number of cranes across the skyline and at street level, the construction hoardings glistening with glamourous promise.

Melbourne is now experiencing the most dramatic real estate boom in living history – this feverish development has seen 13,000 new apartments constructed each year for the past two years with plans for another 22,000 over the next few years.

And like that photograph of the 2017 streetscape, one can also take another kind of record, a typographic snapshot. Fonts can tell us something about a time and a place. Within the real estate industry, this is centred around branding – and more specifically those ubiquitous logos weaved throughout our urban landscape.

In an age when each individual building demands a logo as much as an address, and often these congeal (8 Breese, 85 Spring Street) or fill us with an aspiration to be somewhere else (West Village, Haus), the end result is a seemingly never-ending array of marks all jostling to dazzle us with their glamour and aspiration. But is this massive explosion of logos a new thing?

The clearest way to see any of these connections is to look across other periods of economic boom. The oversupply of livestock in the 1870s is one such time. During this period the plentiful supply of cattle necessitated that the ownership of herds be strongly signified and differentiated in the marketplace. At that time the most effective way to do this was through branding – quite literally, a hot iron branded seared into the rumps of the livestock.



Cattle branding, 1864. S. T. G./State Library of Victoria

By the latter half of the 19th century the simpler alphabetical brands had all been used up so the designs became increasingly complex and idiosyncratic. These plentiful livestock brands began to do odd things – letters would be turned upside down or flipped, there would be strange little icons of hats, anchors, fish, shields, glasses and other even more abstract shapes.

When placed alongside the embellished brands extolling the contemporary real estate boom, some strong design similarities become clear. It seems that the imperative to produce a distinct identity seems to bridge 140 years with ease. These design similarities hint at the underlying economic cycle, boom followed by bust.

 

The top line are real estate brands from 2016 whilst the bottom line are cattle brands from 1870. Apartment brands from left to right: Nest at the Hill (Doncaster); Queens Place (CBD); Reflections (North Melbourne); Capital Grand (South Yarra) Author provided

Who we are and want we want

The logos that festoon the hoardings across our streets tell us a great deal about who we are, and more specifically, what we want. Script typefaces (those based on handwriting) tell us that we are in an age where people yearn for the authentic, the handmade, a personal connection. The use of fonts, patterns and symbols as well as specific colours may offer us an insight into what cultural shorthand is being used to speak to many prospective buyers.

It is that supreme marker of modernity – sans serif fonts – that above all others expresses our shared contemporary notions of style and urbane aspiration. These fonts, such as “helvetica”, do not use the ornamental ends of letters that serif fonts, like the one you are reading on, include. We take in and process all of these factors in the split second that we consume a logo.

Logos, and the typefaces from which they are composed, have always spoken of the times we live in – including the reflection of economic and social patterns. The mechanised efficiencies of the early 20th century were met by a geometric simplicity in letterforms, whilst the 1970s sexual revolution coincidentally saw spacing between letterforms become very intimate, coupled as it was with the advent of phototypesetting, a process soon superseded by computers.

Booms have a habit of producing an oversupply. And this oversupply calls for some kind of unique differentiation. Differentiation calls for creativity. This is where branding comes in. Trying to tell a herd of cows apart in the 1870s is perhaps no easier than trying to differentiate the often generic architectural forms of apartment developments built today.


Brands of the cattle boom (black) contrasted with contemporary real estate (white)

The old marketing adage “the more generic the product, the more you differentiate by brand” certainly appears to be at work here. This is but one comparison across two localised economic booms but the same pattern could be expected to appear whenever there is an “over stimulation” in a highly crowded marketplace.

What this frenzy of logos does show us is that despite the world of brands being fixated on the “now” it too has a “then” – one that I am sure we will see again some time soon.

Author: Stephen Banham, Lecturer in Typography, RMIT University

The hollow promise of construction-led jobs and growth

From The Conversation.

Any downturn in the construction industry could trigger job losses to a range of sectors that support the building industry, such as planning, project management, real estate and property services. This threat reveals the risk of relying on building and construction to sustain the economy.

Since before the global financial crisis, urban economies across the world have relied increasingly on the construction of housing, especially high rise urban apartments, to maintain economic activity.

Construction has boomed in Australia, especially in Melbourne and Sydney. Migration from overseas and interstate, as well as international student numbers, have so far maintained sufficient demand for city apartments and suburban houses to keep the building boom going.

Nationally the number of jobs in construction has increased from 927,000 in May 2007 to 1,110,400 in May 2017, an increase of 183,400 jobs. Even now, the federal government expects that construction employment will increase by 10.9% in the five years to 2022.

But this view is at odds with new data. A recent report by advisory firm BIS Oxford predicts that new dwellings construction will fall by 31%, from 230,000 to 160,000 dwellings in Australia, in the next three years. This prediction foreshadows a dramatic decline in construction employment.

The other jobs construction creates

Construction activity creates employment across the economy. There are jobs in industries that provide input building materials – such as local quarries and forests, sawmills, concrete products manufacturers, steel makers and glass, plastic and metal products manufacturers. There are also jobs created for people working in import firms bringing in materials that might not be made locally, as well as for people who work to store materials and transport them from ports and factories to building sites. Construction generates jobs for people involved in the design and planning of buildings, also those involved in the financing and contracting of construction projects.

Once the buildings exist, construction creates more jobs in marketing the properties, building inspections, buyers agents, mortgage brokers, real estate agents and the like. After the sale, more jobs are sustained in interior designer, selling furnishings and fittings and appliances, and providing internet connections and utilities.

The wages earned and taxes paid by these workers then create jobs in other services industries. This includes everything from dentists and personal trainers to bank tellers and public servants. New populations create new demand for supermarkets and schools and hospitals that employ more people.

The secondary circuit of capital

Following the ideas of French urban theorist Henri Lefebvre, geographer David Harvey famously explained a process called the “second circuit of capital” where building replaces manufacturing as the driver of growth. This secondary circuit soaks up the excess capital sloshing around the world that can’t be invested profitably in the primary circuit of (manufacturing) production. Buildings are built for the purpose of generating profits for developers and investors.

In places like Melbourne, the secondary circuit has created so many jobs in construction and related industries, that these have become the key drivers of growth. All these jobs are at risk when construction activity stalls.

David Harvey’s crucial insight was that once economies rely on construction to drive employment, then the entire economy becomes like a giant Ponzi scheme. The only way that employment in a host city can be maintained is to keep building more buildings.

Harvey argues the principle purpose of building is to generate profit, which means that the building will stop if there are insufficient numbers of buyers, or insufficient buyers willing to pay a price that will generate profit.

If the developers can elect to build elsewhere, in places where returns are higher, the local construction-led system can collapse like a house of cards. The resulting crisis would not be confined to the construction sector but would resonate through all the activities contributing to building or benefiting from the taxes and charges generated by building.

That pretty much means everybody. Once the cards fall over, not only do employment opportunities decline, but so do property values, as prices adjust to the new reality.

Some economists recommend creating new infrastructure projects to provide work, to keep the construction sector and material suppliers in business. But they rarely consider the second order effects as the downturn in construction filters through the economy. Most economists would argue that dealing with these secondary effects is best left to market forces.

This means that as the downturn filters through the economy, jobs will be lost quietly across a range of sectors. The sectors most obviously vulnerable in the event of a downturn in residential building activity will be those that rely on discretionary building-related spending – such as furniture and effects retailing, wholesaling and manufacturing. The impacts on affected households will be no less devastating than for direct building jobs.

Author: Sally Weller, Visiting Fellow, Australian Catholic University

Banking with a chatbot: a battle between convenience and security

From The Conversation.

Soon, you will be able to check your bank balance or transfer money through Facebook Messenger and Twitter as banks experiment with chatbots. Companies like Ikea have used customer service chatbots for close to a decade. But their use in financial services represents a new tension – do we want convenience or a feeling of security from our banks?

Research shows that when it comes to online banking, customers are prepared to trade security for convenience. But when customers think there is a threat to their security, this feeling reverses.

Researchers at QUT recently found that a sense of insecurity is one of the reasons consumers do not already interact with financial institutions on social media. And the feeling of insecurity actually increased between 2010 and 2014, as social media became more popular.

This means banks will likely have to design their chatbots to give a sense of security, just like they do with bank branches.

The trade-off between the convenience and security of a service comes down to trust. Trust in the service provider to protect our personal details (“soft trust”) and trust in the platform and infrastructure you use to access the service (“hard trust”). Both types of trust are important to ensure a sense of balance.

For instance, it’s of little use having an impregnable vault if consumers don’t trust the person with the key. Likewise, trusting a staff member is of little value if consumers can see there are safety flaws in the system. Consumers need to know that their trust (both hard and soft) is well placed before they can enjoy the added convenience of emerging technologies.

Designing a sense of security

Banks previously used physical design to create a sense of security and trust. This is called signalling and involved the use of marble floors, metal bars, and imposing vaults in bank branches to reassure us that our money is safe.

As our banking shifted into apps and websites, we faced the same problem as chatbots currently do – the internet was undoubtedly more convenient but at the expense of a feeling of safety. This was also solved with design.

Websites and apps were designed to send similar signals as that of the physical bank branches. For instance, by using security symbols (such as the green padlock next to the URL of this website), logging customers out if they’re inactive for too long, and moving keyboards for entering online banking passwords.

Research has found consumers feel more secure when a system generates a unique password for each login, than they do when they are allowed a permanent password. Even seeing the initials of an employee in a Tweet can humanise the interaction and instil trust.

All of these design aspects evolved to signal trust and security. But chatbots do not have access to these same design capabilities – you can’t do something as obvious as having a big vault or green padlock.

So what does all this mean for chatbots?

Research from Accenture indicates Australians are ready for artificial intelligence in the financial sector – 60% are open to entirely computer-generated banking advice.

And a World Retail Banking Report found that while 51% of consumers still prefer face-to-face interaction for more complex products and services, they also demand greater levels of digitised customisation and personalisation from financial institutions.

All of this means chatbots could work for banks. On the back end, chatbots can be secured just like websites and apps – using two-factor authentication and encryption etc.

It’s important to promote this feeling in users too. A big part of it will be “humanising” the interaction. For instance, chatbots can be programmed to seem more human – achieving the same thing as staff members’ initials on social media. They can be given names, personalities, and even emotions.

But this will just be the start. As artificial intelligence and chatbots become a part of daily life, the trust signals will need to be built, one digital brick at a time.

Authors: Kate Letheren, Postdoctoral Research Fellow, Queensland University of Technology; Paula Dootson, Research Fellow, PwC Chair in Digital Economy, Queensland University of Technolog

Why bankers so often fail to comply with policies and regulations

From The Conversation.

Allegations that the Commonwealth Bank of Australia has been complicit in money laundering is just the latest example of issues with regulatory compliance and risk management in the financial sector.

Our research shows that some of the problem is due to the incentives paid to financial professionals to boost profits. But the personal attitudes of individual staff members also matter, as does tenure (how long individuals have been in the industry).

Even though risk management has become a priority in the financial industry since the global financial crisis, compliance is hard to monitor and so staff are tempted to disobey policies.

Risk management

Recent years have seen regular scandals in the financial industry, notably the Libor interest rate rigging, CommInsure and the more than a million fraudulent accounts created by 5,000 Wells Fargo employees.

Good risk management is designed to ensure risks are within the organisation’s appetite, which should reduce scandals. Senior leaders set the risk appetite and the policy framework – they design the rules that staff should follow.

Finance professionals are expected to comply with all kinds of policies, from limits on the amount/kinds of loans they can make, to policies to reduce the risk of cyber-attack, not to mention reporting of suspicious transactions.

But these policies can mean that potentially profitable deals aren’t pursued, or that time is “wasted” that could be devoted to generating profits.

Our experiment

Our experiment sought to find out more about how incentive schemes and culture affect compliance with risk management policies. With help from industry body FINSIA, we invited 306 financial professionals into a lab and put them through a simulation that mimics investment decisions – buying securities, granting loans, underwriting insurance etc.

The participants had to do some simple analysis (with a calculator) and then decide whether to invest. Over an hour they could complete up to 60 transactions and were given a risk policy/limit to follow. We observed how often participants violated the rules during the session, focusing on those transactions that were outside of policy.

Participants were randomly assigned to one of five “treatments” representing a range of workplace environments that varied how the employees were paid and the behaviour of managers/peers: variable payment and profit-focused, variable payment and no-focus, variable payment and risk-focused, fixed payment and profit-focused, fixed payment and no-focus.

In the risk-focused treatments, participants were told that managers and co-workers prioritise risk management. Participants with variable payments received cash based on the amount of profits they could generate during the session (less penalties for non-compliance). The rest received a fixed payment.

In the profit-focused treatments, we gave participants information showing that managers and co-workers prioritise profits:

“Your manager rarely mentions the risk policy but talks often about the need to meet budget. He is always giving you motivational messages to encourage you to boost profits. You notice that colleagues who breach policy are excused if they are top performers. The risk policies are often criticised by staff because they can interfere with meeting profit targets; risk managers have low status compared with people who have great profit figures.”

The following chart shows the compliance rates in each treatment – the proportion of “bad” transactions where the rules were followed.

We found that when people had variable payments that are linked to profits, their compliance with risk management was significantly reduced. When managers and co-workers were also profit-focused, compliance reduced even further. Interestingly, the variable payments did not produce significant increases in productivity in our experiment. Participants worked about the same amount as those on fixed payments.

On the other hand, when participants were paid a fixed amount regardless of profit, compliance with risk management policies was higher. Although still not perfect. Surprisingly, some people broke the rules even when there was no financial benefit for them to do so. This could be human error or just for the enjoyment of rule-breaking.

But compliance with risk management depends not only on incentives, but also on individual factors. For example, we observed different compliance behaviour across individuals depending on their personal attitudes towards risk management and compliance.

We also found that those with longer tenure in the financial industry were more likely to act in compliance with risk policy. Perhaps such people understand why good risk management matters having lived through a few scandals.

What to do about it?

These findings can be used to guide human resource policies. For example, financial institutions could screen potential employees for their attitudes to risk management. And they could choose to promote or reward staff with favourable attitudes.

But there are other important implications for the industry. Since incentive structures that are profit-based have an adverse impact on risk compliance and do little for productivity, such remuneration programs should be reconsidered. Perhaps it’s time to switch to fixed payments across the industry.

Our research shows that it is difficult to have high rates of risk compliance in the presence of profit-based payments. Staff are likely to believe that profit-based payments signal the true priorities of the organisation and they modify their behaviour accordingly.

But in the end, non-compliance with regulation and policies occurs even in the best environments. Scandals caused by non-compliance are inevitable, although financial institutions can reduce the rate of non-compliance through improved practices.

Authors: Elizabeth Sheedy, Associate Professor – Financial Risk Management, Macquarie University; Le (Lyla) Zhang, Lecturer in Economics, Macquarie Graduate School of Management

Banks can’t fight online credit card fraud alone, and neither can you

From The Conversation.

Online credit card fraud is on the rise in Australia, but pointing the finger at any one group won’t help. It’s an ecosystem problem: from the popularity of online shopping, to the insecure sites that process our transactions, and the banks themselves.

A recent report from the Australian Payments Network found that:

  • the overall amount of fraud on Australian cards increased from A$461 million in 2015 to A$534 million in 2016
  • “card not present” fraud increased to A$417.6 million in 2016, up from A$363 million in 2015
  • 78% of all fraud on Australian cards in 2016 was “card not present” fraud.

“Card not present” fraud happens when valid credit card details are stolen and used to make purchases or other payments without the physical card, mainly online or by phone.

While these numbers may seem alarming, it’s important to put them in context. Australians are increasingly carrying out transactions online; the report notes that we made 8.1 billion card transactions totalling A$715.5 billion in 2016.

The shift towards online credit card fraud also comes at the cost of other types of fraud. Cheque fraud, for example, was down to A$6.4 million in 2016, from A$8.4 million in 2015.

Still, it’s fair to ask: are the banks doing enough to keep our details secure?

The banks and security

The banks currently have a range of measures in place to protect customers from card fraud:

  • Chip and pin: Australia mandates the use of “chip and pin” technology. This replaced the need to swipe the magnetic strip on credit cards and is recognised as being more secure.
  • Two-factor authentication: Many Australian banks use text messages or tokens that generate a unique, time-limited code to help verify the legitimacy of transactions.
  • Monitoring of customer habits: Australian banks typically have a complex set of algorithms that monitor the spending habits and transactions of their customers. They frequently have the ability to identify a suspicious (often fraudulent) transaction and block it.

Overall, Australian financial institutions are investing time and technology into the prevention of fraud. However, recent allegations that the Commonwealth Bank of Australia breached anti-money laundering laws suggest that the big banks are not immune from the problem.

Data breaches and malware

Credit card fraud is going where the action is.

According to the research company Neilsen, “nearly all online Australians have used the internet to do some form of purchasing activity”. This means that Australians are increasingly sharing their credit card details with companies around the world.

Large-scale data breaches are a common occurrence. Many organisations have been compromised in some way, including Australian companies like Kmart and David Jones. A variety of personal information can be exposed, and this often includes customers’ credit card details.

Batches of stolen credit card details can be sold on the dark web to other motivated offenders. In one UK example, such details were being sold for as little as £1 per card.

Offenders are also using different types of malware, or computer viruses, to obtain the personal information of unsuspecting victims. In many cases, this includes bank account and credit card details through successful phishing attempts (or spam emails).

The liability fight

Banks will generally refund customers for any fraudulent losses incurred on their credit cards. However, customer must take “due care with their confidential data”.

There is also an onus on the customer to check their credit card statements and notify their bank of any suspicious activity.

But this may not always be the case. In 2016, the former Metropolitan Police Commissioner in the UK made headlines for suggesting that customers should not be refunded by banks if they failed to protect themselves from fraud.

Instead, he argued that customers were being “rewarded for bad behaviour” rather than being encouraged to adopt cyber-safety practices, such as antivirus software and strong passwords.

These statements were met with anger by many advocacy groups who equated them with victim blaming. It was further exacerbated by a leaked proposal by the City of London Police to shift the responsibility of fraud losses from banks to the individual.

While this recommendation was never adopted, the tension may continue to grow when it comes to fraud liability.

Looking for answers

Pointing the finger of blame at any one party is not a constructive solution. Banks alone cannot combat online credit card fraud. Neither can their customers.

There are simple steps to reduce the likelihood of online fraud: having up-to-date antivirus software and strong passwords is an important step. There are sites such as haveibeenpwned that demonstrate how vulnerable and exposed our passwords can be.

Still, it’s difficult to protect against social engineering techniques used by offenders to manipulate victims into handing over their personal details. Not to mention, the risks posed by third-party data breaches, which are beyond the control of individuals.

The introduction of mandatory data breach reporting legislation in Australia in 2017 may have a positive impact. By requiring organisations to let their customers know when their personal information has been compromised, individuals can be proactive about cancelling cards, changing passwords and taking out credit reports to check for fraudulent activity.

Businesses also need to recognise the importance of protecting their customer information. It is critical to overcome the mentality that cybersecurity is simply a technology problem or an IT issue. It should be firmly on the corporate management agenda.

Fraud is inevitable, regardless of the technology being used. Collaborative efforts between banks, businesses, government and individual consumers must improve.

No one group alone can effectively end online credit card fraud. Nor should they be expected to.

Author: Cassandra Cross, Senior Lecturer in Criminology, Queensland University of Technology

Egalitarian or Edwardian? The rising wealth inequality in Australia

From The Conversation.

Recent commentary on levels of inequality exposes the myth that Australia is an egalitarian society in which the privileges of birth have little currency.

Focusing on inequality in the distribution of incomes ignores an equally important dimension of inequality: wealth. Wealth is much more unequally distributed than income. Therefore, ignoring wealth inequality skews perceptions of social inequality.

Perceptions of the levels of income and wealth inequality are derived from our day-to-day experiences. This means that not mixing with people from the other end of the wealth distribution can colour our perceptions of inequality.

The lack of official data on the wealth holdings of Australians hampers research into trends in wealth inequality. Between 1915 and 2003-04, there is almost no official wealth data to examine.

In 2003-04, the wealthiest 20% of Australian households held 58.6% of total household wealth, and the poorest 20% of households held just 1.4% of total household wealth. In 2013-14, the wealthiest 20% of households held 61% of total household wealth, and the poorest 20% of households held just 1% of total household wealth.

These figures indicate that wealth inequality increased over the decade to 2013-14.

The table below details trends over time in various measures of wealth inequality. The P90 to P10 ratio compares the wealth of households at the 90th percentile with that of households at the tenth percentile. A larger ratio indicates greater levels of inequality.

In 2003-04, households at the 90th percentile held 45 times as much wealth as households at the tenth percentile. In 2013-14, households at the 90th percentile of the distribution held 52 times as much wealth as households at the tenth percentile. This indicates that wealth inequality increased in that decade.

Using the mean and median household wealth figures, it is possible to calculate the ratio of median to mean wealth.

The closer this ratio is to one, the lower the level of inequality. In 2003-04, the ratio was 0.63. In 2013-14, it was 0.57. This also indicates that wealth inequality increased.

 

The distribution of household wealth also varies between Australia’s state and territories, and by location within states and territories.

Households in the ACT recorded the highest mean household wealth (A$890,100). Households in Tasmania recorded the lowest mean household wealth ($595,600).

When these figures are disaggregated by location into capital city households and households located in the rest of the state, the largest wealth gap occurs in New South Wales. The mean wealth of households in Sydney was $971,700, whereas the mean wealth of households in the rest of NSW was $534,700.

The median-to-mean-wealth ratios show wealth was most unequally distributed in Brisbane and Perth.

 

Given a relatively large proportion of household wealth is held in the form of property assets, the recently released Household, Income and Labour Dynamics in Australia Survey report identifies property as the key driver of increasing wealth inequality.

The percentage of 18-to-39-year-olds with property declined by 10.5 percentage points between 2002 and 2014. And the level of debt of those with a mortgage doubled in real terms.

So, fewer young adults have mortgages now compared to a decade ago, and those who do have mortgages have higher levels of debt.

Two other sources of publicly available data on wealth are the lists of the super-wealthy published annually by the Business Review Weekly in Australia and Forbes in the US.

Figures published in the Business Review Weekly show that, after adjusting for inflation, in 1984 the wealthiest 20 Australians held $8.25 billion in assets. In 2017, the wealthiest 20 Australians held $104 billion.

Forbes’ lists of billionaires (in $US) show that the number of billionaires living in Australia increased from two to 26 between 1987 and 2014.

Having an increasing number of billionaires would not be an issue if all Australians’ wealth was increasing at a similar rate. However, if the gap between the wealth of the billionaires and that of the average residents increases dramatically, there is likely to be discontent.

Drawing on figures published in the Credit Suisse Wealth Report, it is possible to compare the wealth of the billionaires with that of average Australians.

In 2014, the wealth of the 26 Australian billionaires was equivalent to 214,914 adults with average wealth.

Recent turmoil in the UK and the US may be an indicator that the “peasants are revolting” and are not willing to return to the 19th century, when the very rich lorded over the masses.

Australia has yet to experience mass demonstrations and voter backlashes. But events overseas should be ringing alarm bells among our politicians in Canberra.

Author: Jennifer Chesters , Research Fellow, Youth Research Centre, University of Melbourne

Allegations against the CBA show the need for a Royal Commission into the banks

From The Conversation.

The Commonwealth Bank is facing another scandal as the Australian Transactions Reports and Analysis Centre (AUSTRAC) launches civil proceedings accusing the bank of being complicit in money laundering.

This exposes a deeply worrying prospect, that the Australian public are vulnerable to crime and terrorism directly funded through the Australian banking system.

AUSTRAC alleges CBA breached the Anti-Money Laundering and Counter-Terrorism Financing Act (2006) 53,700 times since 2012, where transactions were not reported by the bank, or reported too late. The bank faces a potential penalty of A$18 million per breach, which could amount to billions of dollars.

According to AUSTRAC, criminals deposited cash, amounting to tens of millions of dollars, over a period of two years in intelligent deposit machines where it was automatically counted and credited instantly to the nominated recipient account. The funds were then available for immediate transfer to other accounts both domestically and internationally.

In their evidence AUSTRAC details how four identified criminal syndicates were able to readily use CBA ATMs to breach the A$10,000 transaction threshold on 1640 occasions amounting to A$17.3 million. A total of A$625 million of suspicious transactions flowed through these CBA ATMs.

CBA’s response to these serious allegations is that it reports 4 million transactions to AUSTRAC per year contributing to the effort to “combat any suspicious activity as quickly and efficiently as we can.” The bank insists all key personnel have been trained in compliance with the Money-Laundering Act. The CBA acknowledges there was a software fault with a number of their ATMs which allowed these transactions to take place, but apparently this took several years to fix.

Unfortunately this response in the circumstances only provokes further questions.

Regulators asleep at the wheel

What this really shows up is the government’s “light touch” regulatory approach which translates into soft touch regulation. It seems regulators in Australia are too frightened to take action even when there is mounting evidence of illegality.

AUSTRAC itself did not launch any proceedings under the Anti-Money Laundering and Counter-Terrorism Financing Act until 2015. This followed a lengthy report of the Financial Action Task Force which concluded:

[AUSTRAC’s] graduated approach does not seem to be adequate to ensure compliance.

Since then AUSTRAC has taken action against Tabcorp on a money-laundering case which reached a A$45 million settlement in February 2017. This contrasts with far larger fines imposed on international banks for money laundering including a US$1.2 billion fine for HSBC and a US$262 million fine for Standard Chartered in 2012 from the US Justice Department.

At a US Senate hearings in 2012, a HSBC chief compliance officer famously quit his post on the spot in answering money laundering allegations, implying he could not defend the indefensible.

The Australian banking industry has faced minimal pressure to reform compared to other countries, where the restructuring of the banks is progressing. Australia has seen a succession of inquiries however each has focused on particular aspects of the banks functioning and proposed specific reforms.

It will require a Royal Commission into the Australian banks to examine the structural and systemic failures of the banks. The banks have become the main providers of not only retail but investment banking, insurance, superannuation and financial advice, and this deserves critical scrutiny.

If the AUSTRAC allegations against the CBA are proven in the Federal Court, this matter is of a different order of magnitude to earlier problems. It suggests a degree of irresponsibility which is unacceptable in major financial institutions.

It also suggests it’s deeply embedded in the banks cultural and operating processes, which undermines the security of Australian citizens. This would demand a substantive inquiry into the management, integrity and culture of the banks that only a Royal Commission could provide.

In the meantime, the CBA needs to provide firm evidence to the Australian public that none of its ATM machines can continue to be used for money laundering. It also needs to prove there are procedures in place for ensuring all suspicious banking activity by potential criminals or terrorists is fully reported to the Australian authorities as soon as the CBA has any knowledge of such activity.

Author: Thomas Clarke, Professor, UTS Business, University of Technology Sydney

Affordable housing shortfall leaves 1.3m households in need and rising

From The Conversation.

A new report by the Australian Housing and Urban Research Institute (AHURI) reveals, for the first time, the extent of housing need in Australia. An estimated 1.3 million households are in a state of housing need, whether unable to access market housing or in a position of rental stress. This figure is predicted to rise to 1.7 million by 2025.

To put it in perspective, 1.3 million is around 14% of Australian households. This national total includes 373,000 households in New South Wales, where the number is expected to increase by 80% to more than 670,000 by 2025 under the baseline economic assumptions of the modelling.

The first graph below shows the average annual level of housing need to 2025. The second, showing the percentages of households, permits a direct comparison by state. NSW and Queensland are in the worst position. The ACT is calculated to have the lowest proportional level of need.

What does this mean for households in need?

Housing need is defined as:

… the aggregate of households unable to access market-provided housing or requiring some form of housing assistance in the private rental market to avoid a position of rental stress.

This includes potential households that are unable to form because their income is too low to afford to rent in the private rental market. These households would traditionally rely on public housing and community housing to meet their needs. However, more and more are being forced into the private rental market, paying housing costs they are unable to afford without making significant sacrifices.

To 2025, on average 190,000 potential households in NSW will be unable to access market housing in a given year. The graph below is the most revealing as it illustrates the gap between affordable housing demand and supply.

The lack of social housing and subsidised rental housing prevents such households forming under affordable conditions. Many will manage to form but will have to spend well over 30% of their income on housing costs to do so, putting them in a position of financial stress.

The results also reveal the increasing pressure the affordable housing shortfall places on the housing assistance budget, notably Commonwealth Rent Assistance.

The absence of a significant new supply of affordable housing – there has been no large-scale program since the National Rental Affordability Scheme (NRAS) began in 2008 – has left state governments trying to find ways to plug the affordability gap.

Responses have been largely on the demand side, such as first home buyer concessions recently announced in NSW. But such incentives are no use for low-income households. To help them, intervention needs to be on the supply side.

How does Australia compare?

The AHURI research built on ideas emerging from research into housing need in the UK. It revealed interesting differences between the two countries.

UK government policy prior to 2010 emphasised the role of the planning system in helping to substantially increase affordable housing supply. This reflected evidence from England and Scotland that found a link between low levels of new housing supply and higher and rising house prices.

In this project, we found plenty of evidence of deteriorating housing affordability in Australia. But we did not find a particularly strong relationship between housing supply and price growth. This might reflect how other drivers of deteriorating housing affordability are more important in Australia – such as tax incentives for investors.

These findings suggest we need to look more closely at how new supply and investment demand interact, and in what circumstances boosting new supply is likely to improve affordability.

From our analysis of individuals’ labour market circumstances and incomes, it was also clear that the Australian workforce has not escaped the erosion of secure, full-time employment opportunities seen in other countries.

The combination of widespread insecure, part-time employment opportunities, high housing costs and low supply of rented social housing means the housing of many working Australians is extremely precarious.

How was the research done?

The research modelled housing need at the state and territory level to 2025 using an underlying set of economic assumptions and interrelated models on household formation, housing markets, labour markets and tenure choice.

The models were underpinned by data from the Housing, Income and Labour Dynamics in Australia (HILDA) Survey, the Australian Bureau of Statistics (ABS) and house price and rent data.

This research delivers, for the first time in Australia, a consistent and replicable methodology for assessing housing need. It can be used to inform resource allocation and simulate the impact of policy decisions on housing outcomes.

The intention is to further develop the model to assess housing need at the level of local government areas.

So, what are the policy implications?

The scale of the affordable housing shortfall requires major action from federal and state governments.

NRAS had its problems but at least delivered a supply of below-market housing. Australia cannot rely on the private sector to deliver housing for low-income households without some form of government subsidy as it is simply not profitable to do so.

The question is what government is going to be prepared, or even able, to spend big to close the affordable housing supply gap?

 

Authors: Steven Rowley, Director, Australian Housing and Urban Research Institute, Curtin Research Centre, Curtin University; Chris Leishman, Professor of Housing Economics, University of Adelaide

 

Computer says no: robo-advice is growing but we still don’t trust it

From The Conversation.

People are open to receiving financial advice from robots, our studies show, but there might be a way to go to in convincing people to trust them over a human.

We surveyed 138 people about their attitudes to, and preferences for, superannuation advice from a human or a computer. Unsurprisingly, most stated they would prefer to deal with a human across a broad range of financial decisions.

Some did prefer the computer – these tended to be younger people, and those on higher incomes. In a follow-up study we tested whether this would change after people actually used the technology.

We did this by exposing 101 people to an online calculator, in which they learned how increasing their superannuation contributions would change their income in retirement. We compared these to another 101 people in a control group who simply read some general information about retirement income.

A little over half of our sample indicated that they would trust robo-advice. Those who got advice from the online calculator showed a small, but statistically significant, increase in trust towards robo-advice. However, most still stated they preferred human advice, and were slightly less willing to pay for automated advice after trying out the calculator.

The openness of younger people is encouraging, as they tend to be the most disengaged from their superannuation, but also have the most to gain from getting it right (as the benefits will build up for longer).

How the robots could help

Automated financial advice systems (so-called “robo-advisors”) have great potential to extend the reach of professional financial advice.

Digital technology has quietly revolutionised the world of banking and financial services. Automatic Teller Machines (ATMs) were an early example of a computer replacing a human worker. Interestingly banks responded to this increasing productivity by employing more people.

Financial advice is the latest frontier for automation, with a number of “robo-advisors” beginning to interact with customers. Even though we face a growing number of financial decisions, most Australians currently don’t get formal financial advice. Cost is a significant barrier to this.

Like many digital products, robo-advisors are costly to design and build, but once up and running they can serve large numbers of people. These bots could extend low-cost and dependable advice to those who currently miss out.

Robo-advice is currently a small part of the financial services market, but it is forecast to grow rapidly. In the US, firms such as Betterment and Wealthfront have begun to disrupt the wealth management industry. In Australia robo-advice products are being developed both by startups and industry incumbents.

But financial advice is about more than numbers. While technology can easily handle the maths, people may also need the human touch. They may want emotional support and motivation, rather than just the cold hard facts, to get them to confidently engage with these difficult and important decisions. Trust requires good design.

Digital technology might also prove useful in getting people more engaged with their financial decisions. Most Australians pay remarkably little attention to their superannuation, even though it makes up a significant portion of our overall wealth (second only to the family home).

Robo-advice could help people learn, and try out different scenarios, without the worry of appearing ignorant to a person. Unfortunately, our experiment found little evidence for this – overall levels of motivation, and perceptions of autonomy and competence were unchanged.

Distinguishing between people who were initially more engaged or less engaged with their superannuation, our study showed that the online calculator had a greater impact on those who were initially less engaged. This suggests robo-advice might prove most useful to those who need it the most, making them feel more competent and in control.

So for those of us who don’t pay enough attention to our financial decision-making, the robots are here to help.

 

Authors: Andrew Reeson, Behavioural Economist, CSIRO; Andreas Duenser, Research Scientist