Tuesday, November 13, 2007

SPIN DOCTOR: You are wrong, Mr Swan

“Mortgage interest payments are now consuming a record share of household income – higher than any period during the Labor Government.”

- Labor's Treasury spokesman Wayne Swan. November 7, 2007

It is a believable-enough claim made repeatedly by Kevin Rudd and Wayne Swan when they talk about housing stress, but it is wrong.

It is believable because we know that although mortgage rates are much lower than they were under Labor (even after the latest hike) our repayments aren't much lower because we have borrowed so much more.

The claim appears to be backed up by the stats...

Kevin Rudd quotes Reserve Bank figures as showing that a record 9.5 per cent of household income is consumed by mortgage payments these days, far more than the peak of 6.1 per cent reached when mortgage rates peaked under Labor's Bob Hawke and Paul Keating in 1989.

But the stats are misleading, and in an unfortunately little-read document entitled the Financial Stability Review, the Reserve Bank explains why.

One of the reasons that a greater proportion of household income is being eaten up by mortgage payments than ever before is that more of us have home mortgages than ever before.

A bit over a decade ago 27 per cent of us had an owner-occupied mortgage. Now its 35 per cent.

And the number of us with second mortgages for investment properties has exploded. Once responsible for not much of household income, mortgage payments on investment properties now eat up 3 per cent of all income.

Neither of these are signs of housing stress. Getting ahead - yes; but stress, hardly.

And nor most-probably is another explanation that the Reserve Bank points to. Older households are taking longer to pay their mortgages off, and not because they are stressed. In the view of the bank they appear “increasingly prepared to use the equity in their houses for a range or purposes, and to take on additional debt later in life to 'trade up' houses.

Sophistication – yes; stress, probably not.

Any individual mortgagee will most likely be better off than a person in a similar position would have been under Labor in 1989, not worse off.

And because people such as Kevin Rudd and Wayne Swan are paid to read the Reserve Bank reports they quote they ought to know this.

Not that John Howard or Peter Costello are likely to get stuck into them for deliberately or accidentally misrepresenting the truth.

That would involve them declaring that most of us have never been better off. Not a good look in a campaign built around handouts.