The death of personal responsibility

Australian mortgage repayments: signaling the death of personal responsibility

The rising number of individuals seeking to blame the government for their struggling with mortgage repayments signals the death of people taking responsibility for their own choices.

It seems that every day there’s another story in the paper or on the news detailing the difficulties of Australian families battling to meet their mortgage repayments. On recent figures, apparently one in four Australian households with a mortgage is struggling to meet repayments.

This media attention comes despite the Australian economy showing all the signs of being one of the strongest economic periods in our history: near record low interest rates, sustained growth and almost full employment.

Given that we’re experiencing such excellent economic conditions, why do these stories on families battling to make mortgage repayments dominate our media attention?

Coupled with these stories is the astounding impact we’ve seen on the polls of late, with a staggering number of Australians blaming the Howard Government for their home mortgage problems. In response to the polls, Kevin Rudd has decided to, surprise surprise, hold another summit into housing affordability.

But why? What fault is it of the Howard Government that Australians, able to borrow more because of excellent economic conditions coupled with low interest rates, have decided to borrow too much and now find that their purses just won’t stretch to cover their McMansions, new cars and overseas holidays?

The fault of mortgagors increasingly struggling to meet their repayments rests not with the Howard Government at all, but with the borrower.

The baby boomers are now sitting very pretty on their invested nest eggs thanks to the superb performance of the Australian stock market and are enjoying the fact that housing affordability is through the roof (excuse the pun). When they bought their homes, interest rates were more than three times the rates that today’s borrowers pay. They made it work by choosing more conservative houses, perhaps a smaller house in a less-favoured area, and by budgeting in other areas of their lives.

Today, however, there has never been a better time to borrow if you’re a young family, or a single person aiming to get into the property market. Housing affordability might be down - that’s just the consequence of high demand in a booming economy flush with money - but the ability to get into the market as a borrower due to lower rates has never been easier. Why, then, is it such a struggle for today’s borrowers?

The problem is that people have simply taken on too much debt. As a Moody’s report outlined in March of this year (“Bad debt on the rise among home loan borrowers”, March 8, 2007, Sydney Morning Herald) “the availability of ‘easy money’ and a relaxation of lending rules had led to many Australian households incurring high levels of debt that were out of line with their ability to repay”.

In seeking a particular lifestyle or a new house while still maintaining the life the mortgagor had before taking out their loan, the household budget has just been stretched too far. People have bitten off more than they can chew.

More proof was provided in a recent report by ING-Direct (the ING DIRECT-Melbourne Institute Household Saving and Investment Report). It cited a further national decline in the number of households saving over the past three months, from 49 per cent to 46 per cent (“Household savings continue to decline” July 17, Sydney Morning Herald).

One of the main reasons? The report outlined that the proportion of households spending the majority of their income servicing their debts, including the home mortgage, also rose.

Of course, there’s also a technical and academic way to acknowledge this, and still place blame on the government. As some business commentators point out, when faced with lower interest rates, people have assumed more debt. As the Moody’s report explained, as a result of high debt levels, borrowers were much more sensitive to adverse movements in the cost of living and debt repayments. The mortgagor is therefore more susceptible to smaller changes in interest rates, as even a small change in interest rates will lead to rather large increases in debt repayments.

It’s a nice argument. It makes some sense, and explains much of the grumbling around the time the Reserve Bank of Australia meets each quarter to make its decision to change (or leave) the official cash rate.

But it doesn’t change the primary problem: people have taken on too much debt.

Certainly, the Howard Government rode out of the 2004 Election and back into government in Canberra on the back of the “Keeping Interest Rates Low” horse. But there was never a promise that interest rates would stay the same. Such a promise is impossible to make in any liberal market economy. The promise was simply to keep them lower than what a Labor government would be able to achieve given their manifesto commitments and past record of economic (mis)management. So to place blame on the Government because they “promised” to keep interest rates low is wrong.

Furthermore, the media has been focusing more recently on “housing affordability”. Just how much this has to do with the choice that individuals make to take on more debt seems to be weak. Even Ross Gittins concluded that house prices have risen so much in recent years “Partly because the average home keeps getting bigger and better” (“A housing illusion we buy every time”, July 11, 2007, Sydney Morning Herald). In other words, our tastes are too fancy for our budgets.

Why is it that borrowers are so eager to place the blame for their financial worries on someone else, even the very government which has provided the economic circumstances enabling them to borrow at such low rates in the first place?

We seem to have forgotten that it’s still the individual that decides where to live, which house to build or buy and therefore, how much debt is appropriate for the lifestyle that individual seeks to enjoy. The fact that so many Australians are in such high levels of debt is only their own fault.

Such commonsense seems to be beyond the media at the moment. And indeed, the average voter blaming the Howard Government for their financial woes.

To me this signals a trend of much greater concern with regard to a new feature of the Australian psyche: the death of personal responsibility. No longer, it seems, are we capable of working out our own finances. No longer are individuals able to accept responsibility for the level of debt they choose to incur. Instead anything that goes wrong with our lives, even with the purse strings, in spite of all evidence pointing to prime economic conditions, is the fault of the government, and in this case, the Howard Government.

Blame should be placed squarely with the left for the death of personal responsibility in Australia. It is the left that forwards a “rights rhetoric” on all fronts, instilling in Australians the strange idea that says that the comfort and rewards that are rightly the fruits of hard work, perseverance and endurance should be enjoyed by all Australians as a right.

In their eyes, we, as Australians, have a right to a job, a right to a nice large house in a leafy suburb, a right to a place at university, a small debt, and low interest repayments. All of these rights are owed to Australians and it’s the government’s fault (or at least someone else’s) if they are not forthcoming.

It is this “rights rhetoric” that seems to have blinded this country into thinking its individuals deserve more than they’re getting. And has led thousands of Australians to believe that they can take on more debt than they can afford to repay.

No clearer was this "rights rhetoric" obvious than in the fallout over Ford Australia's recent decision to close its Geelong factory, ending production of six cylinder Falcon engines in 2010 with the loss of 600 jobs.

What we heard in response to this decision, to the astonishment of any Australian with an understanding of how economics and the global trading system work, wasn’t any mention of how the closure makes sense given that Australia is uncompetitive in the area of manufacturing automobile parts. Instead what we heard, primarily from union leaders, was what a sad day it was because the factory was closing and workers were losing jobs.

There was no recognition that this was a natural consequence of our integration in the global economy. There was no recognition that Geelong has never seen better economic conditions, primarily due to government liberalisation and good management of the economy.

Instead all we heard from the Union leaders and the Labor Party was how this was the fault of the government for committing to quota and tariff reductions in the motor vehicle industry, in line with our international trade commitments, that the government had jeopardised these workers' right to work in the Geelong factory by trade liberalisation, the very kind of commitments that have led to opening a host of new markets for our own exporters.

We seem to forget that there's no right to a job for life. There's not even a "right" to have a job. Period. Instead, blame was sought to be placed on the Howard Government, absurdly, for its decade of strong economic management. The predictable calls were made by the Labor Party, led by the Premier of Victoria Steve Bracks, calling on the Federal Government to put a halt on any trade liberalisation to “protect” the motor vehicle industry and its workers. But any such protection will only delay the inevitable: Australia is simply not competitive in this industry. Job losses are an inevitable consequence of exposing our economy to international competition - exposure that has made Australian firms stronger and more efficient, and delivering more jobs and better, cheaper products for Australians.

In employment, in mortgages, in personal finances and debt, we witness the death of an important liberal principle - personal responsibility.