Debt, home repossessions portent for Australia poll

SYDNEY, (Reuters) - Soaring home repossessions in working class suburbs of Sydney and Melbourne, where elections are won and lost in Australia, may be a dark portent for Prime Minister John Howard as he gears up for a 2007 poll. Howard has won four elections based largely on his ability to manage the economy, now in its 16th year of growth driven by a global commodities boom and record low domestic interest rates.

But Australia's low interest rates have turned out to be a double-edged sword, creating two separate Australian economies -- one very well-off due to a housing boom and the other struggling under a mountain of debt. Sydney's tabloid Daily Telegraph, the city's biggest selling newspaper and voice of the working class suburbs, has warned the great Australian dream of home ownership is fast turning into the "great Australian nightmare" for many voters.

"The faltering dream of a home in the suburbs does not bode well for a federal government staking its re-election hopes on its economic credentials," said the newspaper in an editorial. Australia's opposition Labour has opened a comfortable lead over the Howard government in opinion polls, ahead of an election expected in late 2007.

Mounting debt
Three small interest rates rises in 2006, rising credit card debt and a dip in housing prices mean household debt is now growing faster than assets and many voters are hurting. "Household debt is now over 165 percent of disposable income, more than double the rate of just a decade ago," said Mark Rodrigues, senior economist at ANZ banking group.

"Households now spend a record 11.6 percent of their disposable income servicing debt." The Commonwealth Bank said Australians were increasingly looking to credit cards to bridge the gap between their pay packets and the rising cost of living. "Repayments are moving sideways but purchases are continuing to rise, causing higher debt levels to be left outstanding on cards," said the bank in a statement.

A survey by welfare group The Wesley Mission found 40 percent of Sydney households do not have enough savings to meet an unexpected A$2,000 (US$1,652) expense. Many Australians are declaring themselves bankrupt to escape spiralling debts or are losing their homes in forced sales.

In the last quarter, bankruptcies rose 14 percent and a study showed a worrying trend towards multiple bankruptcies. "Some people say the best thing they did was go bankrupt because they don't have to worry any more," Mike Young, financial counsellor with Lifeline welfare organisation, told Reuters.

Sydney's residents in the working class western and southern suburbs are amongst the worst hit by this mountain of debt and are being forced into repossession sales. In 2006, 5,363 repossession writs were issued in New South Wales, up 10 percent on 2005, according to court documents.

"The level of repossessions for sales and bankruptcies, especially in those areas on our cities' outskirts, will get worse over this year," said Michael McNamara from Australian Property Monitors. "The disparity between the haves and have-nots is getting wider by the day. I find it quite alarming just how many mortgage holders are in distress."

Real estate agent Mario Piredda in Sydney's Green Valley handles five to six forced sales a month. "In the last year we have seen a 10 percent rise in mortgage sales," he said. But even after being forced to sell their home, many people are still being left with large debts as housing prices in some western and southern Sydney suburbs have fallen A$100,000.

"There is a lot of pain out there," said Young. "Three years ago we were seeing one (threatened repossession sale) a year, now it's one a week and they are the people who come and see us, a lot of people just return the keys." Young said those hurting are low income workers on A$30,000 a year, who are holding down two or three jobs simply to make ends meet as the cost of living, along with interest rates, climbs.

"A lot of them have barely enough (money) for food. A lot of them have lived on credit for quite some time hoping it will get better," he said. Young said the people he counsels are often middle-aged and had bought into the property market late in the boom, hoping that cheap credit would finally see them own a home.

"They thought this was a chance for them to provide for their retirement. The older people feel they are a failure because they have gone bankrupt." For those looking to buy their first home the picture is gloomy with housing affordability at an all-time low. For the first time in 25 years the average Australian household cannot afford to buy the average home, which is worth around A$500,000.

People living in London and New York would find it easier to own a home than those in Sydney, with median property prices 8.5 times the average household income, according to an international survey of housing affordability. First home buyers in Australia now need to spend more than 30 percent of their disposable income on a mortgage. The average monthly repayment for a first home buyer is A$2,300.

Many people seeking the great Australian dream of home ownership were signing up for mortgages they could not afford to pay back, said Robert Caulfield, managing director of Archicentre. "Many desperate people were signing up to buy properties with no hope of maintaining payments and sadly losing what savings they had when the home was repossessed," Caulfield said.