BUSINESS PERSON OF THE MONTH

Steve Vizard

Mr. Vizard has been receiving a lot of press in the past few years and probably a lot of us are still confused as to what he really did. Basically he didn’t listen to his own advice on insider trading he gave to the Sunday program in July 2000.

"You have to inform every board you are on of the business you are involved with ... you have to tell them you are involved with that business, declare your position, not be involved in any decision-making process that the company you are involved with makes."

This isn’t just good advice, this is the commonwealth law of any board of directors.

Stephan William Vizard was born 6 March 1956 (1956-03-06) in Richmond Victoria and is an old Carey Grammar boy. He is married with five children. Originally a corporate lawyer after graduating from Melbourne University Law he moved to television in 1989. He produced the comedy show, ‘The Eleventh Hour’ and won a Golden Logie in 1991 for his work in ‘Fast Forward’.

Other awards include his 1997 Order of Australia, for service to the community, through his established Vizard Foundation, and to the arts. Earlier this year he returned this award after the insider trading scandal. In 2002, he received the Australian Father Of The Year award.

He retired from television in the mid 1990’s and went back into business and philanthropy. In 1996 he became one of the directors of Telstra for four years. During the final year of his term at Telstra claims of $3 million of accountancy fraud and insider trading arose between Vizard and a college. In 2005 he was fined and sentenced to 10 years disqualification.

Moral of the story: Stick to what you’re good at and don’t get too greedy.

Tax Return Time

Ok kiddies, its tax return time, yeah!! I must confess that even I, a business nerd do not enjoy doing my tax return. But it must be done and hopefully you will get a bit of money out of it!

A financial year is from July 1^st to June 30^th the following year. This is the period of which your income is totaled and your tax is calculated from the tax you have already paid and that which you should have paid.

By the end of the financial year your employers should send you a group certificate as a total of your income and tax. You then have from July 1^st to October 31^st to lodge your tax return. Remember, the earlier you get it done the earlier you get any returns.

To carry out a tax return you must have a tax file number and group certificates from all of your employers over the past 12 months. If you don’t know if you need to lodge one go to http://calculators.ato.gov.au/scripts/axos/AXOS.asp and answer the questionnaire there to find out.

If you do have to complete one there are lots of ways to do so. You can go to www.ato.gov.au and complete the online e-tax section or over the phone. You can also pick up a hard copy of the TaxPack 2008 at newsagents and some book shops. Some registered tax agents offer student discounts to help do your tax returns. It can be a good idea to use a professional for this as they know the ins and outs of what can be deducted and get you your return quickly.

After you lodge your return they may say you owe the government tax. If this is the case the earliest you will have to pay it is November 21^st, regardless of when you lodge your tax return.

Frequently asked questions around tax returns are about what work related expenses can you tax deduct? This is when a professional is handy. Basic things to think about are:

- Work uniforms with logos or embroidery on them are generally tax deductible

- Laundry and dry cleaning of these uniforms are also generally tax deductible

- Every industry and role will vary from what they will be allow to tax deduct. For instance, the modeling business will allow you to tax deduct haircuts and pedicures where as some sales role will include home internet and phone.

- Tax deductible car and public transport use is only considered between work hours. The use of your car or transport to get to and from work is not included.
- A percentage of educational expenses such as pencils, textbooks can be deducted if the studies are in direct connection with your employment.

Good luck and I hope it is as painless as possible!

Student Budgets

This month I want to write about the importance of understanding finances and budgeting. BORING I hear some of you groan, but it’s YOU who should read on! Unfortunately, whether you like it or not the world runs on money, economists call it the oil of the world. So best to keep your piece of the pie as yummy as possible!

What is the importance of budgeting?

What’s the point doing something if you don’t know why? When you begin budgeting you can have many reasons and great results. Some of these include:

- To know the truth about your financial state so you don’t get a scare or live beyond your means

- To use your money wisely so it better reflects your priorities and wants

- To save for something you really want maybe a ticket overseas, computer, car

- So you’re not getting ripped off by banks, other big institutions

Ok, so budgeting is important but how do I do it?

Keep a record of what you spend. There’s lots of ways of doing this, I keep a spreadsheet on my laptop but I use to write spending into the back of my diary. Some people keep all their receipts, others only use cards so they have a record online. However you do it you have to keep a record of where your money is going for budgeting and also in the future for tax.

I always start a budget by breaking down the cost of basic living weekly, fortnightly or monthly, whichever period works best for you. Refer to the useful links to get a downloadable or printable template to start budgeting with!

Firstly ask yourself what do you need, and how much do these cost. I have found some general ‘rules of thumbs’ for these. Rent or housing costs should equal about one third of your gross income (before tax). Utilities bills such as gas, water, electricity average about $2 to $3 a day in usage costs only, plus the annoying charges they seem to add on for no apparent reason, usually between $20-$30 a quarter. Transport is a real killer that lots of people forget. Tram tickets for students average to be about $3 a day, whilst cars can average $10 to $18 a day after insurance, servicing and petrol. Mobile phones and internet connections are always big killers for students’ hip pockets considered the number one cause of student debt. Generally you should not spend more then 10% of your net income (after tax) on these. Groceries are another big expense which can be difficult to calculate. I try to aim to spend no more then 20% of my net income on them. As students this probably doesn’t leave you with much! But if we can budget right we should have enough for the suggested 10% to 20% in savings.

The next thing is to look at what do you want to do? How much would you like to spend on going out, presents, clothes? What is necessary to keep you sane? Maybe you want to go to the movies once a week for $12 or out to dinner for $20, see a gig or get a few drinks at the local pub. Add these costs onto your budget too and see how realistic you’re expectations are.

An example of a typical student fortnightly budget might look like this:

Income - $680 net a fortnight
Work	$450	Net
Centrelink	$230	Net
Outgoings - $610 a fortnight
Rent	$290	Approx. one third of gross income
Bills	$30	Between $2 - $3 a day
Public Transport	$40	Between $2 - $3 a day
Phones & Internet	$35	Less then 10% of gross income
Groceries / Food	$155	Less then 20% of gross income
Going out	$60	Approx. $30 a week
Savings - $70 a fortnight		Between 10% and 20% of gross income

Not much room to move is there? This is why savings is important. If you lived on a knife edge like this and didn’t save you would have a very fragile lifestyle. Any little problem like an employer paying late, getting an infringement notice or going over on your phone bill will mean you won’t be able to make ends meet.

After you’ve done you’re budgets some ways of improving it should become clearer. In terms of spending maybe you need to change your mobile phone arrangements, find cheaper rent, eat in more or get rid of the car. Or maybe you find that you’re living comfortably within your basic needs and you are wasting lots of money on unnecessary things such as daily red bulls and trashy magazines? Maybe this money can be spent on bigger and better things instead.

On the other side of the coin maybe you need to earn more. This doesn’t necessarily mean you need to work more. Changing your pay structure can help, for instance, if you are a casual employer and on Centrelink re-structuring your contract to a part time basis can even out your pay over holidays and sick days so you can claim more from Centrelink fortnightly. Or instead of working Saturdays try and work Sundays on a higher hourly rate. Or refer to last month’s magazine and ask for a pay rise!

Never the less, a budget should highlight that once daily needs are met you must prepare yourself for larger one off costs such as car insurance, a special friends birthday present, tickets to an expensive concert or a new piece of furniture etc. These things must therefore be saved for in advance, not via the credit card approach.

How to save

To save successfully it is important to have a goal. Ask yourself, how much do I want to save and by when i.e. ‘I want to have $1,200 by Christmas’, then work backwards. Ok, if Christmas is 26 weeks away I will have to save $46 a week,

26 x $46 = $1196.

But this is EVERY week, if you are likely to miss a few weeks over the next 6 months allow for this and factor it into your weekly amount say an extra $10. Therefore,

26 x $56 - $224 (4 missed weeks) = $1232.

If you currently have debt this should be your number one priority to save for and pay off. As a young person I often hear old people say, ‘In my day we didn’t live beyond our means and only bought things when we had the money in the bank.’ Well this is good in theory but our generation realizes that life is short and we take opportunities when they arise. This doesn’t mean you will never pay it back, it just means you have chosen to enjoy it now and pay for it later. When the ‘later’ comes be sure to pay your debts off from the one with the highest interest first. Many people make the mistake of paying the largest amount off first. The interest you save by paying off a higher interest card first will enable to you pay the lower one of faster later.

Tips on how to save

- Have multiple bank accounts, one for spending, and one for long term saving and one for medium term saving. This will stop you from spending it all at once.

- Look for account with high interest rates and low minimum amounts and charges.

- As soon as you receive income put the planned savings amount away. Do not wait until the end of the month to put it away because you will have spent it.

- Give yourself your planned spending amount in cash at the beginning of the week so you can see exactly how much you have left.

- If you are not good with cash buy things ahead of time so you’re not put in the situation of buying something on the spot where you are tempted to overspend.

- Consolidate multiple debts into one low interest loan, even if this means your parents pay your debts and you owe them the total amount.

- Avoid expensive supermarkets such as Safeway and Coles. Do your grocery shopping at markets such as Box Hill, Queen Victoria or Prahran for the vegetable, fruit and meat and get the other stuff from Aldi or BigW.

- Re-fill water bottles instead of buying new ones daily

- Buy your Metcards in bulk, 10 trips or monthly can save up to 20%

- Ask if you are eligible for discounts at bookshops, utilities, ticketing places etc.

- Structure your pay to include monthly bonuses and save the lump sum.

- Save any windfall or unexpected money such as tax returns, presents etc.

- Speak to your phone, internet, and utility providers regularly to see if any new cheaper plans are available.

- Plan your days spending as you start the day, don’t wait until you’re starving to think about how much you want to spend on lunch.

- Spend as regularly but spend less. Instead of getting the large meal, get the medium. Buy one CD instead of three.

BUSINESS BOOK OF THE MONTH

‘Free Prize Inside’ By Seth Godin

All marketing students will know the prolific author Seth Godin, and probably have read his books ‘Purple Cow’ or ‘Permission Marketing’ (if you haven’t you should do so quickly before anyone realizes you haven’t!) His next read, ‘Free Prize Inside’ endeavors to offer ‘the next big marketing idea’.

Published in 2004 this bite size book is packaged in a cereal box with the book acting as the ‘free prize’. It can be read in a day or two and will get you itching to put its’ ideas into practice. Although pitched as a marketing man, Godin’s books, blogs, web presentations are interesting for anyone in business, which is everyone! He is a modern thinker and understands the modern consumer intimately, essential for us young movers and shakers in any industry.

‘Free Prize Inside’ is short and snappy in writing style, making it an easy read. It offers great practical advice in ‘cut out and carry with you’ form such as, ‘You can’t buy attention’ and ‘The harder you try to play it safe the more likely you are to fail’. He uses examples ranging from Redbull to David Letterman’s teeth to Yahoo! And demonstrates ideas in really simple graphs for visual people like myself!

In true marketing form he spends the first few chapters pumping up the book and how great it is that you’re reading it, someone bought it for you, you should buy it for other people etc. He includes a bit of business jargon some of which he has coined himself over the years such as, ‘champion’, ‘purple cow’, ‘edges’ but all in all very easy to understand.

My advice to best enjoy the Godin theology is to grab a copy of ‘Free Prize Inside’, skim over the headings, read the bits that sound interesting and sign up to his blog or watch some YouTube clips. However you do it, I hope you enjoy!

A Good Home Life with Housemates

After two years working in Real Estate I have heard a lot of bad housemate stories. Many tenants have had to leave houses due to messiness, inconsiderate noise, not paying rent on time and privacy issues. Apart from the odd unreasonable freak many of these household issues can be sorted out with a bit of ‘living’ preparation. Sit down and think about what is really important to you at home. Do you enjoy things being clean or would you rather live life and worry about the mess later? Discuss these things with your housemates at the beginning of the lease so everyone is very clear on everyone else’s expectations. Pin up these expectations somewhere communal so all housemates and their guests are reminded regularly. I have outlined some of the things I think are important to include.

Consider Other People and Their Belongings

§ Keep other housemate current with major life changes such as change of jobs, university courses, selling a car etc. as this may impact the whole house

§ When making decisions on or changing shared spaces such as where couches and TV’s are, or financial things such as internet you must consult with others and agree

§ Always ask to borrow clothes and personal items in person or via txt message

Guests are to be Respectful of Everyone

§ Guests are to be attended to by their host who is responsible for the guests behaviour

§ When returning home check if housemates are sleeping. If so, act quietly & SMS if anyone is staying over

§ Only people known/introduced to all housemates are allowed to stay over night

§ Guests may eat shared household and hosts personal food in moderation

§ If more then 5-6 people including host come over for a long period of time, a days notice to all housemates is required

§ If guests stay more then 3 - 4 nights a fortnight proportional contribution to household expenses is payable as agreed by housemates

Keep House and Housemates Safe at All Times

§ Locked and deadlocked front door when leaving the house empty

§ Front door is to be snipped locked so you can leave easy in case of emergency while people are sleeping

§ No spare keys are to be handed out to guests or hidden outside unless agreed to by all housemates

§ Do not discuss with others if the house is vacant or when a housemate is home alone for periods of time

All Bills to be Paid on Time

§ Rent paid weekly to main tenant

§ Water and Electricity and Gas to be paid quarterly by main tenant and reimbursed by each tenant pro-rata, according to period since commencement of lease

§ Use of utilities are to be used in reasonable amounts i.e. heaters, water, lights turned off when not in use

§ Gardening, shopping, shared household expenses to be recorded on household calendar and reimbursed monthly so each housemate has paid their share.

Household cleaning tasks to be shared among housemates

To be done fortnightly

Bathroom - Shower, Toilet, Sink, Floors

Vacuuming - All shared areas, and quickly in each bedroom

Outside – Watering, Mow lawns, Recycle bin out/in

Dusting - Surfaces, spider webs, books shelves

Moping – Tiled areas

To be done weekly

Outside – Garbage bin out/in

Lounge - Tidy and put personal items away when finished

Office - Tidy and put personal items away regularly

To be done daily

Kitchen

- Clean all dishes left in and around sink

- Stack dishwasher as you go and turn on when full

- Keep bench and table clear and clean each night

Asking for a Pay Rise

Asking for a pay rise can often be daunting yet VERY IMPORTNANT. I often throw my hands up after the third parking ticket of the month and exclaim, ‘I wish I was rich…that would solve all my life problems!’ Usually a nearby slightly scared friend or family member will point out that parking in the right places might also help. Annoyingly I do agree with them, sometimes you must DECREASE your spending to save money, and sometimes you must also INCREASE your earning capacity.

As a student it is often hard to do either. Living on the ‘student knife edge’ where opulence and poverty can mean the difference between walking to uni and catching a tram. Demanding a higher wage can also be hard as you may be inflexible to your employers needs due to university commitments.

Student jobs can range from flipping burgers and making coffees to part time assistant roles and office jobs but no matter what industry or position you are in all jobs work on a basic supply and demand structure. It has been said that dirty, dangerous and demeaning jobs often pay best. Cleaning windows downtown pays well, but cleaning very dirty windows on the 80th floor pays better.

So, when thinking about approaching your manager or boss one good way to prepare yourself is to do your research. Ask yourself the following questions, have I demonstrated that I am competent in my role? Have I signed any sort of agreement that would limit my earning capacity? Is my direct manager the correct person to discuss this with? Or is the human resources department or store manager more appropriate? Be very careful with this questions as going above a mangers head can often damage your relationship with them and hard your chances of getting what you want.

The next thing to do is arm yourself with industry standards of pay, speak to the institution or association in the field you work in and ask them how the pay scale works. Find out where the industry skill shortages are, how you can fulfil them? Maybe you need to get another qualification, move interstate, change your pay structure from part time to casual or maybe you already have the skills and are working in the right place! Use this information to give yourself confidence when you approach your boss or maybe to realise that its time to find a new job!

When asking for a pay rise it is always good use inclusive word such as ‘we’, ‘us’ and ‘I’ a lot, ‘I feel I contribute a lot and we have achieved great results’ rather then, ‘Don’t you think I contribute a lot?’ Keep in mind THEY the employer must benefit from this rise as well. NEVER justify a pay rise by telling them how your personal expenses have gone up, ‘I’m paying back my HECS’ or ‘I’ve bought a car and need more money for petrol’. You must show them how they will benefit from you remaining with them or taking on additional responsibilities and tasks, ‘I have shown through my six months of work here that I am reliable and trustworthy and can therefore close the shop or help train the new workers.’

In terms of when to ask for a pay rise, timing is everything. When approaching your manager make it clear what you want, how to get it and a time frame. Ask your manager, ‘I wanted to map out my key performance indicators required to receive a $3 an hour pay rise at my next review.’ Then stay quiet. Let them talk themselves into helping you. My father always says, ‘the first one to speak in a negotiation looses.’ As an employee it can be tempting to settle for less then you want to avoid confrontation or discomfort.

To Feature in April RMIT Catalyst Magazine

BUSINESS BOOK OF THE MONTH

“BASIC BLACK: The Essential Guide for Getting Ahead at Work (and in Life)” By Cathie Black President Hearst Magazines

A friend recently passed on the book, ‘Basic Black’ to me touting it was a great and easy read and rare to find a female business women at the top of her game actually stand up and tell people about herself. I agree, most business books are written by men and many business autobiographies are about these men. It seems that once one achieves success of any sort they rush out and print a million hardbacks. Richard Branson has done it, Donald Trump seems to do it every year. But where are the women?

Cathie Black has released her business book with female style and is not ashamed to show it. She tackles female issues head on with a matter of fact manner that is liberating. These issues include how to compete in a male dominated field, how to use your female advantage, feelings of being intimidated, and managing personal pressures at home etc.

This considered it is certainly not for a female only audience. Black draws on her astounding four decades in the media business and has been described by the Financial Times as “one of the leading figures in American publishing over the past two decades” as the head of Hearst Magazines, one of the worlds largest publishers of monthly magazines.

The book itself has been translated into twelve languages and has seen great success in book charts around the world. Black breaks the chapters into practical case studies, tips and personal anecdotes with cameos of people such as Rupert Murdoch, Oprah Winfrey, Gloria Steinem, Francis Ford Coppola, Harvey Weinstein, and Al Neuharth.

A testament to her credentials, Black is one of very few who has appeared on Fortune magazine’s “50 Most Powerful Women in American Business" list every year since its 1998 début. What more do you need? Get out and read it!

BUSINESS BOOK OF THE MONTH!

‘The Goal: A Process of Ongoing Improvement’, by Eliyahu M. Goldratt published in 1984.
A business book that is easy to read! AND extremely useful! Goldratt writes many of his books as a piece of fiction with main characters, stories and love stories while explaining interesting business ideas.

This book delves into Goldratt’s ‘Theory of Constraints’, a model to manage business processes he developed as a business consultant.

The main protagonist, Alex Rogo, the manager of a failing metalwork plant, learns how to manage bottlenecks (constraints) in a manufacturing process, project management and the art of negotiation.

Set in America the concepts can be easily transferred into any business whether it is small, large, in manufacturing or service orientated. If you want to run your own business or get a promotion this book is a MUST READ. Other books in the series include ‘It’s not luck’ (I’m onto this one now!) and ‘The Haystack Syndrome’.

Starting a New Tenancy in the New Year!

December through to March are said to be the busiest times of the year for starting new tenancies. Particularly for students whom are preparing to commence a year of study. This can lead to high demands for available properties and strong competition between applicants!

Once you have chosen your desired location, picked a price range and number of bedrooms you require etc. follow these tips to help you secure your desired property.

Be sure to send in a great application!
To be good it must be COMPLETE with all names, phone numbers and 100 points of identification (eg. A passport, current visa, Medicare card, drivers licence and a bill equals 100 points) also, make sure you sign where necessary and include important details of lease commencement dates and tenancy length.

Make sure you can afford the property
If you have a healthy salary show it with pay slips, (Rule of thumb should be, your after tax weekly earnings are double the weekly rent.) If you are a student without such an income try to show a healthy bank statement (eg minimum of 3- 6 months rent in savings) and look at having a parent join you on the lease. Overseas students may even be able to have parents sign parental rental guarantees for them.

Present yourself well
Be polite and well dressed when you go to see properties and talk on the phone. Often receptionists will be the ones checking your application and recommending you to the property managers. Landlords will be looking for responsible/neat people, so don’t stand around smoking or be late to an inspection! Most agencies when you borrow keys to inspect properties require a $50 cash deposit and photo ID.

Know the availability
Ring the agent and ask when the property is available to inspect and when they want someone moved in by. Ask if it you can apply before inspecting the property. Often if your application is then not successful the agent may find you another property. Most landlords will not be flexible on the move in date by more then 1-2 weeks and require a 12 month lease at the beginning of the year.

Overseas Students Visas
Be sure to include copies of current visas that remain valid though out the length of the lease (e.g. if you are signing a lease until January 2009, make sure your visa does not expire in 2008!)

For further advice and information you can download the Victorian Consumer Affairs booklet which is really easy to understand and very helpful from http://www.consumer.vic.gov.au/. Read the Business Person review of the Minister for Consumer Affairs.

Good luck!

Business Nerd of the Month! David ‘Kochie’

Business Nerd of the Month! David ‘Kochie’ Koch, is best known as an Australian television personality, and financial commentator. He currently presents 7's Sunrise morning program each weekday and Where Are They Now. Koch hosts Australia's top-rated small business show, My Business, which airs on Sunday mornings on 7.Koch founded Personal Investment magazine and My Business magazine, the largest-circulation small business magazine in Australia. He also provides business and financial commentary for several publications, including Pacific Magazines and AFR Investor. Koch was a director of the NSW Small Business Development Corporation for eight years and as the current director of Pinstripe Media Pty Ltd, he speaks regularly at corporate events about small business, finance and investment issues.He was nominated for a Silver Logie in 2004 and 2005 for Best TV Presenter. The Money Management newspaper recognised Koch as one of the 10 most influential people of all time in the financial services industry and he has written several practical books on family and business financial management. Reader's Digest listed him in the top 50 Most Trusted Australians and he was recently named 2007 Australian Father of The Year by the Australian Father's Day Council. Yeah, we love successful nerds!

Housing Affordability

Hello fine readers! As promised last month I am going to delve into the world of ‘housing affordability’ come on this crazy journey with me as I try to understand the complex world that is….economics.

Unless you are literally living in a cave or under a rock, housing affordability is going to matter to you, hence why the current ‘crisis’ is getting such considerable media coverage.

The topic is complex as it is influenced by many economic factors. Any combination of such factors can create varying outcomes on individuals and community. Economists, banks, politicians and business people all monitor certain statistics to map trends and anticipate moves in the market. These factors and statistics include:
- The number of new housing approvals
- The reserve banks’ interest rates
- Credit and debt and international markets
- The number of approved home loans
- The housing costs to purchase, rent, build and renovate
- Individual income rates of pay
- Consumer confidence and employment growth
- Inflation rates
- Growth in population

To try and understand what is contributing to Victoria’s low housing affordability I will look at each of the above basic factors and discuss the influence they may be having. As you read you will see that each factor relies on and influences each other.

New Housing Approvals
Housing approvals are important as they can forecast what will be built in the coming months and years. In July housing approvals increased by 15.3 per cent from the previous month to 3,625, but they were still down 5 per cent on the same time last year. Housing approvals peaked in August 2002 and five years on there is still no recovery despite Government first homebuyer and rebate incentives. 2006/07 figures show there would have been approximately 39,000 new dwellings built in Victoria, which is 3,000 fewer than the required 42,400 to fill the need. As fewer homes are being built and more people move to Melbourne supply decreases and demand increases. This will lead to an increase in cost.

Housing Costs
The average house price in Melbourne is now $420,000, up more than 10 per cent over the past 12 months. In Sydney, this figure is closer to $520,000. Both cities are now among the English-speaking world's least affordable housing markets. Research has shown that in Melbourne a 605sq m allotment in Tarneit, 27km southwest of the CBD, costs $249,600. 2km further west at Manor Lakes, prices are starting at $255,600. In Sydney a house and land package on a smaller block in St Helen's Park, 48km south of the CBD, is $400,000.

Affordability is affecting the whole country. In Brisbane, outer suburban housing starts at $320,000 in Jimboomba. On the Gold Coast places like Yatala and Pimpama, halfway to Brisbane are starting at $320,000. In comparison suburban affordability in Melbourne is quiet attractive to many Australians. This has lead to an increase in Victoria’s population which places a greater demand on the market.

Other housing costs have also increased contributing the low housing affordability. Renovation costs have jumped almost 6 per cent in the past 12 months dramatically increasing the price for those hoping to enter the property market by purchasing a ‘do-er up-er’. Rental prices have also increased with the decrease in available rental properties due to the number of owner occupiers purchasing.

Home Loans
Australians took out fewer home loans in July then June 2007. Some believe the fall was a correction after a strong rise in June as a result of this years’ superannuation opportunity to put up to $1 million in and receive a tax discount. More than 63,500 people took out home loans in July, down 4.1 per cent. Economists had expected only a 2 per cent fall. The number of loans for new dwellings dropped 3.3 per cent. In general, fewer home loans reflect the restraint on purchasers to enter the housing market and poor value available. Less homeowners can also lead to more renters as people choose to rent or stay in the family home longer before they purchase, thus putting pressure on the rental markets.

The reserve banks’ interest rates
It must be made clear that the Reserve Bank is independent of the government and the forthcoming election, despite general opinion, will have no bearing on their decisions to change rates.

On Tuesday 7th of August 2007 the Reserve Bank of Australia announced it had lifted official interest rates by a quarter of a percentage point to 6.50 percent, an 11-year high and the first rise in rates since last November 2006. The rise in interest rates will add around $50 a month to repayments on the average $250,000 mortgage. Many believe that rates may rise again this year if a return of stability to the money market does not occur and international economic pressures are not contained and spill over into Australia.

The fall in home ownership is expected to worsen in coming months as the effects of the interest rate rise takes hold. An interest rate rise can often taken 6-18months for its full effect to be felt. The possibility of a November rate rise is currently at 50 per cent at best.
Many believe the deciding factor would be an abnormally high October inflation figure.
This speculation of another interest rate rise may be the reason behind the slowing demand for home loans discussed above. Any interest rate rises will affect anyone with a mortgage particularly those first homebuyers whom may have already extended themselves to meet their current home loan.

Growth in Population
Melbourne attracted 61,000 new residents in the year to June 2006, while Sydney attracted only 35,000. For the first100 years after Federation, Sydney achieved a greater annual population growth than Melbourne every year. But this is no longer the case as Australians choose which city and which living environment they prefer. Of the new population a considerable amount are nuclear structured families. Research shows that over 5 year Sydney attracted 5,000 net extra traditional nuclear families where as Melbourne attracted 11,000. This population growth coupled with the shortage of new housing approvals would lead to a rise in housing costs in the year ahead.

Individual income rates of pay
As the gap widens between the rich and the poor, even people in ‘good jobs’ are finding themselves unable to live near their place of employment. A large proportion of these people are spending up to 50 percent of their income on their homes. With such a large percentage of income being spent on rent or house payments tremendous burden has now been placed on finances for food, utilities and transportation.
The deterioration of housing affordability has been worsened by salaries that haven't risen nearly as fast as house prices.
Studies have shown that the median house price in Melbourne is between six and seven times median household income and in Sydney housing costs measured between eight and nine times earnings. This unbalanced relationship between housing costs and income is a major contributing factor to the low affordability being experienced across Australia.

So, I hope this whirlwind tour of economics and housing factors has been beneficial! Despite sounding quiet doom and gloom for the future it must be remembered that all markets work in cycles and everything therefore is relative. So stay positive and continue to look for the bargains and opportunities that can be found in all sorts of markets.

Look forward to next months issue where I tackle the most frequently asked Real Estate questions.