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housing. The term capital position refers to changes in the value of a dwelling in constant terms over the period of ownership by a household. A capital position may be either positive or negative, the former will be referred to as a capital gain while the latter is described as a capital loss. It must be emphasised that these terms refer to dweUing price movements in constant terms. Apparent capital gains arise through the comparison in nominal terms of of the price fetched by a dweUing at the start and finish of a household's occupation. The period for which a dweUing is owned will be referred to as an occupancy and constitute the basic unit for analysis. Completed occupancies are defmed by a purchase and a resale while incomplete occupancies are those for which the purchase of a dwelling was recorded without a following sale by the end of the study period Housing benefits will be used to refer to the total material advantage available to an owner occupant and may be either positive or negative. The benefit received by a household is equal to the difference between occupation through purchase and occupation through private rental. That is, a benefit of 510,000 means that an owner occupant is 510,000 better-off than if they had rented the same dwelling for the same period. Similarly, a benefit of -510,000 implies that a household was 510,000 worse off than if it had rented the same dwelling for the same time. Realised benefits were calculated for completed occupancies and potential benefits were estimated for incomplete occupancies.
Any attempt to create a model of the benefit received as a consequence of owner occupation must incorporate a range of factors. The variables used within this thesis were capital position, interest repayments, capital repaid on the loan, imputed rent and sundry costs associated with the purchase and maintenance of a dwelling.
The benefit associated with residential property ownership was calculated using the formula:
B = [CP] + [C] + [(I-R) - T - M - Rt] where
B = Benefit: the total flow of benefits or costs; CP = Capital Position: price at resale less purchase
price, plus any additional investment in the dwelling;
C = Capital Growth through the period of the loan exclusive of original equity;
I = Interest repaid; R = Inputed Rent; T = Transaction Costs; M = Maintenance Costs; Rt = Rates and Taxes.
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Interest charges and the amount of capital repaid through the period of the loan were calculated using the formula:
P = Po - Pn
where P = outstanding principal after time N; Po = initial principal (in nominal terms); Pn = principal repaid (in nominal terms); Pn is calculated using the equation -
n n Pn = Po(l+r) - p/r([l+r] - 1);
where
- 1
p = Po * r/ l-(r+l)
and r = the interest rate.
Interest charges were calculated as the difference between the amount of principal repaid and total repayments.
A niunber of assumptions underpinned the development of this model. It was decided that both capital and recurrent elements would be incorporated into the calculations. Reduced housing costs were one of the most important benefits available to home purchasers as a result of the Commonwealth Government's intervention in Canberra's housing markcL Householders who purchased government dwellings at a discounted price or a block of land made more affordable by one of the Commonwealth's policies, would have had their housing costs reduced without any significant reduction in the quality of their accommodation. Capital gains may provide concrete evidence of profit through housing but low housing costs may make a far greater contribution to the welfare of the household. Secondly, the model was developed to estimate the total benefits received by a household over the period of their occupancy. No attempt was made to discount the flow of benefits, capital or recurrent, to allow for the time taken to accrue that return.
The model discussed in this chapter is a partial model. Data were not collected on all attributes affecting the household's experiences. It was simply impossible to collect data on all factors which may have impinged upon the material position of e x h owner occupant. The benefits estimated here are those expected to accrue under the conditions normally found within the housing market. It has been assumed, for example, that each household repaid its loan at the scheduled rate and neither fell into arrears nor accelerated the pace of repayments. The failure to identify the source of housing finance used by each household and the amount borrowed, was a significant omission within the data. Building societies charged higher
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interest rates and loaned monies under different terms than banks. In addition, it was not possible to discriminate which households within the study areas received concessional Commonwealth loans independent of the purchase of a government dwelling.
Some factors were excluded deliberately because of their limited applicability or contribution to the welfare of home owners. For example, until 1973, land taxes and rates were fully deductable for the purposes of income tax assessment The program was phased out gradually, with greater restrictions on the number of persons eUgible for this tax concession. In addition, the Commonwealth Government introduced a scheme in 1974 which permitted home owners to include their mortgage repayments as a tax deduction if they received an annual income of less than 54,000 (Neutze, 1980). The scheme was limited to fet home buyers and to the first five years of occupation in 1976. These taxation concessions were omitted because their contribution to the attractiveness of owner occupation was relatively insignificant and no data was available on the nature of the occupants and therefore their ehgibihty for the various schemes.
The capital components within this model were constructed using data from the study areas. The recurrent costs and benefits were estimated in line with the results of other studies. The material position of each occupancy was calculated. Firsdy, each purchase and resale was considered an occupancy and an estimate was made of the benefits or costs associated with that period of ownership. Dwellings purchased during the period of the study but not resold were also considered to comprise an occupancy and their material position was calculated between the date of purchase and the end of 1981. This aspect of the model was included to address specifically the benefits received by households who purchased under favourable terms in the 1960s and early 1970s but did not resell their dwelling before the end of 1981.
Roughly 5,600 dwelling occupancies were examined. An estimate was made of the acquisition cost of residences purchased as blocks by combining the cost of the premium with the value of the building application submitted for that lot. The capital position of each occupancy was calculated by subtracting the initial purchase price, plus the value of any additions, from tiie resale price. It was not possible to estimate the capital position of incomplete occupancies though later analysis incorporated a measure of capital growth.
Housing finance conditions were calculated twice. In tiie first instance it was assumed that all dwellings purchased from private vendors were financed by banks and that persons purchasing a government dwelling obtained a mortgage with the Commonwealth. In the second iteration of the model mortgage charges were calculated for aU dwellings under the terms and conditions of permanent building societies. The amount of money borrowed by
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purchasers was calculated as 70 per cent of the purchase price. Bethune (1978) and the Australian Bankers Association (1982) both found that most bank loan recipients held a 30 per cent deposit Data from the Civic Permanent Building Society indicated also that the majority of applicants for home mortgages held a 30 per cent equity in their dwelling. Interest charges were set according to published rates for each source of finance and adjusted for each announced period of interest rate fluctuation (ABS: Australian Banking Statistics; Dept. of Housing and Construction: 1966-1979, Civic Permanent Building Society, 1962-81). The duration of bank loans was set at 25 years and building society loans at 30 years. The treatment of dwellings purchased from the government differed slighdy from those financed privately. Interest rates on government dwellings purchased before May 1970 were fixed at between 4.75 per cent and 5.5 per cent according to the date of purchase. Government loans taken out after that date had variable interest rates. It was assumed that persons who purchased a dwelling from the Commonwealth Government had a deposit of 10 per cent and took out a loan for a period of 30 years (Records of the Australian Tax Office, 1962-81).
Both total repayments and the amount of capital accumulated through the lifetime of a loan were calculated. Credit fonder finance operates on a system of equal repayments through the lifetime of the loan. The first repayment of a loan is comprised almost entirely of interest charges while the final payment is virtually principal alone. The amount of capital repaid through the loan was computed for each month by deducting the interest rate multiplied by the amount of outstanding capital from the total monthly repayment. The amount of outstanding capital was adjusted subsequently for the next repayment. Each repayment and its capital component was totalled.
Imputed rent was calculated as a percentage of the median dwelling value in each suburb for each year. The estimation of imputed rent presented both methodological and technical difficulties. Alternative interpretations have been placed on imputed rent Stretton (1986) argued that imputed rent was an economist's nonsense. That, as there has been no discrete payment for the use of the dwelling, any notional accounting for the use of housing services is simply a fiction. Stretton's (1986) position can be rejected. Imputed rent has been recognised widely as an important factor within the political economy of home ownership: the ability to freeze housing costs has been one of the most attractive features of home ownership. Households able to save a deposit effectively reduce the long-term cost of purchasing housing services.
There has been considerable debate within the literature over the most appropriate method of determining imputed rent. Lerman and Lerman (1986, p324) argued for 'imputed income as