Economic 'green shoots': greener on the other side

Issue 

Our neighbours recently moved out. They could no longer afford the rent on their small two-bedroom inner-city terrace, so moved away from the city centre to reduce their rent by $100.

Both had jobs and no dependents, but one of them worked on a short-term contract basis as a light and sound technician, and his hours had taken a dive with the global economic crisis.

Newspaper headlines talk about "green shoots" of economic recovery, but this is a story that illustrates just who is paying the price of bailing out the capitalist system from the crisis.

It's not just the fact that the victims of capitalist greed and exploitation are being made to pay the multi-trillion dollar global cost of the latest crisis galls. It is the fact that, even as we begin to pay the cost of their last speculative binge, these monsters are starting up the same game again. And in the course of this, more of us are being put into a mess.

Here's another story:

One month ago, a young working family I know was considering bumping up their $220,000 mortgage by another $150,000. Their bank was encouraging them to sign up for a bigger house and bigger mortgage.

Their modest two-bedroom unit would fetch a high price thanks to new home buyers rushing into the market to take advantage of the temporary rise in first home buyer subsidies. On top of that, the bank official added, interest rates were low so now was their best chance to trade up.

The family has a one-year-old child and a teenager in high school. One of the parents works part-time and the other is on a short-term contract as a cleaner, and must work long hours to boost his pay packet.

They decided to make do with their modest home. And they were probably wise to do so. But others have been less cautious.

As an article by Lesley Parker in the August 29 Sydney Morning Herald said: "The risk of unemployment combined with negative equity could catch out young borrowers.

"First-time buyers are piling into the property market, aware that beefed-up Government grants are fast approaching their use-by date. But while that's been a boon for the housing sector and the economy generally, there's disquiet about how prepared inexperienced borrowers are for the challenges that may lie ahead.

"While some mortgage-market observers are confident tighter lending criteria are keeping buyers on the straight and narrow, others fear rising interest rates and job losses will put an increasing number of borrowers under stress over the next year or two.

"The worst-case scenario for recent homebuyers is that some will end up with negative equity — owing more than their property is worth — and be forced to sell into a weak market."

The Reserve Bank has signalled interest rates will start rising again soon from a temporary "emergency" low. While the unemployment rate hasn't risen as hard or as fast as expected, it is on the increase, as is "underemployment" — resulting in reduced hours and smaller pay packets.

A ruthless mortgage seller may not care less, but Fujitsu Australia, which issues a monthly report on mortgage stress, expects the number of households in "mortgage stress" to rise from 546,000 to more than 1 million households by June 2010, topping the previous high of 900,000 in August 2008.

That's just small part of the cost we are being made to pay for bailing out the capitalist system yet again.