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HOUSING SOCIETIES REPEAL BILL 2005
Introduction and First Reading


Bill introduced, on motion by Mr F.M. Logan (Minister for Housing and Works), and read a first time.
Explanatory memorandum presented by the minister..


Second Reading

MR F.M. LOGAN (Cockburn - Minister for Housing and Works) [12.50 pm]: I move -

That the bill be now read a second time.

The Housing Societies Act 1976 regulates the operations of the housing societies. At one stage over 700 housing societies were registered pursuant to the act. However, through amalgamations or the ceasing of operations, currently only two housing societies are registered. It is appropriate that these societies now be wound up. This bill provides an opportunity for the affairs of the housing society industry to be wound up as part of the repeal of the Housing Societies Act 1976 and at the same time provides an equitable distribution of the housing society reserves without resulting in an unjust enrichment of the residual members of the societies.
Because of government’s intrinsic role in the housing society industry, the Housing Societies Repeal Bill 2005, introduced by government to wind up the operations of the housing societies and repeal the Housing Societies Act 1976, includes a distribution of reserves to “on balance sheet” members of the housing societies and also perpetuates a significant portion of the housing society reserve funds - an amount of approximately $5 million - to be used to assist other low income families to attain affordable housing.

The societies have been in operation since the late 1950s. Initially a society would form to cater for groups of people with some sort of common community thread. There were also groups that catered for industry groups such as Western Australian carpenters. The society would form and then assist its members to attain a low deposit, concessional interest rate home loan to construct or purchase a home. Government funds or guarantees were also used to provide a lower cost of finance than was available from traditional funding sources such as banks, permanent building societies or credit unions. The objects of the society were not to generate excessive profits but to provide access to affordable home loans to low to moderate income families intending to make the transition from rental housing to home ownership.

The housing society industry has been assisted by government since its inception to implement loan schemes that provide housing loans to the members of the society. The societies have been involved in various successful government home loan schemes, such as the home purchase assistance account scheme, under which Commonwealth-State Housing Agreement funds were used to provide low to middle income home buyers with affordable home finance. In conjunction with the home purchase assistance account, the Housing Loan Guarantee Act scheme operated to assist societies to access funds from the private sector for on-lending to moderate income families until 1991, when the Keystart loan scheme replaced this scheme. The government, pursuant to the Housing Loan Guarantee Act 1957, guaranteed that the society would repay the loan to the lending authority. The government also indemnified the society from any losses arising from the sale of a member’s property. This provided the society member with a saving of approximately $800, because under normal circumstances a member paying a low deposit would be required to take out private mortgage insurance. Under the Housing Loan Guarantee Act 1957 the government has not paid out on any guarantee to a lending authority. However, under the indemnities, it has paid out to the housing societies approximately $1.46 million for losses arising from mortgages sales. The last claim for an indemnity was in 2000-01.

More recently, from 1991 until August 2002, the housing societies were agents for the government-owned Keystart loans scheme. This scheme has provided in excess of 55 000 home loans to Western Australian families since its inception. Housing societies were retailers and managers of housing loans for Keystart. Home buyers were required to take out a membership of a housing society for a nominal fee. Their housing loan was on Keystart’s balance sheet and did not form part of the housing societies’ financial accounts. A review of the Keystart scheme in August 2002 resulted in a change to the loan origination policy, with mortgage brokers being appointed to retail home loans, as opposed to housing societies being exclusively used to retail loans for the scheme. The housing societies were not appointed as mortgage brokers for Keystart as the scheme broadened its availability in the community through the use of mortgage brokers. In some cases the management companies engaged to manage the societies are now retailers for the scheme.

The Housing Societies Repeal Bill 2005 reflects the industry’s current position in which only two housing societies remain in operation. The industry is on a wind-down process that is quite different from that in 1979, when there were around 600 societies managing small parcels of government-sponsored loans. Each of these societies would build society reserves on interest margins, interest-charging periods and fees charged to members. Surplus funds were used to build reserves from investments in interest-bearing deposits or mortgages. “On balance sheet” members contributed to the build-up of these reserves over time by their actions of repaying home loan debt in advance of the minimum requirements. These funds could then also be used by the housing societies for interest-earning investments.

The vast number of societies that existed prior to 1979 created administrative inefficiencies for the societies and their management companies. As a consequence, under the Housing Societies Act 1976 a large number of amalgamations and transfers of engagements of societies occurred. As a result of the industry consolidation, the winding up and distribution of reserves to members did not occur regularly. This policy over previous decades has resulted in only two remaining housing societies having consolidated reserves of nearly $7.1 million.

Under normal circumstances, when a society is wound up any surplus reserves of the society are distributed to the remaining members. However, it needs to be recognised that the membership of the societies has reduced from more than 35 000 to fewer than 6 000, of which approximately 520 are “on balance sheet” members who have a loan with a society as opposed to a Keystart loan. It is therefore considered that a distribution to Keystart members who have only a nominal relationship with the society, or a full distribution amongst the residual “on balance sheet” members of a society, will result in an unjust enrichment of those members.

The Housing Societies Repeal Bill 2005 is consistent with the cooperative nature of the housing society industry by allowing for the distribution of part of the remaining reserves to “on balance sheet” members of a society without creating an excessive and enrichment from a final distribution of reserves. The “on balance sheet” members are contributing members to their society and shall be entitled to a distribution of up to $4 000, equating to approximately $1.95 million. It will also allow for government to utilise the remaining built-up reserves of $5.15 million from the societies to assist more families attain affordable housing through the creation of a social housing account. The bill has regard to the current and previous members of the housing societies who, as a consequence of being a member of a society, have contributed to the build-up of society reserves. The bill also continues with the cooperative spirit of societies in that funds will be used to provide housing assistance through the use of a social housing account. I commend the bill to the house.

Debate adjourned, on motion by Mr M.J. Cowper.