In this week’s Treasury of Common Sense on Radio 2GB and 4GB, I discussed how the RBA is on a hiding to nothing on inflation and desperately needs a circuit-breaker from the federal government in the form of lower immigration:
Below are some highlights, along with key charts.
Edited Transcript:
I’ve talked to heaps of people and they can’t believe that we’re engineering this whole rental crisis in Australia. We don’t have enough homes. The whole supply side of the housing market is stuffed. Yet the government is fire hosing and all these extra people week after week and just making the problem worse.
We’ve got record low rental vacancy rates. Rents are going through the roof. People are struggling, forced to live in group housing or being made homeless.
Source: CoreLogic
People are starting to say: what the hell’s going on here? Why are you doing this?
You’ve just seen the federal government cancel all these infrastructure projects. Well I’m sorry. If half a million people every year are going to arrive, which is the current run rate, you need to provide infrastructure for them.
Because if you don’t, we’re going to live in sardine cans. You’re going be stuck in congestion everywhere.
We didn’t cope well the previous 15 years of high immigration before the pandemic. We sure as heck are not going to cope with double the rate of immigration that we’ve got now.
Everyone’s living it, and people are, quite frankly, getting fed up with it. And there’s nothing worse than seeing people basically being made homeless or struggling to put a roof over their heads. And that’s the ultimate result…
Mortgage repayments have gone up over 50% since the RBA started hiking if you’re on a variable rate mortgage. And rents have gone up about 30% since the pandemic began.
Those people who bought in the last couple years are going to be in a lot of trouble. Or if you’re renting you’re in a lot of trouble.
We’ve got three Australia’s at the moment: one-third roughly that rents, one third that is paying off a mortgage, and one third that doesn’t rent and isn’t paying off mortgage – they own their homes outright and tend to be older.
That older third is doing really well at the moment. Data from CBA showed that their spending levels have rocketed in the last year. So they’re spending like drunken sailors.
Whereas the youngest cohorts are cutting back really hard and they tend to be the renters and also people who have got new mortgages.
And the rest in between – those middle ages – are spending less than inflation.
Interest rates are the most stupid blunt tool that we’ve got. I don’t necessarily blame the RBA for this because they’ve only got one tool. So to them, they’re a hammer and everything’s a nail.
But interest rates only directly impact one-third of Australians because they’re the ones with mortgages. They’re the ones that get smashed directly.
But then it will also feed into higher rents eventually because once you raise interest rates, you’re going to stifle housing supply because it makes it more expensive to either take out a mortgage to build a new house and also it becomes more expensive to develop because developers carry debt.
So that’s going to then cascade into rents down the track.
What we really need is a circuit breaker. And the circuit breaker must come from the federal government. The federal government has a whole range of tools that they can use to slow inflation. The Reserve Bank has only got one.
And the best tool would simply be to slow this migration down. Because obviously, if you’re adding half a million people every year, it’s going to put a rocket under rents and you’re raising demand.
Even though households in total are cutting back, the fact that we’re adding more households than households are cutting back means that demand keeps going up.
So the RBA’s got to respond by ratcheting rates even higher on just one-third of people.
Effectively, what we need is for the federal government to cut immigration.
Michelle Bullock should be saying to Albanese: you’ve got to cut immigration and you’ve got to help us in other ways. Because you aren’t doing your job.
You’re basically operating at cross purposes to us. We’re trying to slow the economy down, you’re trying to speed it up.
We’ve got the foot on the break, you’ve got the foot on the accelerator. And you’re creating a burnout economy.
You’re doing this by fire hosing in half a million extra people every year who are spending and creating all this demand in the economy. So, you’ve got to stop that.
Otherwise, we’re just going to have to keep ratcheting rates higher and higher. And that will eventually send us into recession.
And it’s going to cause untold pain on the one-third of Australians that have mortgages, and then eventually renters as well.
It’s just an absolute diabolical situation here. The whole governance of this country is just back to front, and it’s not working.
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