Via The Guardian:
Richard Di Natale makes the case for a nationalised bank – “the People’s Bank” – to address lacklustre competition in Australia’s banking industry, in his address to the National Press Club on Wednesday.
The Greens leader argues the banking royal commission, and the housing affordability crisis all point to a system – aided and abetted by successive governments – that has failed Australians. He maintains the only way to get things back on an even playing field is government intervention in the form of a bank backed by the Reserve Bank of Australia and focused “on the everyday savings and mortgage needs of customers”.
“By offering a no-frills ‘mortgage tracker’ account to homeowners, people paying off their home will be able to borrow up to 60% of the value of the property directly from the RBA,” according to Di Natale’s speech notes.
“The minimum interest rate would be set at 3%, plus approximately 0.5% for the administration costs of contracted service providers. The interest rate would go up with the cash rate, if it rises above 3%, but it will always deliver loans that householders can pay off faster, and with significant savings on interest, compared to the current offerings of the big banks.”
Just how significant those savings would be depends on the size and the life of the loan. But the Greens estimate a $600,000 home, with a $90,000 deposit, would mean $360,000 borrowed from the People’s Bank, with the shortfall of $150,000 borrowed from a retail bank.
That combined loan, the Greens predict, could be paid off in 21 years and eight months, with $227,311 paid in interest, three years and four months sooner and $113,102 cheaper than a traditional, retail only, loan.
To even the playing field, the mortgage-tracker accounts would only be available to people with “no other direct residential property holdings, including through self-managed superannuation funds and private trusts”.
“This is so as to prevent people gaming the system by using the People’s Bank to cross-collateralise investment properties,” Greens policy documents state.
“It’s already easy enough for baby boomers to buy their fifth rental property. The role of the People’s Bank isn’t to make it easier still.”
This notion is basically an interest-rate bench marking exercise using publicly-funded competition rather than the cash rate. Not a bad idea.
At a deeper level it could also be seen to be a push to remove the private banking sector’s exorbitant privilege of creating money. Also not a bad idea given how horribly it has misused it.
But one has to ask if more and cheaper mortgages are going to deliver on the intended purpose of making housing more affordable to the land disenfranchised? In today’s political economy of heavily distorted incentives favouring housing speculation the answer is no. Interest-rate discounts will get capitalised into house prices overnight, plus mortgages will be bigger and take just as long to pay off. Moreover, if you get rid of those distortions then houses will get a lot cheaper anyway.
The Greens do also support restrictions on negative gearing so that would help. But if they really want to improve housing affordability for younger generations (not to mention the environment) then they’d be better off campaigning for a lower immigration intake to take pressure off demand, as well as for liberalised land policies to boost supply.
As the royal commission is currently showing, there’s no shortage of cheap mortgage credit in Australia. What there is a shortage of is affordable dwellings.
