Garnaut: Cut immigration and build dwellings to fix rent crisis

Advertisement

Professor Ross Garnaut has delivered simple and eminent policy sense, something that has no place in Mad Albo’s Labor.

In a speech to the 2023 Bannerman Competition lecture, reported by The ABC, Garnaut stated that a true response to big structural changes in the economy requires multiple institutions across different policy areas to collaborate and coordinate.

He also stated that policymakers must employ a variety of tools to solve the nation’s economic challenges.

“As John Maynard Keynes once said, we need an orchestra with a range of instruments and a good conductor”, Garnaut said.

Advertisement

Garnaut said that as particular corporations and industries gained market dominance, Australia’s over-reliance on monetary policy to manage inflation — and the economic cycle — was having negative consequences for households.

With the national rental vacancy rate at an all-time low, social workers say they’re witnessing an increasing number of individuals forced into homelessness.

He singled out two sectors of the economy where economic rents were substantial and traditional monetary policy was driving up prices: housing rents and energy supply.

Advertisement

“For housing and electricity prices and their large contributions to [inflation] and community concern, raising interest rates does more to raise than to lower prices”, Garnaut said.

“Housing costs are currently a source of much community stress”.

“The Bureau of Statistics data say that rents have been increasing at high rates and contributing substantially to consumer price inflation (CPI)”.

“Rents are increasing because record-high immigration rates are lifting demand, and investment in new residences is low”.

“Higher rents feed into a higher CPI, which is interpreted by the RBA as a signal to raise interest rates again”.

“Higher interest rates reduce investment in housing and after a time raise rents, and so strengthen the single-instrument case for even higher interest rates”, Garnaut warned.

Garnaut questioned how policymakers would try to alleviate rising rental costs if our economic framework was constructed differently.

Advertisement

He stated that they would not consider hiking interest rates.

Policymakers, according to Professor Garnaut, would also ease immigration until demand for housing was more closely aligned with supply, and they would consider loosening limitations on the amount of land on which houses might be built.

Garnaut also stated that they would evaluate whether considerably more public investment in housing was necessary, as well as reconsider taxation arrangements that encouraged owners of housing to keep some homes off the market, among other things.

Advertisement

“And if [they] thought that higher interest rates were necessary for their effects in the rest of the economy, [they] would think about macro-prudential measures that reduce their impact on housing investment”, he said.

This is all utterly sensible analysis from professor Garnaut.

Now watch on as it is ignored by the federal government and its lackeys.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.