It’s been years since I wished I was Paul Bloxham. The world would be so much simpler.
But, once again, it is true:
Bloxham wonders if there’s another side-effect we need to start considering: rising house prices and higher rents are not typically a recipe for RBA rate cuts.
He sees three key concerns.
First, renewed growth in house prices may be taken as a sign that the household sector is holding up reasonably well in the face of 13 official rate increases. This column would throw the rise in equity markets (which will flow through to higher retirement payouts and higher savings) as further evidence that financial conditions actually look pretty good. Clearly, the “average” experience across the economy masks some real pain out there among younger, more indebted households, but the RBA cannot set rates for this cohort alone.
Herein is the paradox of the Albanese government’s blunders in energy and immigration.
Mass immigration has driven housing demand mad. But, instead of getting a supply response to accommodate the surge, we have ongoing steep falls in construction and skyrocketing rents.
The problem is that mass immigration has also crush loaded infrastructure, and panicked state governments are building it like mad:
This has crowded out housing construction via big price shocks in building supplies.
Making matters even worse, one of the sectors worst hit by Albo’s Ukraine War energy profiteering shock is building materials, which use a lot of energy in manufacturing.
And so, on all fronts, the cost to build a dwelling has risen so quickly that builders are caught with unprofitable projects and mired in increasing bankruptcies.
There is a significant backlog of building approvals, but Albo has made it uneconomic to build them.
To fix it, building costs must crash, which they won’t given infrastructure pressures, or the selling price of new dwellings must rise a lot to offset the cost pressures and incentivise more development.
Former RBA governor Glenn Stevens summed this up in 2013 when he deliberately stoked a house price boom to float the economy over the mining investment cliff:
In Australia’s perverse political economy, the only way to make housing more affordable for young people is to make it less so.
Made much worse by Albo and his cheerleading fake left, who do not understand resource limitations.
I do not doubt that the RBA will deliver in due course.
