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RUBY:

From Schwartz Media, I’m Ruby Jones, this is 7am.

Cost of living and interest rate rises mean that millions of Australians are struggling.

But what often isn’t acknowledged, by the Reserve Bank, its governor, or many of our political leaders, is that some people aren’t affected – in fact, they can benefit from these circumstances.

Those people are the wealthiest Australians - those who have paid off their houses and are debt free.

Today, National Correspondent for the Saturday Paper Mike Seccombe, on why financial pain isn’t distributed evenly and how rate rises can make that inequality worse.

It’s Thursday, April 13.

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RUBY:

So, Mike, last week, for the first time in a year, the Reserve Bank chose not to raise interest rates. And it seems like instead they're taking a moment to step back and look at what the effects of these rises on the economy. So, if we were to do that, Mike, to take a step back and have a look at at the consequences of the past year of rate rises, what do we see?

MIKE:

Well, what we see is that the RBA is really just waiting for a month or maybe more, but probably just a month to see how badly Australians have been hurt already by the rate rises that we've had before they decide how much more pain they will have to inflict on us.

Archival tape -- Phillip Lowe:

“Good afternoon, everyone. It's a pleasure to be back addressing the National Press Club. I'd like to begin….”

MIKE:

After the decision to hold rates, Philip Lowe went out and delivered a message to the National Press Club, and that message was pretty clear and that was that things will get worse before they get better.

Archival tape -- Phillip Lowe:

“The decision to hold rates steady this month does not imply that interest rate increases are over. Indeed, the board expects that some further tightening of monetary policy may well be needed to return inflation to target within a reasonable time frame.”

MIKE:

Mortgage stress would likely intensify for another eighteen months.

Archival tape -- Phillip Lowe:

“We anticipate that the required mortgage payments will reach a new record high of close to 10% of household disposable income by the end of next year.”

MIKE:

He said that unemployment would rise in the latter half of the year, albeit from the currently historically low levels. But still it's going to go up. That could be another 100,000 or so people out of work.

Archival tape -- Phillip Lowe:

“Our central view there remains that economic growth will be below trend for a while, that unemployment will increase later this year and inflation will decline gradually over time.”

MIKE:

So the bottom line is this ratcheting up of official interest rates from 0.1% where they were at the start of last year to 3.6% is only just beginning to bite and it's starting to bite quite hard and and it will bite harder for months or years to come, you know, hence the decision, as Lowe said, to wait a while to assess the pulse of the economy. So, Ruby, when the RBA talks about the pain on households, they're talking about average, on an average. And what they often leave out here is that the average hides the extremes, which is that the pain is felt very differently across different parts of the economy. Some people are feeling this pain a whole lot worse than others are.

RUBY:

Okay. And so presumably that is people who have paid off their houses. So the wealthiest people, that section of the population, they won't be feeling the pain of rate rises in the same way as someone who perhaps has only just recently bought a home.

MIKE:

Yeah, exactly. So the people who benefited most from the booming asset prices over recent years are less affected by rising rates now. And there's a significant generational component to this, too. There's a growing number of older Australians who either don't have a mortgage or have a very small mortgage, and they've been relatively unaffected by these rate rises. In fact, some of these people are actual beneficiaries of higher rates. You know, these people that own their homes outright and probably have nice fat super funds are also enjoying higher rates of return on their term deposits and things because, the flipside is that rates are going up on deposits as well as on money that you owe. So some people are doing relatively well. I mean, it affects everyone to some extent, but some people are doing a lot better. Meanwhile, the homeowners most affected are overwhelmingly those in their thirties and forties. You know, they're the ones who bought in in the past five years or so when real estate prices were high and interest rates were low. And they tend to be middle income earners who are saddled with high repayments. So, you know, it's a relatively narrow segment of Australian homeowners who are significantly affected and they bear a disproportionate burden of trying to abate inflation. But it's worth pointing out here that despite all the attention that is paid to mortgage holders, it's actually renters who are in the worst trouble. And there's a lot more of them.

RUBY:

Let's talk a bit more about that, Mike, because I think that the situation of renters is often overlooked when we have this conversation about the housing crisis. But rents, they are rising across the board, aren't they? And pretty steeply.

MIKE:

The stresses on those who rent, and that's more than 30% of the population - it's at least as big an issue as mortgage stress. Phil Lowe said that, in fact it's probably significantly bigger. The fact is that most rental properties are owned by sort of mum and dad investors who often have mortgages on those rental properties. And so to cover their increasing repayments on those mortgages, they're pushing up rents and often adding a little bit extra as well, I might add, you know, to cover the increased borrowing costs. So according to data released last week, by core logic, rents went up by an average of 10% nationally during the past year, and that's well above the general rate of inflation. And this is expected to get worse.

Phil Lowe said that he expected rents to remain elevated, keep going up for maybe the next five years for quite some period of time. And here the problem is not just intergenerational as it is with home ownership. It's also intragenerational. We see incredibly low rates of financial stress among older Australians, and that includes many pensioners, but only those pensioners who own their own homes. They're facing much lower rates of financial stress than younger Australians at work. But renting pensioners, half of them are in poverty today and those numbers will likely increase as rents continue to rise. These are the ones that are really doing it hardest and they are the ones exposed to the vagaries of the rental market.
So ultimately, this is a big problem and you can't really blame the Reserve Bank for this because the housing affordability crisis has nothing whatsoever to do with the bank. This is a result of pre-existing conditions. And the root of the problem there is government policies that have consistently over many years supported growth in the demand side rather than the supply side of housing.

RUBY:

We'll be back after this.

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RUBY:

Mike, let’s talk a bit more about the government policy that has led us to the situation that we’re now in when it comes to the housing market. You said that there is now more demand for housing than there is supply, so let’s talk more about that, about the supply first. How many empty homes are sitting there?

MIKE:

Well, vacancy rates nationally across all capital cities are now below 1%, so there are very few empty houses. So there are very few options for renters, and Phil Lowe made that point. And he made the point also that, you know, partly this is because of our historical patterns of settlement.

Archival tape -- Phillip Lowe:

“But Australians have chosen to live in large capital, by and large, in large capital cities on the coast with fairly large blocks of land and historically underinvested in transport, they’re the reasons we have high housing prices.”

MIKE:

And a lot of what's happening now is a consequence of the choices that have been made over a very long period of time.

Archival tape -- Phillip Lowe:

“That's the issue, we made choices collectively as a society that gives us high housing prices. And I wouldn't say that's a distortion, but it's the consequences of the choices that the people who live in Australia have made.”

MIKE:

Other economists, of course, point to a variety of contributing factors, you know, including state and local government planning restrictions that work against the release of more land for development and also against greater density in the urban centres. And there's kind of a NIMBY factor in there too. You know, a lot of people don't like the idea of having a block of flats go up next door. So there's a failure of successive governments at all levels to increase the amount of housing stock. And another factor here, of course, is, that governments, federal and state, have, as you said, put in policies that drive up demand rather than supply, you know, things like negative gearing, the discount on the capital gains tax on houses, those have encouraged people to see housing as an investment vehicle rather than simply a place to live. And that's pushed up prices over many years, and so did various home ownership schemes, you know, which were supposed to help people into houses, to help buy houses. But of course, what they ended up doing was just putting more money in the pockets of buyers who then bid more ferociously against one another for the available stock. And all it really did was push up values. So the housing shortage, I guess, you know, has been decades in the making and frankly, it's about to get much worse.

Archival tape -- Phillip Lowe:

“Population growth has picked up very sharply and it now seems likely that the annual rate of population growth will soon be around 2% and that is close to the peak reached during the resources boom.”

MIKE:

There was a report last week by the National Housing Finance and Investment Corporation, which predicted a shortfall of 106,000 dwellings by 2027. And that I might add was predicated on Australia having a net migration of 250,000 people a year. But net migration, as Phil Lowe pointed out in his Press Club speech, it may well be double that number. You know it could be close to half a million people a year for the next couple of years.

Archival tape -- Phillip Lowe:

“In contrast to the strong growth in demand for housing, the expansion of the supply side of the housing market is expected to be fairly modest. It takes a long time for housing supply to respond fully to shifts in population growth.”

MIKE:

So, that's got to be a huge concern that the housing supply was already inadequate and it's going to get worse.

RUBY:

Yeah, And Mike, I mean, it sounds like a housing shortage. It's not a simple or quick thing to fix. And in the meantime, we have renters and people who've recently bought homes who are the most adversely affected by rate rises and also by inflation. So what does the next year or so look like for them?

MIKE:

Well, pretty grim, actually. I mean, Lowe suggested more rises to come. He was at pains to point out that this halt was only temporary while they kind of surveyed the landscape. So, you know, there may be one more rise. There may be a couple more rises. But even if there were none, the effects of this will be felt for a long time to come. You know, I was talking to Nicki Huntley, who's an independent economist, and she was making the point that there are big costs to this. You know, there are actual lives at stake here, she said. The social costs of housing insecurity are absolutely astronomical. You know, there's homelessness. There's things like the impact of overcrowding on educational outcomes, on domestic and family violence. You know, how the kids study when they are constantly, you know, moving house or not having a house to study in. So there's a lot of knock on effects that will be felt for a very long time to come.

RUBY:

And so, Mike, when we look to what might happen in the future more broadly, I mean, as you say, the RBA's forecasting that there could be a few more rate rises, but then after that, inflation should come back to normal by sort of mid-2025. So, what is the forecast, though, for inequality, I suppose. Do we know whether this gap between those who have wealth and those who don't in Australia will keep widening?

MIKE:

On the record of the recent decade or so? You'd have to say the gap is going to keep widening and that this is just the latest variation on the theme of rising inequality.

And an anecdote, I think, goes to the point of the problem of inequality not only in Australia but across the world. Last week we saw a new person declared the world's richest human being, and that was Bernard Arnault, who's the head of the French luxury goods empire, LVMH. And his wealth exceeded $200 billion. So he's not seeing any shortage of demand from Australia's wealthiest people to add to his good fortune. Last month, IBISWorld forecast that luxury retailing in Australia would grow 12% this year to $5.3 billion. So I guess the take out here is that this is not just a short term cost of living problem. It's simply part of an entrenched and accelerating problem of inequality here and around the world.

RUBY:

Mike, thank you so much for your time.

MIKE:

Oh, thank you for having me.

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RUBY:

Also in the news today,

Deputy Opposition Leader Sussan Ley has doubled down on the Liberal party’s decision to oppose the Voice, following Shadow Indigenous Affairs Minister Julian Leeser’s resignation from the frontbench.

Ley says an “overwhelming” number of Liberal MPs agree that the party should oppose the referendum.

Leeser will join fellow backbencher Bridget Archer in campaigning for the “yes” vote, telling the media he wants to set an example for his children to quote “stand up for something even when it costs you”.

And the IMF are warning the world is heading towards a “hard landing” in their latest World Economic Outlook.

The International Monetary Fund says that bank failures and high inflation are contributing to a fragile situation as global economic growth slows from 2.7 per cent to just 1.3 per cent.

I’m Ruby Jones, this is 7am. See you tomorrow.

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