The hot topic right now is the combined housing and cost of living crisis in Australia. Property prices, inflation and interest rates move in cycles and as they move higher, we see a widening gap between the “haves” and the “have nots”. Compared to rock bottom rates a few years ago, today a 12 month term deposit earns 5.3% (good for savers albeit below current inflation) and it costs > 6% to borrow money combined with rising property prices (not good for home buyers). ANZ CEO Shayne Elliot recently said to the Australian “if you want a loan you have to be better off, and essentially rich.”
Interest rate rises are designed to reduce inflation however struggle to take full effect with low unemployment and significant demand driving everything from the price of property to cars to electricity. Electricity is up 30% on the year affecting business and households. Rental vacancies are at record lows around the country. Sydney, Melbourne and Brisbane rank as the 2nd, 9th and 16th most expensive property markets in the world and incredibly more expensive than London and New York! (relative to household income*).
This demand is partly due to years of low interest rates but mostly driven by immigration with a record > 500k people entering Australia (or about the population of Tasmania!) with no sign of slowing down. Immigration fills skill shortages and is politically favorable as it expands the taxpayer base and keeps the economy statistics strong, but it puts significant pressure on inflation, property prices and infrastructure (including roads, hospitals and basic services etc.) that can’t keep up with demand due to significant building costs which if not planned for negatively impacts on the services we rely on.
Government measures such as increasing the first homeowners grant seem helpful on the surface but often exacerbate the problem as sellers and builders increase their prices. There are other proposals to use superannuation to invest into social housing or allow access to super for home deposits. Immigration Minister Andrew Giles has even said more skilled migrants are needed to build more homes. This is all a very difficult situation with many interested parties and a political cycle that is so short term focused which limits long term planning considerations.
* Based on data from the Demographia International Housing Affordability Study 2023 and is based on median house price divided by median household income.