More depressing economic developments:
The central bank will almost certainly raise the official interest rate next week
Okay, so it’s good news for:
- investors (who’ll have less competition from homebuyers and who will be able to promptly pass the rate rise on to their tenants);
- the rich; and
- people who prey on social unrest.
But it’s very bad news for:
- homeowners with mortgages (whose repayments will rise);
- renters (whose rents will rise);
- those who’d like to buy a house to live in (who will be even less able to compete with investors);
- parents (who want their adult offspring to finally move out); and
- the community as a whole, which benefits from the existence of a healthy middle-class.
Another step widening the gap between rich and poor. Well done, Australia.
Moved On 
good news for:
Those who have saved and not pissed it all away on depreciating assets.
Bring it on.
“people who prey on social unrest.”
WTF??
You mean like revolutionaries – who are almost always from the left?
Try the local equivalents of the US “tea party” instigators. The “elites” are keeping you down, with their antipathy to Australia Day and their “progressive” social policy! Get angry with them!
“Those who have saved and not pissed it all away on depreciating assets.”
Those who already have a house and no longer have a mortgage, you mean.
Those who have saved and not pissed it all away on depreciating assets.
Wrong. Rising interest rates are a response to inflation, which is actually making your savings worth less. Inflation actually hurts savers, and helps those who owe if they can still make repayments (as it makes the debt smaller in real terms). Secondly, with the current rate of growth in housing prices, even high-interest accounts will generally not keep up pace, meaning that your savings are also worth less (again, in real terms).
The higher interest rates themselves help those with capital, though, at the expense of those without.
I doubt very much they’ll really help curb inflation in the housing market.
Rising interest rates have nothing to do with rents. Rents respond to demand — if there’s no one wanting to rent, rents won’t rise just because interests rates happen to be doing so.
Rents push up landlords’ costs; there are huge queues for rental properties because so many are being locked out of property ownership; landlords can pass the mortgage increases on. And they do.
good news for investors?
so let me get this straight: as a landlord, i can push up my rent every time there’s an interest rate rise? whenever i feel like it? i’m sure there’s rules about that. LOTS and LOTS of rules. and a tenant can protest any rate rise to VCAT. and as a landlord i can tell you: the tenant is ALWAYS right.
the rich? yes, i’m sure they LOVE paying 0.25% more interest on their 7 figure mortgages…
and people who prey on social unrest? seriously?
rising interest rates ARE A GOOD THING.
they are a response to lower unemployment (GOOD), inflation (demand for products & services: GOOD) and so on… POSITIVE economic indicators cause the interest rates to go up, that’s why when everything’s gone to shit they come down.
it’s good news for homebuyers, it means they’re in a strong jobs market, where their earning capacity is higher, and investors, well aware that the rent<mortgage payments equation is definitely not in their favour now. (in fact, it's only really in their favour if they bought 5-10 years ago). these homebuyers could even be the children that parents want out of their house.
oh, and positive economic news? yes, that's REALLY bad for the community as a whole, what with the higher employment and all.
stop flogging this dead horse. it's already dead.
“so let me get this straight: as a landlord,”
AH, so the hostility is coming from the position of someone who’s benefiting from the present system – someone with more than one house?
Well, since you’ve provided those details, we’ll take your hostile comment in that context.
“i can push up my rent every time there’s an interest rate rise? whenever i feel like it? “
Um, no – but you can push up the rent every year, and, like every other landlord, you’ll be raising rents on the basis of (a) your greater expenses and (b) the fact that house prices have increased (which for some reason means rents should as well).
“as a landlord i can tell you: the tenant is ALWAYS right.”
Obviously you’re not a neutral observer on the subject. I’ve seen plenty of instances where the reverse was true.
And, of course, landlords’ agents have databases of tenants which they share with each other – if a tenant DOES win in court, they’ll find it very difficult ever getting another lease again.
“the rich? yes, i’m sure they LOVE paying 0.25% more interest on their 7 figure mortgages…”
The rich own more than they owe. Their increased return on their investments covers any loan repayments.
“and people who prey on social unrest? seriously?”
Yup. There are plenty of polemicists and other groups that take advantage of anger in the general populace. Well, being locking people permanently out of home ownership and forever increasing their rent head of their wages is certainly one way of making people very angry with the world.
“they are a response to lower unemployment (GOOD)”
That is. The interest rates aren’t.
“inflation (demand for products & services: GOOD)”
Inflation – the devaluing of people’s savings – is good?
“it’s good news for homebuyers, it means they’re in a strong jobs market, where their earning capacity is higher”
What absolute drivel. House prices have rocketed well ahead of incomes.
“well aware that the rent<mortgage payments equation is definitely not in their favour now"
Bullshit.
“stop flogging this dead horse. it’s already dead.”
Not for the many people who see home ownership disappearing forever, it isn’t.
*NOTE: The only reason I’m addressing your personal circumstances is that you’ve made them the crux of your comment. It is NOT open slather on speculation about other people’s situations.
Interest rates are too low – I won’t argue with that. You cannot keep them low with rising inflation and low unemployment – it’ll overheat the economy.
But continually rising interest rates point to bigger problems, not that I am saying that’s happening here.
“And, of course, landlords’ agents have databases of tenants which they share with each other – if a tenant DOES win in court, they’ll find it very difficult ever getting another lease again.”
really, as someone who relies on the National Tenancy Database when reviewing prospective tenants, I’ve certainly never been made aware of this component. It tells property managers whether the person pays their rent, or whether they’ve destroyed a previous rental property.
Renters can check here: http://www.ntd.net.au/non_member/tenants/
As for the rent vs mortgage repayments, if someone buys a $300,000 unit, their repayments are approximately $2,000 per month, and yet the rent from these units is probably more likely $1,000 per month, minus body corporate fees, property management fees, rates, maintenance, water and so on and so on.
So many prospective landlords are seeing this and choosing not to go ahead.
Home ownership is NOT disappearing forever.
People just have to be realistic about the size and location of the house they can afford.
I agree, AU, that the Reserve Bank does need to keep the economy from overheating, and, unfortunately its only method of doing that is raising interest rates.
The problem is that in the housing market, that makes the aforementioned problem even worse.
(LGWS, try re-submitting your comment without speculation about my personal circumstances.)
Jeremy
The interest rate for most mortgages is actually quite modest at present, the interest rate that matters most to most of the aspiring home owners that you seem so concerned about it the outrageous rate charged on credit cards. Frankly if you really want to improve the lives of most people address that rate, compared to that what we pay for our mortgages is most reasonable.
When the housing market crashes, will the govenment step in to bail out these get rich quick scavengers punting on houses going up by 20% a year?
Short memories said it would never happen in the share market when it was rising 20% a year. The govenment bail them out.
Punt on housing there is tax incentives and if it all goes to shit the govenment will bail you out.
Equitable distribution of income and weath is not a economic principle the Australian govenment takes seriously and the consquences of this stupidity will lead to a disasterous future for the young who if not born into wealth will be consigned to poverty forever.
They will of course turn to hard drugs as hope disappears and seek to take revenge on the rich who have morgaged their lives and consigned them as leverage.
A responsible govenment would act not as the travesty of justice on todays youth (if you are born after a certain date) will be their legacy. That would be all our shame for not insisting action now.
There is no welfare but corporate welfare.
If there are fewer people able to buy property, that means there are fewer buyers, meaning there’s a drop in house prices — which means fewer people looking to rent and a drop in rental prices.
These are feedback loops going on all over the place, so any simple “interest rates high is bad” talk is ridiculous.
Your post implies you are only interested in lower interest rates, that an interest rate of zero (maybe even lower) is the only desirable outcome for any kind of social justice and egalitarian outcome, which can’t be further from the truth.
And voiceofreason, if you really do worry about people being locked into poverty, you would have applauded the bail outs which meant the problem didn’t turn into a Depression. You know, a Depression where a whole generation of people are out of work, destitute, lacking in hope, turn to drugs etc.
“Short memories said it would never happen in the share market when it was rising 20% a year. The govenment bail them out.”
Who in Australia was bailed out? The government injected economic stimulus into the economy via consumers and guaranteed deposits in banks. The closest we came to a bail out was ABC Learning but the company didn’t get any proceeds (as far as I am aware).
“will lead to a disasterous future for the young who if not born into wealth will be consigned to poverty forever. ”
As someone who came from a family on the poverty line and now is sitting pretty comfortable, that type of statement is rather insulting. People move across socio-ecomonic groups all the time, mainly through hard work and sacrifice. People have to realise that they are responsible for their own destiny and the decisions that they make. If you spend less than you earn you start to build wealth, slowly at first then you get assisted by compounding.
A question for you TVOR – how do you propose redistributing wealth? Tax the living hell out of people who have been successful in their professional and investing lives? Just appropriate their wealth? How is it fair that someone who works hard for their renumeration should be forced to give it to someone else? The fact is that it isn’t fair.
“They will of course turn to hard drugs” – LOL. A lot of faith you have in people. People are not victims – they are responsible for their own decisions.
“There is no welfare but corporate welfare.” Look up Centrelinks operating budget.
And voiceofreason, if you really do worry about people being locked into poverty, you would have applauded the bail outs which meant the problem didn’t turn into a Depression.
Bullshit, bails out are corporate welfare. They encourage excessive risk taking in the knowledge there is a free insurance if your bets go wrong. The upside is unlimited, the downside is insured by hard working tax payers and forces future generations to pay the money back with interest for sins of the past.
To defend bailing out corporates leaving the same self interest exec’s in place rather than in jail is coruption. It fucks up the entire system and is illegal under corporations law. Not that those laws are every enforced.
The rich and powerfull are in bed together and you believe their retoric designed to decieve.
Dangerous days ahead with nieve fools like Manolis around. Dont listen to what they say look at what they do, they bail out corporates, they dont charge bonus seeking exec’s, they dont enforce laws on the books, they borrow trillions to cover up law breakers, rating agencies exec’s who over rate (only AAA) junk assets for personal gain go scott free. They change the agenda to health care to cause a deversion. They have show trials of guys like Maddoff who are small fry compared to the lending policy setters of banks, exec’s of ratings agencies and govenment officials not enforcing their own laws. The cossy club who control the world dont want their wealth wiped out so leverage the govenment.
There is no welfare but corporate welfare.
A question for you TVOR – how do you propose redistributing wealth?
Take from the richest give to the poorest. How do you. Bail out corporates and bankrupt kids?
These are feedback loops going on all over the place, so any simple “interest rates high is bad” talk is ridiculous.
More broadly, the problem is that almost the entire economics profession, and plenty of laypeople (if the comments here are any guide) think that monetary economics should be front and centre when it comes to setting policy.
Monetary economics aims at basically two things:
1. It’s wedded totally to the market, as it presumes that one can tinker with the supply and cost of money, and let the market sort everything else out, and;
2. It’s aim, above all else, is to keep inflation in check. This is the holy grail of monetarism. These guys put a whole range of other goals – like full employment, growth, wage increases – secondary to this.
It’s the reliance on monetarism that is the problem here, rather than slight fluctuations in interest rates.
Also, the monetary levers in play since the GFC have basically been a kind of ‘hair of the dog’ type of cure.
In the face of a downturn, interest rates everywhere were slashed to record lows. This in turn helps to stimulate growth, but only by way of another cheap credit-fuelled debt binge (which is partly what caused the GFC in the first place, following from the dotcom crash). As conditions improve, interest rates will inevitably rise and hurt anybody who didn’t do their arithmetic very carefully.
Cemil- “Who in Australia was bailed out?”
There is a thing called the bank guarantee in Australia, where banks can borrow money of shore and if they default the govenment will pay out the loan. If me or you could do that we could borrow $1Til. take a punt on the housing market with all the upside and be bailed out on any downside risk.
There is one rule for corporates and one rule for the rest.
Also in Australia shareholders(who own they company) have no binding vote on exec. pay and they productivity commission continue to future strip away owners(shareholders) power.
There are many more examples of how govenment protect exec’s wealth and encourage their high risk behaviour, the people need to wake up, rise up and let them know the wool it not being pulled over all our eyes. Although in your case…
Maybe read :
http://en.wikipedia.org/wiki/Principal-agent_problem
SELF-INTERESTED BEHAVIOR.
Agency theory suggests that, in imperfect labor and capital markets, managers will seek to maximize their own utility at the expense of corporate shareholders. Agents have the ability to operate in their own self-interest rather than in the best interests of the firm because of asymmetric information (e.g., managers know better than shareholders whether they are capable of meeting the shareholders’ objectives) and uncertainty (e.g., myriad factors contribute to final outcomes, and it may not be evident whether the agent directly caused a given outcome, positive or negative).
ie. Tripe A rating junk assets then selling personal stock of these assets.
Lending money to consumers who have no pospect of servicing said loans.
These things are easy to trace and bring parties to book. Still no court cases arise. Why? Corruption.
Read more: Agency Theory – duties, benefits, expenses http://www.referenceforbusiness.com/encyclopedia/A-Ar/Agency-Theory.html#ixzz0eBCfRf07
Its built into the system TVOR.
Ever hierarchy has the asymmetric information bomb built into it.
Usually hierarchies work cos of other mitigating factors (loyalty usually), but corporations don’t inspire the same loyalty as .. say an oath to a king and a culture of monarchy. Which has a lifetime of social, political and spiritual investment to back it up.
Principle Agent problem – what is it with business academics? Can’t be bothered thinking for themselves so they pinch all their ideas from magicians. Its great reading pages of stuff that goes out of its way to avoid the term SNAFU.
“These things are easy to trace and bring parties to book. Still no court cases arise. Why? Corruption.”
Cos the entire system is built to facilitate corruption. Because on a deeper “meta” level our economy is based on an empire and that effectively functions on corruption and self interest. We all know this deep down, cos its just the same historical cycle we read about time and time again in school. But the myths of our culture are completely contrary to this so we don’t talk about it any more. Cognitive dissonance its called.
(Its this same thing that stops people understanding Australian history as an abject horror and a great triumph of whats best in humans at the same time, cos they feel somehow that both things are mutually exclusive. Right wingnuts are usually the worst for the this sort of thing but its not just them.)
Ultimately its a serious issue tho…
Here’s a thought too, is redistribution of wealth actually re re distribution of wealth.
Most of the wealth of the west comes from its theft of resources over a long period, especially its control of resources under the guise of “foreign investment” and “development aid”, so effectively the redistribution of wealth has already happened, all the money made out of cheap use of energy (ie slaves or puppet regimes in resource rich nations, the way to get cheap energy changes with the times.)
Good thing the Reserve Bank has control of interest rates. Much better than leaving the matter in the hands of grubby politicians who may be swayed by their bleeding little hearts. Then we could re-live the glories of massive Whitlamesque inflation.
No-one here is suggesting they shouldn’t curb inflation.
I was commenting on the unfortunate fact that the ONLY way they presently have to do that will also disproportionally disadvantage the poor – who are not the ones driving inflation in the first place.
So it is a lesser evil. The greatest evil is the redistributionist dream that robbing from the rich and giving to the poor will actually make anyone better off (other than the bureaucrats who handsomely reward themselves for their ignorant prescriptions).
Anyone who actually cared about improving the lot of the less well off would look at what works – thrift, hard work, temperance, education, stable family life and attempt to implement a social program that promotes that agenda.
“I was commenting on the unfortunate fact that the ONLY way they presently have to do that will also disproportionally disadvantage the poor – who are not the ones driving inflation in the first place.”
Correct me if I’m wrong, but in the post you identify only one explicit negative for the poor – rising rents. As other commenters have noted, rising interest rates are not the prime determinant of rents. There are a multitude of factors that affect supply and demand for rental homes, and interest rates are just one small one, and a medium- to long-term one at that.
We have ridiculously expensive homes for a range of reasons, Jeremy. One of them was excessively low interest rates for a period, which increased demand, but because supply was neglected prices blew out. Opposition to urban consolidation and a drip-feed of greenfield sites are the obvious culprits in this.
Also, rising interest rates are good for savers, both in raw bank account terms and also by restricting inflation which you yourself have pointed out whittles away their savings.
Found a chart showing just how disconnected house prices are to rents, FYI.
And here’s interest rates.
The problem with that chart is that the increased wealth of the people up the top of the tree distorts the income statistic – while their incomes may have increased ahead of rents, I don’t believe that’s the case for most renters.
Of course there are other negatives for the poor with interest rate increases – the fact that many of them live in permanent debt and their repayments will increase, for example – but I’m addressing the housing issue here.
You’re right, averages hide a lot of relevant detail. I’d really like to look at that same graph with quintiles (for income and rents) to get a better picture of reality, but I don’t know where to get one. Naturally, I can’t be bothered combing ABS statistics and constructing my own 😉
But the main reason I put it up is to compare house prices and rents, not incomes and rents. There is only a small correlation (and even that has to be considered in light of other factors), so your claims about rent rises resulting from interest rates pushing up house prices are not very plausible.
“Anyone who actually cared about improving the lot of the less well off would look at what works – thrift, hard work, temperance, education, stable family life and attempt to implement a social program that promotes that agenda.”
As a lefty, that’s what I find myself saying all the time. But those things only come about through strong social planning and intervention where necessary, and it’s obvious that the neo-con agenda over the last twenty years (at least) has been to do exactly the opposite.
No doubt you will disagree, SB, and I have unleashed yet another verbose anti-lefty tirade on your part …
Hang on.
Wouldn’t it make sense for low interest rates to push house prices up?
As in – if money is cheap to borrow, then people are likely to borrow more money. Since people typically borrow more money to buy houses than they do to buy anything else, wouldn’t you expect a greater quantity of borrowed money in the market to push houses prices up, significantly?
And conversely, shouldn’t higher interest rates pull house prices down?
And if house prices are going down rather than up, wouldn’t that push investors out of the market, capital gain being the primary motivation for investment in housing?
I share your concern about the absurd state of house prices in Australia, Jeremy, but I would have thought you’d be happy about higher interest rates?
If they worked in curbing house prices, sure. They haven’t recently.
Er… when in the last, I dunno, forever, have we had high interest rates?
Like, haven’t the RBA been keeping them at rock bottom for a very long time?
“Anyone who actually cared about improving the lot of the less well off would look at what works – thrift, hard work, temperance, education, stable family life and attempt to implement a social program that promotes that agenda.”
The latter costs money, which can only be raised by taxing those able to afford it. You’re a closet leftie SB.
RM & BadBob, I’m a pragmatist. I am not ideologically opposed to all government spending. However, I like to examine what works. We already fund an education system. Why not incorporate into it, at least in a general way, the transmission of values that enable people to improve their position if they so choose?
A large part of the reason people send their kids to private schools is that they believe (rightly or wrongly) that in those schools teachers have more of a mandate to impart such values.
“Why not incorporate into it, at least in a general way, the transmission of values that enable people to improve their position if they so choose?”
Why not indeed? Which, of course, is exactly why they have always tried to do it.
“A large part of the reason people send their kids to private schools is that they believe (rightly or wrongly) that in those schools teachers have more of a mandate to impart such values.”
And if it is “wrongly”, can we rely on you, SB, to point this out to them?
The basic issue in terms of value transmission is the desire of the left to create victims to be ministered to. Individualists would rather see people take responsibility for their own lives and happiness.
The left has clearly won out in the curriculum – sciences are softened with claptrap about social responsibility, geography has a brown torrent of fecal absurdity regarding globalisation and studies of literature now are more interested in race, class and gender than the light the author shines on human folly and virtue. Such is the long march through the institutions.
The great hope is that the more inquisitive students will question the tawdry orthodoxy of this curriculum and that the better ones will see past the blinkered monochrome drivel they are fed. Their imaginations will be fired by the technicolour complexity of the real world as they escape the grasping clutches of the apparatchiks who would close their minds and shrivel their souls.
Funny – if the left wanted to “create” victims, it’d do much better espousing the policies of the right.
“The basic issue in terms of value transmission is the desire of the left to create victims to be ministered to.”
Bullshit. If there are victims, it does nobody any good to deny it. You face the reality of it, and work at trying to fix the damage.
” Individualists would rather see people take responsibility for their own lives and happiness.”
Wouldn’t we all. But life sometimes throws so much shit at us that even rugged individualists collapse under the strain, and without the assistance and support of someone with a bit of compassion to get themselves back on their feet, they’re fucked.
“The left has clearly won out in the curriculum – sciences are softened with claptrap about social responsibility”
Social responsibility doesn’t matter?
“geography has a brown torrent of fecal absurdity regarding globalisation”
Poo imagery again, no idea what you mean.
“and studies of literature now are more interested in race, class and gender than the light the author shines on human folly and virtue. Such is the long march through the institutions.”
What a load of brown faecal absurdity. Yeah, it happens here and there, used to happen a bit more than it does now, but it was never the norm. It’s a fantasy that exists only in the minds of pragmatic (!) non-ideologues (!) such as your good self.
“The great hope is that the more inquisitive students will question the tawdry orthodoxy of this curriculum and that the better ones will see past the blinkered monochrome drivel they are fed.”
No need for hope – it’s always happened, and always will. Even you probably had some bad teachers, and it obviously didn’t do you any harm. Obviously.
“Their imaginations will be fired by the technicolour complexity of the real world as they escape the grasping clutches of the apparatchiks who would close their minds and shrivel their souls.”
Yeah. Right. God help them if they ever have Mr Bottom as a teacher. Christ it must be fucked living in that head, gazing down your nose from your inner-city apartment at all those poor victims of the Left.
Actually BadBob it is my ambition to quit my city career and teach at a high school as soon as I can reduce my debts to a manageable level. This is because I have seen personally, and with my kids, what a difference a good teacher can make.
Also, ‘helping’ people is not the problem. The issue is whether a lot of what passes for help actually creates dependency and degrades the recipient of the ‘help’.
Creating oppotunities is a version of help which does cost, however the potential benefits far outweight such cost.
SB, just do it, you will be alot happier and may change your views when you see how hard some low-social economic kids work and dont ask for hand outs at every turn as you seem to believe. I’m tipping you’ll learn more than your students.
Poorer students are generally proud and dont ask for financial help, but are very happy for oppotunites to succeed, which must be funded and that must come from somewhere. If not from those richer? Where?
The victim line is bullshit, there are some people who just need a start.
You could leave their postive potential untapped. And asking for funding for giving people a start and getting bashed with the victim line is very boring, surprising (from you) and unproductive.
“Actually BadBob it is my ambition to quit my city career and teach at a high school as soon as I can reduce my debts to a manageable level. This is because I have seen personally, and with my kids, what a difference a good teacher can make.”
Well good luck with that. Your superior attitude will go down an absolute treat with the other teachers, and the kids will love you for it too.
“Also, ‘helping’ people is not the problem. The issue is whether a lot of what passes for help actually creates dependency and degrades the recipient of the ‘help’. ”
Stating the obvious again SB. Any welfare worker worth a pinch of shit is well aware of that risk. The real problem lies with government agencies driven by neoliberal agendas such as yours, who pressure their contracted agencies to push people through as quickly as possible and “just get over it”, with the result that people don’t get the help they really need and become more dependent.
Do you see how the real world works?
Thanks for the comment TVoR.
BadBob, I am mystified by your ‘superior attitude’ remark. While i may indulge in a little hyperbole from time to time, I am as calm, gentle and self-deprecating a person as you would ever meet.
“I am as calm, gentle and self-deprecating a person as you would ever meet.”
Then your communication style spectacularly fails to do you justice. Don’t teach English.
Stick to Science or Geography, but leave out the social responsibilty and brown faecal globalisation or whatever it was. As if I need to tell you that.
I would like to teach English. I didn’t really understand the subject until after high school, when I read some of James McAuley’s essays.
Try a bit of Patrick White. Or a lot.
Nothing wrong with White. Voss is one of Australia’s greatest novels.
Some common ground at last. What do you think of the views of people like Leonie Kraaaaaaamer about him?
I generally find Kramer a bit shrill. I take it she didn’t like Voss?
She didn’t much like anything he did. I think his acute insight was too discomfiting for a mediocre academic with an autocratic temperament. She would have seen far too much of herself in some of his characters, and he was quite unsparing of people like her.