The author argues against raising official interest rates as a means to combat inflation, particularly in Australia, where such increases disproportionately affect home buyers due to soaring house prices and higher average mortgage sizes compared to earnings. Since 2011, the typical new owner-occupier loan has nearly doubled from around $363,000 to over $731,000, while full-time adult earnings have only increased by about 60%, making mortgages less affordable relative to income. The article also notes that banks add a margin on top of the Reserve Bank’s official rate, which currently stands at 4.6% after four increases this year, and suggests that other countries use fixed-rate mortgages, reducing the impact of central bank interest rate changes.
Written locally by qwen2.5:14b on 2026-10-06,
using this article's own text rather than the other coverage of the
same event (that is the story summary below).
Let me be the last to tell you: the Reserve Bank’s decision to raise the official interest rate for the fourth time this year, taking it to 4.6 per cent, will hurt people with mortgages.
asserted
decision → let → mortgages
That rate’s the highest since 2011, and there may be another rise to go in a month’s time.
uncertain
rate → ’ → time
But it will hurt more today than it did 15 years ago.
asserted
it → hurt → ?
This is an important part of the reason owning your own home has become so hard to afford.
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owning → own → home
When interest rates go up, many would-be home owners are unable to buy, but when interest rates start coming down – bringing some relief for existing home buyers – formerly frustrated buyers surge into the market, causing another burst of rising prices.
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buyers → go → prices
According to calculations by Curtin Business School’s Professor Alan Duncan, in June 2011, the average new owner-occupier home loan was about $363,000.
uncertain
loan → accord → June
For first home buyers, the average loan has doubled from $318,000 to $610,000.
asserted
loan → double → 610,000
This doubling in mortgage sizes and, hence, house prices, was matched by an increase in average earnings for full-time adults from $1305 to $2084.
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doubling → match → 2084
That’s only about 60 per cent.
asserted
That → ’ → ?
Now that’s unaffordability in action.
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that → ’ → action
To put it another way, the average mortgage in 2011 was equivalent to about 5.4 years of average full-time earnings.
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mortgage → put → earnings
Today it’s closer to 6.7 years.
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it → ’ → years
If the income multiple had stayed at the 2011 level, the average mortgage would be $150,000 less that it is now.
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it → stay → level
Remember, however, that the interest rate banks charge on home loans is a margin above the Reserve’s official interest rate.
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banks → remember → rate
That is, the interest rates you and I pay always have your bank starting with the official rate, then adding a margin to cover the bank’s costs and profits.
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bank → pay → costs
But get this: the margin added by home lenders was actually a bit lower before the latest increase than it was back then, going from just over 7 per cent 15 years ago to an average rate on new owner-occupier loan of 6.24 per cent.
asserted
it → get → cent
It may interest you to know that the fuss we make about changes in the official interest rate is not matched in other rich countries.
uncertain
we → interest → countries
That’s because home loans in Australia tend to have interest rates the banks can vary at will.
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banks → ’ → will
In other countries, mortgages tend to charge a fixed rate of interest for the length of the loan.
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mortgages → tend → loan
This means changes in the central bank’s official interest rate still flow through to home buyers but take a lot longer to be felt.
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changes → mean → buyers
So changes in the official rate don’t cause the great stir they do in Oz.
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they → cause → Oz
But that doesn’t mean other countries’ use of interest rates to control inflation is any less effective than ours is.
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ours → mean → inflation
Even so, this doesn’t seem to have prompted our Reserve Bank to have given any thought to encouraging or requiring a move to long-term mortgage rates.
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this → seem → rates
My suspicion is that it’s come to enjoy the way all the recurring fuss about interest-rate changes has thrust it to the centre of our attention.
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fuss → come → attention
But when you think about it, the strange Australian way of doing it isn’t the only weakness in the use of interest rates – “monetary policy” – to slow down or speed up “demand” – our spending on goods and services.
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way → think → goods
In theory, a change in interest rates affects the borrowing and spending of the whole economy: households and businesses alike.
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change → affect → economy
In practice, interest rates have little effect on the behaviour of businesses.
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rates → have → businesses
For them, the interest they pay is tax-deductible and there’s little sign that businesses’ decisions about investment are greatly affected by whether interest rates are a bit higher or a bit lower than they were.
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they → pay → investment
So who is greatly affected by changes in interest rates?
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who → affect → rates
One group stands head and shoulders above the rest: people with mortgages.
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group → stand → mortgages
Such people will tend to be young.
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people → tend → ?
Older people usually have smaller mortgages because they bought when house prices were lower and have had more time to pay down the principal owing.
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prices → have → principal
See what this means?
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this → see → what
Our use of interest rates to control inflation is yet another respect in which our economic system is biased against the young.
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system → control → young
All of us – including oldies like me, who paid off their mortgage years ago and now spend freely – contribute to national consumer spending, but interest rate increases hit only the third of households with mortgages, particularly big mortgages.
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increases → include → mortgages
If you think that’s unfair, you’re right.
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you → think → ?
But it’s also wildly inefficient.
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it → ’ → ?
All households spend, but only, say, a quarter of all households get punished whenever inflation’s too high.
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inflation → spend → households
And this inefficiency means the poor young mortgage holders have to be squeezed a lot harder to make up for all those who don’t have a mortgage.
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who → mean → mortgage
It surprises me that so little thought has been given to the idea that using interest rates is a dumb idea, so surely there must be some other way of controlling inflation that would be both fairer and more effective.
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that → surprise → inflation
…and 9 more, not listed.
The Aporia
