Reserve Bank chief economist Sarah Hunter, born in the UK but now an Australian citizen, was asked on a podcast a few weeks ago if she noticed anything quirky about her new country when she moved here.
asserted
she → bear → country
"Yes, I think there are a number of quirks about the country here, but I think the one that probably strikes most people when they come here and they live here for a while is housing and how much we all talk about housing and the housing market.
asserted
we → think → housing
"You get a lot about the housing market in British newspapers and on British media too, but it's heightened over here.
asserted
it → get → media
So that definitely took some getting used to.
asserted
that → take → getting
Like the auction clearance rates being reported on a Monday morning.
asserted
rates → report → morning
I'd never known anything like that before."
Why are Australians obsessed with property?
asserted
Australians → know → property
Because we have to be.
asserted
we → have → ?
And there are big reasons why it's always on our minds.
asserted
it → be → minds
Why are we obsessed with property?
asserted
we → obsess → property
The main reasons come down to it being our highest cost.
asserted
it → come → ?
Firstly, Australia's retail banking sector is an "established oligopoly," as the competition regulator says.
asserted
regulator → establish → ?
Our banks mostly offer home loan customers short-term loans on variable interest rates, and they face little competitive pressure to do much differently.
asserted
they → offer → pressure
Secondly, Australia has a central bank that moves interest rates up and down to control inflation.
asserted
that → have → inflation
Those two things mean millions of Australian households with a mortgage are hostage to frequent changes in their mortgage interest payments.
asserted
millions → mean → payments
It's why we all gather around the TV when the RBA governor holds a press conference like we're watching a grand final.
asserted
we → gather → final
We're waiting impatiently to see what's going to happen to interest rates (again) so we know what major financial adjustments we'll have to make to our household budgets (again) after having another painful family conversation (again).
asserted
we → wait → conversation
Do we enjoy living this way?
asserted
we → enjoy → ?
The RBA often talks about how disruptive high inflation is to people's lives.
asserted
inflation → talk → lives
But its interest rate movements are extremely disruptive for millions of households with mortgages too, those who are also dealing with the disruption of high inflation, because it can change their household budgets by hundreds of dollars a month.
asserted
it → deal → dollars
Other countries do things differently
In other countries, where banks commonly offer 20-year and 30-year home loans on fixed rates, households barely notice when their central banks move rates around.
asserted
banks → do → rates
But that doesn't mean that those countries are less effective at managing inflation.
asserted
countries → mean → inflation
It just means the burden of higher interest rates is spread across their communities differently.
asserted
burden → mean → communities
Last week, the Sydney Morning Herald's economics editor Ross Gittins noted that Australia's strange way of doing things meant that young home owners were hit particularly hard by the way we manage inflation.
asserted
we → note → inflation
"Our use of interest rates to control inflation is yet another respect in which our economic system is biased against the young," he argued.
asserted
he → control → young
"In other countries, mortgages tend to charge a fixed rate of interest for the length of the loan.
asserted
mortgages → tend → loan
This means that changes in the central bank's official interest rate still flow through to home buyers but take a lot longer to be felt.
asserted
changes → mean → buyers
"So changes in the official rate don't cause the great stir they do in Oz.
asserted
they → cause → Oz
But that doesn't mean other countries' use of interest rates to control inflation is any less effective than ours is.
"
asserted
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.
asserted
this → seem → rates
There are other big reasons why Australians are obsessed with housing.
asserted
Australians → be → housing
For decades now there has been a deliberate political effort in Australia to stop people thinking of housing as "shelter" and to start thinking of it as an "asset class".
asserted
people → stop → class
After we cut trade tariffs, sent our manufacturing industries offshore, floated our dollar, and opened our financial system to foreign competition, property investing was heavily promoted as one of the surest ways to build wealth in Australia.
Voters were encouraged to become property investors and landlords.
asserted
Voters → cut → Australia
It's why property investors also gather around the TV when the RBA governor holds a press conference these days.
asserted
governor → gather → conference
It also explains why our media outlets have so many property-related stories, whether about interest rates, property prices, auction clearance rates, high growth areas for rental yields, and more.
asserted
outlets → explain → yields
In April, the chief executive of AustralianSuper, Paul Schroder, said Australia now spends way too much on housing and "not anywhere near enough" on productive investment.
asserted
Australia → say → investment
He said modern Australia operated on a "myth" that we can keep generating wealth by constantly inflating housing prices.
asserted
we → say → prices
The "whole show" was built on housing, Schroder said, and it couldn't continue this way.
asserted
it → build → housing
And there's another big reason that may be contributing to our national housing obsession.
uncertain
that → be → obsession
Housing isn't considered a human right in Australia.
asserted
Housing → consider → Australia
LoadingSince we don't want to lose our homes or rentals, we have to know what interest rates are doing every six weeks, and what rentals are available in which parts of our cities, so we can all keep a roof over our heads.
asserted
we → want → heads
…and 11 more, not listed.
The Aporia