Australia has an inflation problem that repeated interest rate increases are failing to solve.
The Reserve Bank has increased interest rates five times this year – yet inflation continues to rise.
There’s mounting evidence the Federal Government’s excessive spending and poor economic management are making the problem worse, as rate rises inflict enormous financial pain on households and businesses.
Australia’s underlying inflation is higher than every other major advanced economy. Treasurer Jim Chalmers likes to blame international conflicts and higher oil prices, but other advanced economies are experiencing those same pressures without the same high levels of inflation.
Ordinary Australians are suffering. Roy Morgan research shows 1.75 million households – about a third of mortgage holders - are at risk of mortgage stress, with more than 1.26 million extremely at risk.
According to Finder, a quarter-percentage-point rate increase means households with an average mortgage are paying around $540 more per month than at the beginning of the year.
Higher mortgage costs are also placing pressure on landlords to increase rents, potentially contributing to the inflation the RBA is trying to defeat.
The Federal Government needs to stop pretending this is entirely someone else’s responsibility and substantially reduce unnecessary expenditure.
That doesn’t mean indiscriminately cutting essential services but making responsible decisions about priorities.
The RBA cannot be expected to defeat inflation while the government continues pumping money into an already struggling economy.
Property prices continue to drop, although Australia’s smaller capital cities are showing some resilience.
Nationally median house prices are down by 1.4% over September, according to Cotality, with both Darwin and Hobart bucking the trend with 0.6% increases.
The unit market is down nationally by 0.8%, although Darwin is up 0.5% and Canberra is up 0.3% over the month.
Cotality research director Tim Lawless says the latest data shows that price growth remains weak, with the national dwelling median down for the seventh consecutive month.
He says the speed of the decline in dwelling values is tracking at the fastest pace experienced over the past forty years.
“The mid -sized capitals, where home values recorded extreme growth conditions over the past six years, are now well and truly in a correction,’ he says.
“However, given the magnitude of the upswing prior to the downturn, most homeowners in these cities are likely to be sitting on a significant equity buffer.”
Transaction levels are dropping and are now 23% lower than at the same time last year.
While the data shows a pattern of broad decline over the longer term, the smaller capital cities such as Adelaide, Hobart and Darwin have maintained higher median house prices than at the same time last year. Median unit prices are also higher in Brisbane, Adelaide, Perth, Darwin and Hobart than at the same time last year.
Lawless says buyers have more stock to choose from at the moment and there is not the same urgency to buy as there was a year ago when values were rising rapidly.
Housing supply remains a major issue despite a lift in building approvals in the past month.
Australian Bureau of Statistics figures show approvals are up by 5.1% in September but remain well below the levels of a decade ago.
There were 17,948 dwellings approved during the month.
Real Estate Industry Association of Australia president Jacob Caine says Australia continues to remain in a “structural housing deficit.’
“What that translates into for the average Australian out there looking for somewhere to live is a scarcity of choice, unaffordable prices and greater risk of housing insecurity or homelessness,’ he says.
ABS head of construction statistics, Daniel Rossi, says the September increase follows a fall in August.
The September increase is driven by higher approvals for multi-dwelling units such as apartments, units and townhouses – which are up by 16.6% over September with 6,579 approved.
New South Wales had the biggest rise in apartment approvals in September (1,995) while approvals for townhouses rose by 8.3% (2,792).
Urban Taskforce Australia chief executive Tom Forrest says while increasing approvals are good, it does not necessarily mean more housing will be delivered.
"As the cliche goes, you can’t live in a planning approval. If it is not feasible to build the new homes, the approvals will not result in the new housing we need.’
The modest improvement in housing affordability across most Australian markets in the September quarter may be short-lived.
The Housing Industry Association’s (HIA) Affordability Report says that despite falling dwelling prices, affordability is significantly worse than a year ago.
HIA Senior Economist, Tom Devitt, says a household still requires 1.8 average incomes - in both the capitals and the regions - to comfortably service a mortgage on a median-priced dwelling.
“An ‘affordable’ home would be serviceable with a single such income,’ he says.
According to the HIA, underlying conditions driving housing demand and supply mean that affordability pressures could return.
“This interlude of improving affordability is likely to be short-lived. The underlying fundamentals of the market bode worse for affordability than they did last year,’ he says.
Devitt says there are 11 million households chasing 10 million homes in Australia and population growth will increase demand even further.
He says once confidence returns to the market, dwelling prices will begin to increase again and affordability will deteriorate further.
The report says affordability improved across most markets during the September quarter, led by Brisbane, which recorded a 5.6% improvement, followed by Perth (5.2%) and Sydney (4.9%).
Affordability deteriorated in four markets: regional Northern Territory (-3%), regional South Australia (-1.5%), Darwin (-0.7%) and regional Tasmania (-0.4%).