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Tag: Housing

  • Climate crisis escalates cost-of-living pressures

    The report identifies three key areas where the climate crisis is directly driving up costs for Australians: insurance, food, and energy.

    These sectors combined have accounted for over a fifth of the consumer price inflation experienced in Australia since 2022.

    Key findings:

    • Insurance premiums have soared due to an increase in natural disasters, with some households now spending over seven weeks of gross income just to cover home insurance
    • Food prices have risen by 20% since 2020, with climate-related disruptions wiping out harvests and making it harder for some regions to grow food
    • Energy costs remain high due to a reliance on fossil fuels, underinvestment in renewables, and fossil fuel exports forcing Australians to compete with the global market for Australia’s resources
    • The impacts of the climate crisis are disproportionately affecting lower-income and regional households, who are already feeling the financial strain more severely

    The report underscores the need for urgent climate action to protect Australian households from these escalating costs. Addressing the root causes of climate change is essential to lowering future risks and alleviating the economic strain that millions of Australians are facing.

    “Insurance costs keep on rising and, while competition across big business sectors is needed, the thing that is driving insurance costs is climate change,” said Richard Dennis, Executive Director at The Australia Institute.

    “The only way to keep insurance costs down is to keep fossil fuel emissions down. The more we heat the climate, the more expensive storms, floods and fires will be and, in turn, the more insurance will cost. It’s time we started to tax the fossil fuel companies to fund the damage that their previous emissions are already causing.”

    As the world’s second-largest fossil fuel exporter and fifth largest producer, Australia’s actions are making a significant contribution to the problem.

    “The increasing frequency and severity of natural disasters driven by climate change have resulted in higher payouts for insurance companies and rising premiums for homeowners,” said Mark Ogge, Principal Advisor at The Australia Institute.

    “One in 20 Australian households now spend more than seven weeks’ worth of gross income just to pay for home insurance and in many regional areas, where household incomes are lower, the burden is even heavier.

    “As climate change continues to fuel more frequent disasters, entire suburbs or towns could become uninsurable.

    “Food prices have also surged and in some regions growing certain crops is becoming harder and harder, making food insecurity worse, and even without price-gouging by retailers like Coles and Woolworths, prices are expected to keep rising due to the ongoing climate crisis.”

    “Meanwhile, Australia’s energy sector keeps using expensive fossil fuels and there is serious underinvestment in renewable energy solutions which provide far cheaper electricity

    “Exposure to global prices for fossil fuels due to coal and gas exports has driven up local electricity costs and even if Australia moves away from international pricing, the continued risk of climate disasters damaging critical infrastructure will ensure that energy prices remain high for the foreseeable future.”

    The post Climate crisis escalates cost-of-living pressures appeared first on The Australia Institute's Centre for Future Work.

  • The Government needs to act on Stage 3 as the RBA warns about wealthy households spending

    The Reserve Bank’s decision to raise interest rates on Tuesday lacked any clear reasoning.

    When compared with other periods such as during the mining boom, when household spending was growing fast and real wages were surging, we can see that the economy at the moment is much weaker. Households are now cutting back on luxuries as their real wages fall.

    But the RBA pointed out that one group of Australians are doing OK – those with high income and wealth. Those with large savings buffers and who are also enjoying the increased wealth from rising house prices are still spending.

    This is also the group who are about to be handed the biggest income tax cut in history. The Reserve Bank has made it clear that allowing Stage 3 to go forward in its current form will only fuel inflation and likely result in higher interest rates for all.

    With a Reserve Bank desperate to use any excused to raise rates and slow the economy even as it already slows, the Government needs to amend the Stage 3 cuts to deliver greater benefit to low-middle income households who have suffered the most from the rising cost of living and interest rates, and less to those who are already doing well and for whom a potential $9,075 tax cut would just put more fuel on the inflation fire.

    The post The Government needs to act on Stage 3 as the RBA warns about wealthy households spending appeared first on The Australia Institute's Centre for Future Work.

  • When the prices of necessities are rising fast, the RBA does not need to hit households with another rate rise

    In the past week, the likelihood of the Reserve Bank raising the cash rate to 4.35% has gone from about 20% prior to last week’s inflation figures coming out, to now an even-money bet.

    But when you look at the cost of living figures out this week it is clear that households are already having to reduce their spending on non-discretionary items.

    Out of the 14 biggest contributors to inflation, 10 were non-discretionary items.

    At this point we should note the comments of the secretary of the Treasury, Steven Kennedy, last week in Senate estimates. He was asked about the pathway to a “soft landing” – ie where inflation falls without us going into a recession.

    He noted that chances of a soft landing were made harder by recent rises in oil prices because “on the one hand, it will increase headline inflation by raising petrol prices. On the other hand, it may well reduce growth and see other prices fall because people have less to spend. At least in the short term, expenditure on petrol is not very discretionary.”

    When the prices of things you can’t avoid paying for rise faster than others, then that obviously reduces your ability to spend elsewhere. In this way petrol, electricity and rental price rises have the same impact as do interest rate rises.

    The most recent figures of the volume of retail spending will come out tomorrow, but we know that the volume has been falling, and is now back to pre-pandemic trend levels:

    This of course is what you would expect – when the cost of non-retail items such as petrol, mortgages, rents, electricity, property rates, medical services and insurance are rising, you are going to buy less in the shops.

    Since March last year the cost of mortgages has gone up 114%. Does the Reserve Bank think households haven’t really noticed that?

    Even you if discount the record low rates during the pandemic, the cost of mortgages is now about 70% higher than it was at the end of 2019. Since then, wages have risen only about 10.5%.

    Another rate rise is not going to do anything other than add to the cost of necessities. It would not so much reduce inflation as increase the cost of living and hit households whose wages and incomes continue to be worth less than they were a year ago.

    The post When the prices of necessities are rising fast, the RBA does not need to hit households with another rate rise appeared first on The Australia Institute's Centre for Future Work.

  • Bolstered by a biased tax system, house prices keep rising

    Despite rising interest rates, the latest figures from the Bureau of Statistics show that Australia’s house prices rebounded in the March quarter of this year. Policy director Greg Jericho writes in his Guardian Australia column that since the beginning of the pandemic property prices around Australia have risen 26% while at the same time average household disposable income has increased just 8%.

    This disparity has massive consequences for affordability. Had for example the median property price in Sydney risen in line with household incomes since June 2020, instead of being $1.15m it would be $954,000 – a $196,000 difference.

    Underlying the strength of the market even in the face of rising interest rates is the fact that Australia’s tax system is biased towards property investors.

    The most recent taxation statistics covering 2020-21 showed for the first time the number of investors recording property net profits was greater than those recording a loss. Such a situation only occurred because of the record low interest rates at the time. We know that the past 12 months will have seen a large spike in the number of people negative gearing their properties and thus not surprisingly housing remains an attractive investment not in spite of rising interest rates, but because of rising interest rates.

    The post Bolstered by a biased tax system, house prices keep rising appeared first on The Australia Institute's Centre for Future Work.

  • The economy is slowing as households get smashed by yet more rate rises

    The March quarter saw Australia’s economy grow a rather pathetic 0.2% and fall 0.3% in per capita terms. As policy director Greg Jericho writes in his Guardian Australia column, the economy is slowing at a pace that normally would see the Reserve Bank thinking about cutting rates.

    And yet as poor as these figures are, worse is likely to come as the March quarter does not include the two most recent rate rises and only a small amount of the impact from the rate rises in February and March. Both the Treasury and the RBA estimate the Australian economy will go backwards on a per capita basis over the next year and these figures suggest their estimates are if anything too optimistic.

    Households are reducing their savings as wages fail to keep up with inflation. Over the past 2 quarters, household consumption grew at an annualised pace of just 1%. Whenever household consumption has grown that slow the economy has either been in a recession or teetered on the edge.

    And yet despite acknowledging there was uncertainty over household spending, the RBA on Tuesday decided to raise rates in order to essentially slow household spending.

    All they have done is once again hit households that already need a standing 8 count.

    The figures pleasingly showed that total wages are now growing solidly due to both increased employment and better wage growth. But this has not come at the expense of profits, indeed corporate profits in the March quarter rose 3.2% – faster than the 2% increase in unit labour costs. Real unit labour costs rose just 0.2% in the March quarter while real unit profit costs rose 1%.

    This again highlights that profits more than wages drive inflation, and raising rates to slow wage growth by raising unemployment is a poor monetary policy that only risks an unnecessary recession.

    The post The economy is slowing as households get smashed by yet more rate rises appeared first on The Australia Institute's Centre for Future Work.

  • The level of public housing needs to return to previous levels

    There is rarely a debate in Australia that generates more heat than housing. The causes of housing unaffordability and the solutions to it are varied and often get bogged down in power plays and political scaremongering. But as policy director Greg Jericho notes, building more homes is a pretty obvious solution, and more public housing needs to be at the forefront.

    The NSW Productivity Commission this week released a report into housing in NSW that recommended “Building more homes where people want to live.” To this end it suggested raising average apartment heights in suburbs close to the CBD, allowing more development near transport hubs and encouraging townhouses and other medium-density development.

    All of this is worthy. And if combined with the reform of the negative gearing and the capital gains discount will do much good.

    But the report noted that “New South Wales experienced a 45% surge in priority applicant households on the social housing register, with 6,519 priority social housing applicants waiting for assistance as at 30 June 2022”. And yet it did not mention public housing or any social housing solutions at all.

    In the past public housing was a much greater share of Australia’s housing market.

    In 1983 14 public housing building approvals were made for every 100 private sector ones. Now it’s 1.7:100.

    The level of new housing per head of population has fallen and it is thus little wonder that house prices have risen beyond the means of many.

    We need more housing and we desperately need more public housing.

    In the 2019 election campaign, the ALP pledged 250,000 new houses over 10 years. That has now become 30,000 over 5 years under the proposed Housing Fund. It is time for more ambition from the government and more housing for low and middle income earners.

    The post The level of public housing needs to return to previous levels appeared first on The Australia Institute's Centre for Future Work.

  • Real wages falls and interest rates rises signal tough times for households

    The Australian economy – like all economies – is about people. And yet too often company profits are used as a judge of economic health. Throughout the pandemic and in the years since, company profits have soared while the real wages of workers has fallen. This situation is inherently unsustainable with an economy dependent upon household consumption. As policy director Greg Jericho writes in his Guardian Australia column, we are beginning to see households struggle to keep going.

    The Budget delivered this month by Treasurer Jim Chalmers revealed that the next financial year starting in little over a month is set to be one of the worst in the past 40 years. Household consumption is expected to rise just 1.5% – the 5th worst since 1985-86. Even worse if we account for an expected 1.7% rise in population this means in a per capita sense, real household spending is about to fall.

    And when household spending slows, so too does the entire economy.

    We have already see the beginnings of this with sharp slowing in the volume of retail spending being done, all while the amount of money we are spending rises. In effect we are paying more for less. This means the “nominal” figures in the retail trade data hides the weakness in the economy and the pain households are going through.

    With mortgage repayments rising nearly 80% in the past year, households are switching from spending in shops and on services that employ people, to paying off their loans – driving up the profits of banks ever more, but in doing so actually slowing the economy.

    The Reserve Bank is getting what it wanted – a slowing economy, less money being spent and rising unemployment. But with conditions only seen in recessions expected in the next year, the risk that this slowing will lead to the economy stopping completely is rising, and the Reserve Bank must not raise rates any further and be extremely mindful of the pain they have already caused to households struggling from the fastest increase in loan repayments in over 30 years at the same time as real wage fall faster than they have on record.

    The post Real wages falls and interest rates rises signal tough times for households and the economy appeared first on The Australia Institute's Centre for Future Work.

  • Latest inflation figures show the RBA was right not to raise rates in April

    The March quarter consumer price index figures showed a 7.0% annual rise, however as Policy Director, Greg Jericho, notes in his Guardian Australia column, the monthly inflation figures that were also released on Wednesday showed annual growth had fallen to 6.3%.

    This fall was down from a peak of 8.4% in December and is the slowest growth since May last year.

    The figures reinforce the belief that the RBA board was right to ignore the views of many economists both within and outside the Reserve Bank. Not only is inflation falling but the biggest drivers of inflation in the March quarter were in areas with prices mostly determined by governments or in highly regulated sectors such as the gas and electricity markets. There was little sense of prices rising due to excess demand, rather the combination of price setting in the public sector and by commercial companies making use of high world prices for resources and ongoing supply issues in the housing market served to drive nearly two-thirds of the total increase in overall inflation the March quarter.

    Increasing interest rates would have done nothing to lower prices in these areas – indeed in the rental market any further rates rises would likely be just used as reason for increasing rents more.

    The Reserve Bank was right to stop raising rates. Should the slowing of inflation shows signs of ending before reaching the RBA’s target of 3% it can always cut rates then. For now, inflation is falling as hoped and attention must be drawn to those suffering the most from the rising prices – notably low-income households and those paying off a HELP debt that is set to be indexed by 7.1% – well above the current levels of wage growth.

    The post Latest inflation figures show the RBA was right not to raise rates in April appeared first on The Australia Institute's Centre for Future Work.

  • Wealth inequality across generations will only fuel voter disenchantment

    While income inequality is an often discussed topic, wealth inequality is just as pernicious though often less discussed issue. Worse still the inequality of wealth across generations has lasting impacts for people into retirement.

    Policy director Greg Jericho writes in his Guardian Australia column how economic policies of the past few decades has served to provide those with wealth more of it, while depriving younger people of gaining a foothold that previous generations had.

    The issue is most acute with housing. Housing affability is often debated with some suggesting that because of lower interest rate than in the past owning a home is not as difficult as in the past. But the reality is that the size of the mortgage relative to incomes is so much greater than in the past that even with lower interest rates payments account for much more income than they used to. Whereas for those entering the housing market in the 1980s one incomes was often more than enough, now two incomes is a necessity.

    But what is often forgotten is that while interest rates were higher at times in the 1980s and 1990s those rates fell and with them did the payments all the while incomes rose. As a result those who bought homes in the 1980s and 1990s saw their repayments as a share of income fall to very low levels – levels unheard of now.

    And while the arguments about whether housing is more or less affordable can turn on definitions of affordability, the fact is that for the first time fewer than half of people aged 30-34 own their own home. That’s not through choice, but through the reality of a housing market that is locking out younger people.

    This in turn sees younger generations have less wealth at their age than did their parents and grandparents.

    It is little surprise that Millennials are not becoming more conservative in their voting as they age in the same way that did Baby Boomers and Gen Xers. The wealth inequality will have ongoing repercussions for political parties who have in the past taken it as given that older voters will vote for them.

    The post Wealth inequality across generations will only fuel voter disenchantment appeared first on The Australia Institute's Centre for Future Work.

  • The housing market has cooled, but housing unaffordability remains a long way off

    The most recent data on the value of dwelling around Australia reveals the prices in most capital cities have fallen over the past year and are likely to keep doing so for some months. But the data also shows that housing affordability remains a long way from repairing the decades of damage.

    In his Guardian Australia column, policy director, Greg Jericho, notes that the impact of interest rate rises has definitely caused the housing market to come off the boil. In most capital cities median house prices are now below what they were a year ago. Coming as this does off data suggesting wages are not rising as fast as the Reserve Bank feared, and amid the ructions in the USA financial system after the Silicon Valley Bank collapse, the Reserve Bank certainly has enough reason to not raise rates again.

    But while the fall in house prices does help those trying to buy a home, the decrease in affordability is highlighted by the fact that while house prices are mostly below what they were a year ago, they are well above what they were 2 years ago in all capital cities. And those rises have been well above the growth in wages in that time.

    Jericho notes that in Sydney for example, wages and house prices from 2003-2013 largely rose in line but over the past decade house prices have surged above wages. Had prices instead continued to rise in line with wages the median house price in Sydney would now be $863,000 rather than $1,270,000.

    This disconnect is replicated around the country with house prices being some 60% above what they would have been had they risen along with wages. In Hobart the current median house price of $727,000 is some 133% above the price it would have been had they rinse in line with wages in Tasmania of $297,000.

    This disconnect highlights the need for tax reform of the housing market, an increase in supply including increased median density housing, and especially public housing.

    And above all we need wages to no longer be left behind.

    The post The housing market has cooled, but housing unaffordability remains a long way off appeared first on The Australia Institute's Centre for Future Work.