Why the Greens (and the ABC) are Wrong About Interest Rates
First of all a statement about my motives: I am going after the Greens (and the ABC) precisely because I expect better of them. I have no faith in anyone working for either of the major parties to be anything but a venal, self-serving cretin. I have always thought of the Greens as being better than that, but I am struggling to keep the faith.
About a month ago a senator for the Australian Greens had called on the RBA to “pause” interest rates. One reason might be the influence of Modern Monetary Theory economists, like Bill Mitchell from University of Newcastle, who advocate for a 0% interest rate as the “natural rate”. Another is that the senator in question, Nick McKim, the Greens spokesperson for “economic justice”, owns four homes.
Four homes. While increasing numbers of Australian families are sleeping in tents, cars and caravans. Economic justice. Yeah right.
The Greens leader, Adam Bandt hasn’t commented on the Reserve Bank directly, but has called for a mortgage freeze. He has two houses, both with mortgages outstanding. NSW senator, David Shoebridge hasn’t said anything recently, but did say a mortgage freeze should be “considered” back in 2020. He hasn’t challenged the statements by his colleagues. After all, he has three mortgages, for investment properties owned by his spouse. Three investment properties. Three. So progressive.
The Greens talk about housing affordability in public, but in private they are betting against it.
They sound a lot like conservatives such as LNP member for Forde, Bert Van Manen (two houses, two mortgages), who took the opportunity to question the RBA governor directly during a recent parliamentary hearing on the matter, pushing back aggressively against the idea that rate rises could address the cost of living — effectively questioning the core premise on which contemporary monetary policy rests. Labor has been less obvious about their preferences regarding rate rises, but as individuals, members of the parliamentary party are just as heavily invested in real estate.
This concern over the rising cost of credit and its affect on housing prices was echoed by the ABC’s top finance reporter Alan Kohler, who started his report by pointing out that the current fall in prices is the fastest ever recorded, as if that was an obviously and uncontroversially bad thing, then called for a pause to rate rises to “see what happens”. Otherwise he warned that Phillipe Lowe might end up with “Australia’s biggest ever housing crash” as his legacy.
At the very next meeting RBA Governor Phillip Lowe surprised the markets with a 25 basis point increase in rates, rather than the 50 people had been expecting.
There’s no declaration of interests that would tell us whether Alan owns a house, or houses, but we can make an educated guess.
Perhaps journalists, at least those working at the public broadcaster, should be required to make such disclosures. Perhaps it’s a problem to have an entire political class, senators, MPs, high profile journalists, spokespeople for “economic justice” whose personal finances are linked to the biggest housing bubble on record.
They all talk about affordable housing, but they all stand to lose money if houses become affordable.
If we leave this to the side and assume the best intentions (always a dubious prospect when dealing with those in public life, but perhaps in this case a worthwhile exercise), then, perhaps their personal finances have nothing to do with it, and they just want to avoid an economic disaster, which a rapid rate rise could precipitate.
The problem with this line of reasoning is that the disaster has already happened. We are just figuring out how to deal with the consequences.
Years of cheap credit have already fuelled a massive asset bubble (including in housing). The wage restraint and austerity that forced central banks to reduce rates to record low after record low to stimulate demand have already hollowed out our economies, leading to a proliferation of shit, unprofitable businesses that ultimately need to close.
China has already rolled out an ineffective vaccine, which leaves them now with a choice between staying in lockdown and having a brutal wave of infections that could kill as many as 1.6 million people. Russia has already invaded Ukraine, and the gas supplies to Europe have already been interrupted — crucial supplies of labour, capital and energy are no longer available to the world economy. We cannot make or do the same amount of stuff. The world is already poorer as a result.
We will experience this poorness both as an economic contraction — when everyone has less money, and as inflation, when the money we have becomes worth less. Rate hike decisions by the RBA and other central banks are not causing either of these things, they are stuck trying to find the least destructive mix of the two.
The pain is coming. Who will bear the brunt?
Will it be asset owners who will have to either take a loss on their leveraged investments, or curtail their discretionary spending, or both?
Or will it be the poorest members of society, who don’t have discretionary income, and will see their sub-poverty incomes shrink further — all so we can keep house prices at an unreasonable level?
The thing about housing affordability, which the Greens are apparently keen on, is that it requires affordable housing, as inconvenient as that might be for people who have already overpaid.
Obviously I have some sympathy for those who were dumb enough to buy at the peak, but buying assets in the hope they will appreciate in value is inherently risky. Borrowing money (like lending) is an inherently risky activity.
What the politicians and journalists named in this article are calling for is protection from that risk, not just for these recent entrants to the market, on the bottom rung of the so called “property ladder” — but for all asset owners.
Heads I win, tails you lose.
In the long run, housing affordability requires affordable houses. The crash is long overdue. Bring it on.
You can see how I sourced this article in the video bibliography below. Let me know if you spot any errors!
