It is ‘no secret’ to hard-working Australians that housing costs in recent years, whether owning or renting, are out of control. According to the Australian Bureau of Statistics (ABS) official statistics published in Trading Economics, housing inflation rose nearly 40% from January 2021 to January 2023.
Even the ABC gets the twin housing inflation problems and general inflation. Or at least finance reporter David Taylor does. In his recent piece entitled From high inflation to the housing crisis and a possible recession, Australia’s economic problems need meaningful solutions. He stated that:
“The fundamental economic problem of our time is inflation, or the rising cost of living. … Low wage growth, a surge in migration and a chronic housing shortage have now produced both a cost-of-living crisis and a housing crisis.”
Regarding the problem of general inflation, Taylor delved deeper:
“Easing inflation pressures means there is less of a chance interest rates will continue to climb, which makes it easier for companies to churn out a profit. This helps explain the stock market’s flirtation with a new record high — especially when…many companies have managed to ride the inflation wave without letting go of their profit margins. … You see, while easing inflationary pressures are welcome, the evidence continues to point to so-called ‘sticky’ inflation — both overseas and here.”
He then went into some of the policy drivers of general inflation:
“The [GFC] produced a trauma that’s still with us. Indeed the remedies to [that] — taxpayer bailouts of corporations too big to fail and cheap funding for those with assets — helped entrench deep inequality[.] … The pandemic led to huge amounts of government stimulus…stoking inflation.”
Taylor then ‘circled back’ to housing inflation and it’s policy-drivers when he concluded:
“The economy is dominated by large monopolies with unprecedented power over wages growth and the prices they charge consumers. You can add to that a housing market that’s been propped up by a favourable tax environment, cheap money and investor speculation. … Looking ahead, surging migration may prevent Australia from entering a technical recession…but it’s also leading to soaring rents and entrenching the housing affordability crisis.”
What is ‘somewhat a secret’ nowadays (long after the common sense reforms of the 1980s and 1990s) regarding housing, inflation, and the economy is, as American President Ronald Reagan once quipped:
“Government is not a solution to our problem, government is the problem. … Government does not solve problems; it subsidizes them.”
Moreover, ‘the dirty little secret’ is that government problem subsidies are not just sometimes unintentional but often intentional and that these are not just fiscal in origin but also regulatory and monetary. The three key and intentional policies driving-up housing inflation, in particular, are #1) open-border immigration, #2) climate-alarmism green tape, and #3) money-and-credit printing. Policy #1 is a mix of fiscal and regulatory policies, whereas #2 is regulatory and #3 is monetary.
Australian housing demand is regularly ‘pump-primed’ by the federal government through a combination of #1 and #3. This happens through #1 more people plus #3 more money to demand more housing services. However, at the same time, the Australian housing supply is regularly constrained by federal, state and local governments through #2 many restrictions on housing stock. In short, high demand and low supply growth equal housing inflation and, thus, the housing crisis.
As the 1980s cartoon, G.I. Joe used to say, “And knowing is half the battle.” The other half of the battle is, of course, doing. And this starts with asking both the PM and RBA, “Please explain?”
