CAAN: We reckon there is a lot of wisdom to be drawn from these responses to Peter Tulip because obviously many are in Pain!
Conversation
Could those who loudly complain about the effect of low interest rates on house prices please clarify what they think. Do they really believe that living standards would be better with higher unemployment, lower inflation and higher mortgage rates? Why?
12:26 PM · Jun 4, 2021·Twitter Web App
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I would re-frame the question to how to make housing affordable while containing inflation, minimising unemployment and maintaining living standards. “Living standards” to factor in wages, size of homes, tenants’ rights, adequacy of services, commute times and congestion.
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Property prices have doubled while we’re saving for a deposit. We were within months of buying and within 6 months they are now another two years of saving away.
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Young family with two kids. Single income for a bit longer, and a good income. Could only imagine how younger people feel as we are shattered.
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Agree! And For those who sold in 2020 faced w v limited supply Fr Dec 2020 to Jan 2021 price hike $300,000 equiv 2 10 years incrs meant priced out across much of Sydney competition fr those rejecting defect units Prices cont 2 rise
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Your question implies an answer already. Let me do the same. Those who loudly advocate for QE, could you please explain how saddling future generations with debt, creating financial vulnerabilities and inequality justifies the decimal point impact to unmp rate?
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This is how one really saddles future generations with debt:
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If low interest rates were driving demand for bank credit for productive purposes there would be few complaints. The problem you have is that the ideology of deregulated bank credit (money) creation has been blowing unproductive asset bubbles and not much else for 20+ years. 2/3
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I’m unconvinced the cash rate at 3% would create a tsunami of layoffs and worsen the quality of life for most people.
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If the only options are high house prices or high unemployment it’s time to acknowledge the current system is not fit for purpose.
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Nice way to set up a completely false dichotomy, eh? Note also presumptive positioning of inflation as a good thing, (ie “lower inflation” is somehow a threat). Land is a factor of production. Would make sense to squash the price. Like we do wages.
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I want tighter access to credit. I want private housing investment incentives removed. I want restrictions on the number of housing investments one can have. I want to raise the UI rate to #80aDay and remove mutual obligations. I want a voluntary Job Guarantee to be created.
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I want heavy investment in public housing.
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My savings might generate some money. Maybe the govt could fuck negative gearing off?
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Of course not but is macropru being used aggressively enough to offset the effect on house prices from low interest rates? The disconnect between wages and house prices suggests not. Is it ideal for so much capital to be channeled into housing?
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Before using macropru you need to establish that there are increasing risks to financial stability. That hasn’t been shown.
GIF
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Oh FFS. This is a primary school level debating technique. Unfortunately seems to be the level of thinking of most central bank economists.
This thinking is why
is an unreconstructed former central bank economist. Surviving central bank economists have been pleading for the kind of fiscal and regulatory help that Tulip’s question rules out.
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No we’d be in recession… There is some extra help for fhbs but there should be more. A bigger interest rate and deposit advantage for fhbs than what currently exists
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The fear of recession is partially how we got into this mess. Too much excess, crowding of employment, inter-generational wealth inequality, mal-investment & over-leveraging into unproductive assets, unjust tax breaks, over-weight banking sector into RMLs & no room to move IRs.
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What if you think low rates are at best a bandaid fix for fx appreciation and that monetary policy is a poor way to target employment and living standards if it’s main transmission is to just let more housing be built instead of investment.
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Only issue with super low interest rates is the only way is up. meaning people won’t be able to service the loans when interest rates go up even 0.5%. This would cause a glut. Oz won’t have any control in interest rates as banks borrow most of their costs from overseas.
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Living standards are best when we have average stable interest rates. As John Howard once said that’s 7%. Failure to manage our economy from the liberals are going to see pain from the people in the future no matter who the government is….
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Says the Keynesian who still believes in the Phillips Curve
GIF
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We have built a system where housing is used for wealth creation and not for housing. Picking out one small part of a big problem and acting like people are saying its the whole problem is disingenuous. Letting wealth inequality run rampant will have consequences.
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The issue is that because we have an economy based on speculation instead of production the time will come for lots of tears.
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My neighbour across the road bought $2k in cryptos and “made” $800 overnight. He was rapt. All I could think was “you gained, with zero contribution to society”. Meanwhile, the minimum wage worker is put at risk during covid.
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We are witnessing a generation of “geriatric first home buyers” (I’m coining that term right now). Home buyers that are locked out until mid-late thirties. They are guaranteed to be paying mortgage entire working life and probably into retirement. They have no funds left for 1/2
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That can be fixed with inter-generational loans. Limiting mortgages to 30 years unfairly limits banks’ abilities to maximise their profits.
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RBA given one tool to try and achieve full employment and price stability. A tool that only indirectly influences those targets. It directly impacts house prices. That is the problem
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That so many of our “economists” seem to think this failed model is the best on offer and whinge when they are challenged is the only mystery. 3/3
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You present a false dichotomy
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depends who you talk to. Those trying to save for a house are spending less because of low rates. Those who just borrowed too much because of high house prices are not overly enjoying life. Retirees trying to live off low rates are struggling. Rich are richer. Most are worse off
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retirees have surfed the low rates wave just as much as anyone if theyve owned their own house and had any form of super…basically 20 baggers that have also provided a roof
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Clarify? There can never be enough “clarity” for those obsessives who are still insisting that a public monetary system built around a private bank monopoly on accounts at the RBA is NOT the problem. 1/2
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Spoken like a true Keynesian. How about the obscene mis-allocation of capital to non-productive (ok, at best temp. in nature) investment. The behaviour these policies create will have neg impacts for decades and will be another central bankers problem, and that’s the problem.
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He asks the question as if there are only two options which pretty much sums up the whole problem of how everyone is looking at this.
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Also 30 year downward trend of low interest rates is an end game
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Imagine, like, not running contractionary fiscal policy at the same time as negative rates. Lol I know right
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Mate you need to chat to Warren Mosler. Insane how credentialed and misguided you are.
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How good is a services economy exports in a global pandemic ? Lol j/k we got iron ore
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So looking forward to living standards for the kids when the average mortgage is $6m and they’re living in Gina’s $2 a day utopia. That maths works fine.
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What’s the lower limit on r? -10? Why not keep going lower and get unemployment to zero %?
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The question, Low interest rates inflating housing prices, easily fixed, by govt whose MPs aren’t multiple housing investors themselves. 𝗟𝗶𝗺𝗶𝘁 𝗱𝗶𝘀𝗰𝗼𝘂𝗻𝘁 𝗖𝗚𝗧 𝘁𝗼 𝗼𝗻𝗲 𝗹𝗶𝗳𝗲𝘁𝗶𝗺𝗲 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 property .
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Does Perth have a different interest rate to sydney?
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A useful discussion would inspect history or other nations & identify when / where nations have gotten housing right & why. My impression is government has a role in creating affordable housing & the best source of revenue for that role is likely be housing rent / speculation.
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Depends how many houses do you own?
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Why not bring in macro pru then?
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GIF
Ngati Pakeha Kuia Member #Team of Five Million
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Cheap money has fuelled the Housing Market.
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Baby bath water issue imo
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Using the price of fixed assets held by the landed gentry to facilitate higher living standards is literally the definition of feudalism.
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Sometimes you need to knock the house down and rebuild…..we’re at that point
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Ok boomer. You look old enough to remember the 90s when interest rates were at 13% with a lower population, lower house prices, lower household debt to GDP and lower unemployment. Low interest rates have had the opposite effect. Now people will retire with mortgages.
CAAN: Actually interest rates rose to 18% in the 90s and some also lost their homes then too!
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Truly sad that a person with your background speaks like this. You won’t acknowledge the extraordinary market price distortions today and massively inflated prices across asset classes including housing? And ever widening wealth gap? Always leads to crashes which hurt the poor.
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is so full of academic bullshit, so disconnected from the reality of people struggling to find affordable stable housing for their families. So clueless not to acknowledge that the major reason for housing unaffordability is low interest rates, lax lending standard
Jun 5
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You seem to be in the minority here Mr Tulip. Plenty of good ideas here, you guys don’t seem to have any. How many properties do you and board members own???
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False dichotomy. Aren’t living standards better associated with productivity? IR up/down tends re-allocate/transfer/concentrate resources/wealth. Lowering IR concentrates wealth to existing assets (top %). Increase productivity tends to benefits all including bottom %.
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Encouraging people to buy things they can’t afford is dangerous and simply kicking the can down the road. The younger generations will have to work to the grave. All for the benefit of rich baby boomers who are merely pushing back on the inevitable credit crunch.
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Higher house prices with higher debt levels on lower interest rates and relaxed lending laws = lower mortgage payments. Let’s reverse that. House prices slow down or drop, interest rates move up = mortgage payments increase. Higher costs = impacts living standards
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Maybe you could explain the benefits of low rates? 1. Zombie firms 2. Lower productivity 3. Asset bubble inflation 4. Greater wealth inequality 5. Speculation & risk incentivised 6. Savers punished
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also Pete if you honestly believe the unemployment rate is at 5.5% you are delusional
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Totally Sir Cookie. Rubbish ABS counting methodology, just like inflation numbers.
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Why would higher interest rates lead to higher unemployment? Why would higher interest rates lead to lower inflation? The last decade and a half have shown the opposite happens. Your view of the cause and effect of this is anchored in the dismal science of the 1970s.
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I’ll make you a deal – make the CPI an measure of things people put actual money into (housing especially but also equities) and see where that gets us. Right now the measure of inflation is a lever to supercharge inequality by making money cheap for speculation.
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I think that you are mistakenly forcing a binary outcome where you are in hindsight, resulting the recent past as though there is no other option. The mere fact that you cannot raise rates without causing hardship proves lowering interest rates this low was an error in policy
There are always options. The RBA has chosen this policy and now has to live with the consequences.
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You are ex-Fed? This has to be a parody… Do you guys ever study/read real world economics? I’m baffled.
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How many houses do you own Peter?
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Mostly they think that more fiscal should be used so that unemployment is lower, inflation is higher, and the need for ZIRP is removed. But you know that.. you’re just being obtuse. Why?
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you ever hear of malinvestment? is it good for the economy?
COMMUNITY ACTION ALLIANCE FOR NSW (CAAN): HOUSING INEQUALITY WITH AUSSIES LOCKED OUT! 