‘We’ve got a little bit longer to go’: RBA’s chief economist says one thing is needed to end rate rises
For generations of Australians, the rules of home ownership were simple: work hard, save hard, borrow sensibly, and the roof over your head was yours for life.
It was a quiet promise built on stability. But right now, across the country, that promise is fracturing.
Across the country, thousands of hardworking Australians are facing a frightening reality amid relentless interest rate hikes in the middle of a cost of living crisis. Nine
The real issue isn’t just interest rates though, it’s that Australia is failing to build enough homes.
Across the country, thousands of prudent, hard-working Australians who thought they did everything right are facing a frightening reality: relentless interest rate hikes, in the middle of a cost of living crisis, mean they’re closer than ever to losing the roof over their heads.
In a rare interview, the Reserve Bank’s assistant governor defends the rate rises punishing mortgage holders, which comes at the exact moment the government’s tax changes shatter the housing market.
Dr Sarah Hunter, who is also the bank’s chief economist, has an unenviable job. Her team provides the critical data that every interest rate decision is based on.
“Look, it’s really, really tough,” Hunter told 60 Minutes when asked about the people losing and selling their homes because they can’t keep up with mortgage repayments.
“It does weigh on us here. It does weigh on the board but we gotta get inflation out for the good of everybody, and that’s really what we’re trying to do.”
Chief economist and assistant governor at the Reserve Bank, Dr Sarah Hunter. Nine
The RBA is using rate hikes to deliberately squeeze household budgets, hoping that if families hurt enough, they’ll be forced to spend less, which will bring down inflation.
Hunter said rates were the most effective way to bring down inflation.
“Over a long history, we’ve actually tried a few different options,” she said.
"Here in Australia, we tried a wage freeze in the early 1980s. We've also tried targeting credit growth, money supply growth. And what we learned through that sort of journey, none of those were particularly effective.
"What we found did work and we found it here and in many other countries is interest rates.
"The challenge is it's not painless, unfortunately, and we know some people are feeling the pain, at the moment, and there's no painless tool, but this tool does work, and that's why we use it."
Hunter admitted it was a “tricky” balance to get right.
"There are many people who don't have a mortgage, who may never own their own home, actually, who are long-time renters," she said.
"For them, they’re quite often on lower incomes. For them, high inflation is really, really difficult to deal with. And they see it, and we're all seeing it and feeling it in absolutely everything that we're buying."
The chief economist said while it was painful to millions, the rate rises were doing their job.
"We have actually brought inflation down over the last few years. We're not there yet, and it's lifted up a bit recently," she said.
"Partly that's the oil shock, partly there are some domestic factors in that as well. But it is hard because there is a cost. And it is difficult and weighs on our minds as much as anyone else."
Like 3.3 million other Australians, Vanessa Merryweather has a mortgage.
She borrowed conservatively to build her home on the outskirts of Sydney - and managed to pay her loan so far ahead, she had $60,000 sitting safely in redraw.
But then life dealt a series of brutal blows. During COVID, her business dried up. And some terrifying health news left her unable to work fulltime.
She and her daughter pulled through their treatments, and she’s now back at work, but her finances never recovered.
“So they’re talking about two more [interest rate rises], I think November, December. So my house will be on the market in January if that’s the case,” Merryweather said.
Like 3.3 million other Australians, Vanessa Merryweather has a mortgage causing her substantial worry. Nine
The RBA’s strategy relies on Australians cutting back but the latest figures show they already have, with household spending stalled.
So why is inflation still raging? One reason is that, while mortgage holders starve the fire, the government keeps throwing fuel on it.
"Yeah, look, government spending is definitely part of the picture," Hunter said.
"But what I would also say is that we're an independent central bank. We're unelected. It's really not our place to tell the country, politicians, individuals, anyone, what governments should or shouldn't spend money on, how much they should or shouldn't be spending.
"That's a conversation the country should have, and we all get to have our say at the ballot box effectively, when elections roll around."
Hunter said government spending is contributing to demand, which it's the RBA's job to reduce.
"What the board is trying to do with those interest rate rises is to just bring demand back down, if you like, so that it rebalances with supply," she said.
“And once we do that, then inflation will be trending [lower] and we’ll get back to that low and stable level that we’re targeting, that’s our mandate so that everyone can just forget about it.
"I'd actually love it if the country could forget about inflation."
But as punishing as they are, interest rate hikes aren't the only thing making housing in this country so unaffordable.
Because the problem isn’t just how hard it is to pay a mortgage, it's also supply.
Australia simply isn't building enough homes for our growing population.
Brad Duggan knows better than anyone why Australia’s housing engine is stalling.
He runs Metricon, the nation’s biggest builder, and has the scale to churn out thousands more homes but says red tape is getting in the way, leaving the government’s grand target of 1.2 million new homes completely out of reach.
“It’s good to have something to strive towards, but we’re gonna fall significantly short of that,” Duggan told 60 Minutes.
Brad Duggan runs Metricon, the nation’s biggest builder. He says red tape is getting in the way. Nine
“I don’t think I can build them faster – I build a single-storey home in 60 days. So I don’t think productivity really is a problem.
"I think the issue is the cost that goes into building those homes.
"I think a lot of the costs that go into a home and land package relate to government, state fees and charges."
Adding to the panic are changes to negative gearing and capital gains tax but experts say they’re only part of the problem.
Uncertainty around interest rates is destroying market confidence, leaving buyers and sellers afraid to make a move.
The power to break that gridlock rests with the Reserve Bank but its board members believe it’s going to get worse before it gets better.
"Look, I'm sure everyone who drives a car has noticed over the last few weeks that oil prices have gone up a lot," Hunter said.
"We think that there's a bit more of that to come, unfortunately, because it'll take a bit of time to get through the system.
"We've got a little bit longer to go before it starts to get better but we do know that interest rates work. They do work to bring down inflation. That's what we're working to do.
"I really do hope that maybe in a few years time, we're all looking back on this and it's done and it's gone and we're not talking about inflation and cost of living anymore because it's gone. That is what I would like."
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