Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby, the editor at The Australian. Welcome aboard everybody,
Speaker 1: and welcome to the show. If you are active investor
Speaker 1: in property in any fashion, if you're an investor in
Speaker 1: any fashion, or even if you are looking at buying
Speaker 1: a home, it's worth knowing that one of the items
Speaker 1: of news we've been covering so far this year was
Speaker 1: about the buffer. That is, for what it's worth if
Speaker 1: you go into a bank anybody, whatever the interest rate
Speaker 1: number is on the documents that you have got ready
Speaker 1: to get your loan at the bank, they add three percent.
Speaker 1: So if you think you're getting a loan at six
Speaker 1: percent from the bank, they have to assess you on
Speaker 1: the basis of nine. That's called the buffer. Three percent buffer.
Speaker 1: There's been a campaign to try and cut that back
Speaker 1: or eliminate it entirely, and I'm afraid to say APRA,
Speaker 1: the regulator, came out yesterday and said sorry, we're not
Speaker 1: touching that buffer, So we're going to have to struggle
Speaker 1: on with that as investors. That's suppose the news you
Speaker 1: don't want to hear the news. You probably do want
Speaker 1: to hear is that AMP is still a very important
Speaker 1: institutional player in the local market. They've done a fairly
Speaker 1: thorough deep dive into residential property this week and basically
Speaker 1: the message from that report is that nothing is going
Speaker 1: to stop both prices running higher and rents running higher
Speaker 1: in the year ahead, and we could easily see prices
Speaker 1: match where they went last year. They did nine percent
Speaker 1: across the board last year. They've done about four and
Speaker 1: a half this year. Already plenty of time to get
Speaker 1: to that same number. So eight or nine percent again
Speaker 1: this year looking pretty good, I have to say. In
Speaker 1: all markets except one big one Melbourne, second biggest city
Speaker 1: in Australia, and guess what the prices are going down.
Speaker 1: Prices are going down in Melbourne. Go figure there are
Speaker 1: marching steadily forward everywhere else. We may talk about that
Speaker 1: for a moment with my guest today. She has herself
Speaker 1: done some very interesting work in recent times on property
Speaker 1: on an area I never saw before, and she has
Speaker 1: a model if you like what's going on in the
Speaker 1: market post COVID and how as investors we will actually
Speaker 1: be rewarded by buying bigger space that beyond doubt the
Speaker 1: rental growth coming down the line will come on bigger properties.
Speaker 1: Interesting work she's been doing. Her name is Eliza Owen.
Speaker 1: She is at least a research economist at co Logic.
Speaker 1: How are you, Eliza.
Speaker 2: James, I'm going well, thanks for having me.
Speaker 1: Love you to have you on the show. Tell us briefly,
Speaker 1: how about this work you've been doing. What did you
Speaker 1: discover that you didn't already know about the market when
Speaker 1: you started to look at the issue of size, the
Speaker 1: size of a property and the ability to dive rents
Speaker 1: from it.
Speaker 2: So we've been looking at trends in Australia's housing market
Speaker 2: by bedroom. So we're really just starting to scratch the
Speaker 2: surface of this data. But one of the most notable
Speaker 2: differences in trends by bedroom has been rental growth over
Speaker 2: the past few years. So if we look at the
Speaker 2: latest annual growth or rents by bedroom across Australia, it's
Speaker 2: actually larger houses that are attracting higher rates of rent growth.
Speaker 2: In the year to during rent growth in five bedroom
Speaker 2: plus houses we're sitting at eight point seven percent and
Speaker 2: that ranges all the way down to these houses with
Speaker 2: two or fewer bedrooms, where annual growth was seven point
Speaker 2: six percent. In the unit segment, we're still seeing relatively
Speaker 2: smaller units attract the highest rate of growth, two bedroom
Speaker 2: units sitting up seven point nine percent in terms of
Speaker 2: rental growth in the past year. But crucially, these small
Speaker 2: units have seen the rate of annual rate growth decline rapidly,
Speaker 2: so down from about fourteen percent group this time last year.
Speaker 2: Where is the larger units three or four bedrooms and
Speaker 2: that is wall strata properties, so it will include things
Speaker 2: like townhouses as well. Rent growth there has been much
Speaker 2: more steam. So at a very high level, I guess
Speaker 2: you could say larger properties are currently attracting higher or
Speaker 2: more stable growth in rent values.
Speaker 1: What did I tell you? Is it the shared house movement?
Speaker 1: If you like dominating? Is that what it's about? Yees?
Speaker 2: So, I mean we don't know exactly without going out
Speaker 2: and surveying prospective tenants, right, but I think it would
Speaker 2: make sense that this is in reaction to higher rental
Speaker 2: costs and people trying to scale their rent costs through
Speaker 2: sharing accommodation. So if you look at the overall value
Speaker 2: of weekly rents across Australia, say in the house segment,
Speaker 2: we range from five hundred and forty three dollars a
Speaker 2: week for a house with two bedrooms or less. You
Speaker 2: go up to five bedroom plus houses, your rent values
Speaker 2: are eight hundred and seventy four dollars a week. But
Speaker 2: when you divide this by the number of bedrooms, so
Speaker 2: the small houses by two, the big houses by five,
Speaker 2: what you find is that your rent per room goes down. Interestingly,
Speaker 2: that also means that on a percentage yield basis, your
Speaker 2: gross rent yields are actually higher technically the smaller properties,
Speaker 2: even when the overall rent is higher on larger dwellings.
Speaker 1: But for someone who was an investor, it seems to
Speaker 1: me that in terms of rental grosses what really matters. Yes,
Speaker 1: you know in terms of financing of investment action that
Speaker 1: it has us a standardone properties. We know they are
Speaker 1: the lead level for property investors. They win virtually on
Speaker 1: all accounts because of land value and many other historic reasons.
Speaker 1: And then on top of that, you're telling me that
Speaker 1: these type of properties stand alone if they have multiple bedrooms,
Speaker 1: and that ability to be a shared house would seem
Speaker 1: to be a really strong rental option for investors.
Speaker 2: Yeah, so they're currently attracting higher rental growth and the
Speaker 2: thing too is capital growth, So larded dwellings of time
Speaker 2: tend to accrue a greater amount of capital growth. So
Speaker 2: it really does depend on your strategy. So those who
Speaker 2: are looking for purely red yield positive cash flow, maybe
Speaker 2: it is a cheaper unit that you can get more
Speaker 2: return on from that sense. But for a lot of
Speaker 2: investors in Australia, obviously capital growth is the name of
Speaker 2: the game, and so that's where landed dwellings can be
Speaker 2: a benefit as well.
Speaker 1: Yes, so looking back on this, I had never seen
Speaker 1: this work's been done before. It's really interesting observation that
Speaker 1: you've come out with. If you like the conclusions of
Speaker 1: what you did, do you think it's a one off
Speaker 1: or do you think this is the way we're going.
Speaker 1: Do you think this is going to be part of
Speaker 1: the moan?
Speaker 2: I mean, looking back that pre pandemic there was fairly
Speaker 2: uniform growth in rent values. It's just that the pandemic
Speaker 2: I think has changed a lot of dynamics that influenced
Speaker 2: these markets. So for example, if you look at small bedrooms,
Speaker 2: they're very tied to net overseas migration patterns in terms
Speaker 2: of their brick growth because a lot of that stock
Speaker 2: is located in your most popular migrant destination of inner
Speaker 2: city Sydney melded Brisbane. So there's been a lot of
Speaker 2: fluctuation and deviation in rent growth among that segment. I
Speaker 2: think long term will probably get back to a normalized
Speaker 2: pattern where the growth and rents is a bit more uniform.
Speaker 2: But again, longer term, the capital growth has been higher
Speaker 2: in larger dwellings, so that will be consideration for investors
Speaker 2: as well.
Speaker 1: Okay, very interesting. Now while we're talking on that whole picture,
Speaker 1: the larger picture, you've probably seen that work I mentioned
Speaker 1: about AMP useful because they're not in they're not specialist
Speaker 1: property people. They are they look across the board at
Speaker 1: all types of things and items developments for the economy.
Speaker 1: So the point I'm making is it's not a property
Speaker 1: economists making a view, it's an economist who looks at
Speaker 1: national accounts making a view. And that report from AMP
Speaker 1: this week just made that core point that they couldn't
Speaker 1: see anything stopping price rises and rental rises motoring along
Speaker 1: this year. The outstanding point they make, which is the
Speaker 1: point every economist makes, is that there's a lack of supply,
Speaker 1: that there is under supply in most States, and that
Speaker 1: is to some extent compounded by labor shortages, by elevated immigration,
Speaker 1: and those factors all combined will keep pushing the market higher.
Speaker 1: They're talking that we could see something in the order
Speaker 1: of eight or nine percent this year on houses, five
Speaker 1: percent maybe on rental growth. What do you think of that?
Speaker 1: Are you comfortable with that sort of outlook? There's or
Speaker 1: anything you would disagree with there.
Speaker 2: I totally agree with the idea that the persistent undersupply
Speaker 2: of dwellings relative to growth in our population has contributed
Speaker 2: to property values rising long term.
Speaker 1: If you look at.
Speaker 2: Monthly changing home values nationally for the past decade, they've
Speaker 2: spent seventy percent of the time in price growth mode.
Speaker 2: So I think that's spot on. Obviously, there's a lot
Speaker 2: of variations within the housing market at this moment. Looking
Speaker 2: at the range of annual capital growth across the capital cities,
Speaker 2: for example, we haven't seen this level of range in
Speaker 2: at least a decade. So it is very hard to
Speaker 2: describe Australia's housing mone mar is just one market right now.
Speaker 1: But I think it's always hard, right Yeah, Yeah.
Speaker 2: It's always hard, But there's a lot of different dynamics
Speaker 2: so broadly speaking, yes, that under supply sports capital growth
Speaker 2: if you really look at where we are in the
Speaker 2: cycle at the moment now, though, it's clear looking at
Speaker 2: the twenty eight day change in the home value index,
Speaker 2: the daily Home Value Index, we're seeing to slow down
Speaker 2: in the growth rate since the start of the year
Speaker 2: through the month of July. So there are some additional
Speaker 2: headwinds to consider for the market at the moment, namely
Speaker 2: that we're at the point in the interest rate hiking
Speaker 2: cycle now where even if breats don't go up any further,
Speaker 2: they're likely to be higher for longer than first anticipated.
Speaker 2: So people who had previously been pricing in this expectation
Speaker 2: of a rate reduction later this year maybe holding back
Speaker 2: a bit. And we're seeing that twenty eight day change
Speaker 2: slow down through the month, and that could be a
Speaker 2: reflection of weakening economic conditions now as well, because we're
Speaker 2: to point where those high entries rates are starting to
Speaker 2: unwind the labor market, create a slow downing business confidence,
Speaker 2: consumer sentiment. That could all have an impact on creating
Speaker 2: a slower growth rate through to the end of twenty
Speaker 2: twenty four.
Speaker 1: So I'm inferring from that then that we wouldn't get
Speaker 1: nine percent this year because we would needed to keep
Speaker 1: motoring at the pace it was, and you're suggesting it
Speaker 1: won't correct.
Speaker 2: I think it'll storry down. And if you look at
Speaker 2: you to date, at the moment, we're only of about
Speaker 2: four percent through the year anyway, so I think it
Speaker 2: might be a bit of a stretch to say we're
Speaker 2: going to get to nine percent by the end of
Speaker 2: this year.
Speaker 1: Very interesting. Okay, Look, I think we'll take a short break, Eliza.
Speaker 1: We'll be back in a moment. Hello and welcome back
Speaker 1: to the Australians Money Puzzle podcast. I'm James Kirby and
Speaker 1: I'm talking to Eliza Owen. She's a regular on the show.
Speaker 1: She's terrific on how our market is looking nationwide picture.
Speaker 1: She's in the carnovist, but she's also a specialist and
Speaker 1: she can really give you a flavor of what's going
Speaker 1: on in the property market now. One of the things
Speaker 1: she said, if you remember, in the first segment, was
Speaker 1: about how diverse this market is. And I just wanted
Speaker 1: to doraw out something with you now, Eliza, which is
Speaker 1: I knew that perhaps was the strongest market, and I
Speaker 1: knew Queensland was going very well, and I knew Victoria
Speaker 1: was the weakest market, and I was amazed. Actually, I
Speaker 1: didn't quite realize that it's literally going backwards, right. So
Speaker 1: it's about minus one percent so far this year in Victoria.
Speaker 1: Why the rest of the nation is about four percent.
Speaker 1: But what I didn't know, Eliza was there's actually an
Speaker 1: oversupply of property in Victoria. Is that so could you
Speaker 1: explain what's going on?
Speaker 2: Yeah, I think it's quite safe to say that there
Speaker 2: is an oversupply, especially when you think about the purchasing
Speaker 2: market for residential property. So over the June quarter, our
Speaker 2: values were down point six percent in Melbourne and point
Speaker 2: seven percent in regional Victoria. If you can see of
Speaker 2: the transaction activity in regional Victoria in the Gink quarter,
Speaker 2: for example, there were ten thousand properties added to the
Speaker 2: market for sale in the period, but only about six thousand,
Speaker 2: eight hundred properties were actually bought in that same time.
Speaker 2: So that points to a massive oversupply in the sense
Speaker 2: of more people looking to sell their property, the more
Speaker 2: people looking buy. This note from AMP also spoke to
Speaker 2: the fact that construction levels have been high and relative
Speaker 2: to population growth, obviously, Victoria has suffered a deterioration in
Speaker 2: nets interstate migration through the pandemic. But on top of that,
Speaker 2: the state has just supplied a lot of property and
Speaker 2: that helps to absorb additional demand and keep growth in
Speaker 2: property prices low. So if you look back to dwelling
Speaker 2: completions between twenty ten and twenty twenty three, there were
Speaker 2: about seven hundred and seventy three thousand properties established across
Speaker 2: Victoria completed across Victoria cumulatively in the period. That is
Speaker 2: not only the highest of any of the states and territories,
Speaker 2: but it beats New South Wales, our most populous state,
Speaker 2: by about about one hundred thousand dwellings.
Speaker 1: So they've built one hundred thousand more homes in Victoria
Speaker 1: than to South Wales.
Speaker 2: That's right over that period from the end of twenty
Speaker 2: ten to end of twenty twenty three.
Speaker 1: That's amazing smaller city.
Speaker 2: Yeah, and it says something potentially about the development sector
Speaker 2: in the state. They see maybe a bit more over
Speaker 2: zealous around upswings. Because we know that developers respond to
Speaker 2: periods of high capital growth in terms of establishing your property,
Speaker 2: maybe they don't turn off the taps as quickly when
Speaker 2: the property market goes into decline. But that also points
Speaker 2: to this state of oversupply in the market, which means
Speaker 2: buyers have more negotiating power to bring prices down and
Speaker 2: that lowers the asset value overlying.
Speaker 1: Do that's amazing? Do you think that's going to be
Speaker 1: repli around the country or do you think it's a
Speaker 1: one off?
Speaker 2: I think it's probably a temporary state for Victoria. I
Speaker 2: think in response to this, on top of the constraints
Speaker 2: that we're seeing in the construction industry at the moment,
Speaker 2: we're probably going to see supply peelback quite a bit
Speaker 2: across the state. Not to mention that the additional affordability
Speaker 2: presented across Victoria now will probably also create more people
Speaker 2: staying in the state rather than moving to Southeast Queensland
Speaker 2: or wine Bucks, because that premium between Melbourne and Brisbane
Speaker 2: has been completely eroded. The median house value across Brisbane
Speaker 2: is actually now higher than across Melbourne, saying for typical
Speaker 2: unit values, so that supply and demand will start to
Speaker 2: balance out across the state and I think from that
Speaker 2: perspective it could be a good buying opportunity. I think
Speaker 2: Melbourne is one of the best cities in the world
Speaker 2: and it's currently available at a discount.
Speaker 1: This completely agree with you. It's very interesting that the
Speaker 1: side point you met there that the traditional view that
Speaker 1: you could pack it up in a Melbourne so moved
Speaker 1: to Queensland better whether cheaper houses not any longer. Look,
Speaker 1: we will take a break and we will be back
Speaker 1: with you in a couple of minutes. Hello and welcome
Speaker 1: back to The Australian's Money Puzzle podcast. I'm James Kirby.
Speaker 1: The well that they're talking to Eliza Owen of core Logic.
Speaker 1: Eliza courses in columnists that core Logic. We talked to
Speaker 1: her rightly on the show. Very interesting as always, and
Speaker 1: what I really like about talking to Eliza is I
Speaker 1: find out things I didn't already know. I didn't know
Speaker 1: that there was an oversupply of property in Melbourne. That
Speaker 1: is really interesting and it really, i think, in a
Speaker 1: way confirms beyond all that that it is not just
Speaker 1: a sort of bargain basement of the nation from property
Speaker 1: investment point of view. But it's going to stay that
Speaker 1: way for some time because over supplies that's something you
Speaker 1: can change very quickly. It's also unique in our market
Speaker 1: because under supply is the big problem and has been
Speaker 1: for so long, and that's what we read about all
Speaker 1: the time. And I think a minor but really interesting
Speaker 1: sort of dimension of what she was alluding to in
Speaker 1: those first segments of the show is that traditionally there's
Speaker 1: always been this net migration out of Victoria to Queensland
Speaker 1: and that may not keep going at anything like the
Speaker 1: levels that did previously, because simply it doesn't make sense
Speaker 1: financially anymore because Brisbane's got dearer or Queensland's got dearer.
Speaker 1: So you sell your house and you move to Queensland
Speaker 1: if it costs the same, then you might be as
Speaker 1: fast to go. The dealer's falling apart from a financial
Speaker 1: point of view. Very interesting, Eliza, really great. Thank you
Speaker 1: very much for those observations, and also what you were
Speaker 1: saying at the start of the show about how the
Speaker 1: big house with the many drums that can become a
Speaker 1: shared house. It's such a rentable opportunity now and has
Speaker 1: that extra dimension that standard one properties tend to do better. Anyway. Okay,
Speaker 1: really interesting. I'm going to do some questions, all right.
Speaker 1: The first is not actually on direct property, but I'll
Speaker 1: read it out. It captures a lot of issues that
Speaker 1: investors face. It's from Warren, would you be able to
Speaker 1: do something on getting exposure to the Australian property markets
Speaker 1: through the ASX. I can think of various building product manufacturers,
Speaker 1: ates and commercial property. There's also less obvious players like
Speaker 1: Harvey norm that own a lot of land. Okay, Warren
Speaker 1: a couple of things. The issue of accessing the property
Speaker 1: market through the stock market is a completely and totally
Speaker 1: different game than only direct property, and what you might
Speaker 1: learn in direct property would not tell you much about
Speaker 1: how to assess a rate or a property trust. That's
Speaker 1: one thing I think I've learned over a long period
Speaker 1: of time. I think it would make it alterra different
Speaker 1: to try and assess companies the property value of companies
Speaker 1: because they own some property like Harvey Norman or loose
Speaker 1: corporate instance, which owns its own buildings. It's very hard
Speaker 1: to assess from a property perspective. It's too complex, I
Speaker 1: think for retail investors. So you're back to what they
Speaker 1: call the reads the property trust. There's a spectrum of them,
Speaker 1: maybe ten or twenty, probably about seven or eight that
Speaker 1: really matter. I think we need someone else on the
Speaker 1: show to talk about them. The only thing I would
Speaker 1: say is over twenty years watching them, Goodman Group is
Speaker 1: just in the league of its own. It's something like
Speaker 1: the common Wild Bank. It's it's just what the others do,
Speaker 1: but it does. It's so much better from a stock perspective,
Speaker 1: and it's been rewarded and doing so. It's now a
Speaker 1: top ten stock. Do you ever look at the property trust, Eliza,
Speaker 1: and do they tell you anything at all in terms
Speaker 1: of informing your daily work and analyzing the residential market.
Speaker 2: I think we're very lucky, Ecologic that we've got the
Speaker 2: comprehensive view of the property market from decades of down
Speaker 2: A collection coverage. So it's not something I've really had
Speaker 2: to look into before. Sorry, Warren, I'm glad you said
Speaker 2: it was a pretty different ballgame, James, because it's not
Speaker 2: something referring very closely.
Speaker 1: Do you, guys or are your services used by those
Speaker 1: property trusts? I observe they're not because they're all office
Speaker 1: and industrial that there's literally almost no residential except maybe
Speaker 1: some developers like Morvak.
Speaker 2: It would be some of these groups, i'd say, who
Speaker 2: buy our data. I've also had a lot of interest
Speaker 2: recently from institutional investors looking to play in the build
Speaker 2: to rent space, so superannuation funds and things like so,
Speaker 2: that's been an interesting dimension to the market. Clearly it's
Speaker 2: modernizing and I need to I need to get across it.
Speaker 1: Yes, No, they're definitely keen, and they make the talking
Speaker 1: big numbers, some of the big funds, that is, the
Speaker 1: big industry super funds. Folks are making arrangements and statements
Speaker 1: to the effect that they will be involved in build
Speaker 1: to rent, But the actual activity underground it's pretty slim
Speaker 1: so far. But I wouldn't rule it out as being
Speaker 1: a factor in the market in the future. Okay, Karen asks,
Speaker 1: if I can reduce the running cost of my mortgage
Speaker 1: by extending the term, what is the longest mortgage in
Speaker 1: the market. That's a great question, Karen. Most mortgages at
Speaker 1: twenty five or thirty years there are. By the way,
Speaker 1: I did some work for you, Karen, and I went
Speaker 1: to one of the financial product companies that look at
Speaker 1: mortgages just to see what the situation was in relation
Speaker 1: to this. It turns out that there are some banks
Speaker 1: and finance companies in the market that will offer a
Speaker 1: forty year mortgage, and that be very useful because if
Speaker 1: you're thinking that you might extend your mortgage, then if
Speaker 1: you could do that, if you could extend, say a
Speaker 1: thirty year mortgage to a forty year mortgage, it would
Speaker 1: be very useful for you. Dave Mickenbecker, who has been
Speaker 1: on the show in the past, he's very good on
Speaker 1: this whole area and this whole issue. He's from the
Speaker 1: can Star Group. Karen I asked him particularly about this,
Speaker 1: and he says, thirty year mortgages remain dominant. Only a
Speaker 1: handful of lenders offer longer, and half of those are
Speaker 1: for first home buyers. Okay, and he says only one
Speaker 1: lender in the past two years has gone over the
Speaker 1: thirty year mark. But there are it's very small. There's
Speaker 1: only four lenders offering nine different products on a forty
Speaker 1: year basis. On a thirty year basis, there are eighty
Speaker 1: eighth lenders offering three hundred and sixty. So there you go. There,
Speaker 1: you can see they're out there. They're out there, but
Speaker 1: it's very rare. Are you familiar with this, that people
Speaker 1: are extending their mortgages to bring the brggage, the monthly
Speaker 1: mortgage built down, Eliza, Yeah, I.
Speaker 2: Think it is a strategy we are getting to the
Speaker 2: kind of pointy end again with high interest rates, rising
Speaker 2: mortgage costs and cost of living pressures. So you're really
Speaker 2: seeing that come through the data in terms of lower
Speaker 2: household savings rates, people working more hours, and people restructuring
Speaker 2: their mortgage payments so less going into offset and redraw
Speaker 2: facilities and more having to go to the principle of
Speaker 2: interest payment. Forty years is also the lowest term that
Speaker 2: I've seen flirting around, but again, like you say, it
Speaker 2: can be harder for older Australians to take on those
Speaker 2: longer loan terms. These tend to be the non bank
Speaker 2: lenders as well that take on those more unique terms.
Speaker 2: And of course, as Karen would probably know, this is
Speaker 2: going to increase your mortgage interest costs over time as well,
Speaker 2: so that's something to be conscious of.
Speaker 1: Yeah, the very valid point, so current your monthly a
Speaker 1: bid will come down both your mortgage that is the
Speaker 1: amounty or the bank will rise. I think we had
Speaker 1: these figures on the show a few weeks ago. On
Speaker 1: an average mortgage, if you changed out say twenty five
Speaker 1: to thirty years, your bill might come down by one
Speaker 1: hundred and twenty dollars a month something of that order,
Speaker 1: But what you would owe the bank would actually lift
Speaker 1: by over one hundred thousand dollars. So that's how it works,
Speaker 1: so keep that in mind. It's very much a case
Speaker 1: of buy now, pay later on a grand scale. If
Speaker 1: someone's right up against it, and it really makes sense
Speaker 1: to pay off the mortgage rather than losing an investment property, say,
Speaker 1: it's certainly something worth exploring if you can do it, okay,
Speaker 1: finding questions from Andrew, it would be great to hear
Speaker 1: a hypothetical discussion about who inflation and deflation could then
Speaker 1: be more effectively handled by raising or lowering the GST
Speaker 1: rather than interest rates. This would evenly spread out the
Speaker 1: pain and incentivize people during tough times all products, rather
Speaker 1: than just pounding those with outstanding mortgages. This comes up
Speaker 1: all the time. Is there any other way to steer
Speaker 1: the economy than this terribly blunt instrument of mortgage rates
Speaker 1: interest rates, which hit those in the property market, particularly
Speaker 1: owner occupiers and to that extent, investors. You're an economist,
Speaker 1: well credentialed, Aliza, what do you say to experiments beyond
Speaker 1: rate setting?
Speaker 2: Yeah, I'm also a recent first home buyer. I love
Speaker 2: this question. Yeah, really good point from Andrew, But at
Speaker 2: the end of the day, I think interest rates is
Speaker 2: still the best mechanism for targeting inflation. So a few
Speaker 2: issues with trying to use fiscal policy and taxation or
Speaker 2: even other suggestions like suberannuation to do this. The first
Speaker 2: is that monetory policy works a lot faster than fiscal policy.
Speaker 2: You think about some of the debates we've had around
Speaker 2: GST in recent years, or even the Stage three tax cuts.
Speaker 2: These issues are debated for a long time, They take
Speaker 2: a long time to actually pass through parliament and take
Speaker 2: effect in people's cost of living and take pain and
Speaker 2: things like that. At the end of the day, monetary
Speaker 2: policy has been used for a long time because it's
Speaker 2: much more responsive to economic conditions than the fiscal policy.
Speaker 2: I would challenge the idea that an increase in the
Speaker 2: DST spreads pain equally famously, GST can actually act as
Speaker 2: a bit of a regressive tax, because a ten percent
Speaker 2: increase in the cost of goods and services means more
Speaker 2: to low income households than it doesn't feel high income households.
Speaker 2: So unless you're actually taking that GST money and giving
Speaker 2: it that directly to lower income households to make it
Speaker 2: more progressive. It's not necessarily equally affecting households. And the
Speaker 2: other thing I would say is beyond the household sector,
Speaker 2: where we are actually seeing a decline in discretionary spending.
Speaker 2: More people curve, they're spending struggling with the cost of living.
Speaker 2: It's not just a question of households spending. Let's we
Speaker 2: also need the government to be spending less, winding back
Speaker 2: infrastructure projects. We are seeing that comes from in fiscal
Speaker 2: policy as well. So there's definitely things that the government
Speaker 2: can do to help reduce inflation. But I don't think
Speaker 2: that looks like a change in tax settings or superannuation
Speaker 2: settings or anything like that.
Speaker 1: Okay, that's clear to you, Andrew, and thank you for
Speaker 1: the question. Just witting back to where we started, actually, Eliza,
Speaker 1: we mentioned at the very start that after this week
Speaker 1: had reiterated that they're not going to change the buffer.
Speaker 1: That means that everyone who goes in and gets a loan,
Speaker 1: whatever a percentage loan they get, if it's six percent,
Speaker 1: they're going to get assessed at nine percent. They're going
Speaker 1: to keep that three percent buffer in there, which is
Speaker 1: a block, of course for many people. Especially investors. But
Speaker 1: that is macro predential policy, isn't it. That's halfway house
Speaker 1: between rates or fiscal policy. That is actually a regulatory
Speaker 1: move to try and massage the economy, isn't it by
Speaker 1: the RBA or by this by the regulators the opera?
Speaker 2: Yeah? Yeah, the banking regulator APER so APPA is more
Speaker 2: concerned with financial stability in the lending space and pregnent
Speaker 2: lending than they are necessarily with macroeconomic targets and things
Speaker 2: like that. And I do think though that the three
Speaker 2: percent buffer is going to be in place for a
Speaker 2: long time. I think it potentially could be in place
Speaker 2: when the cash rate starts to move lower as well,
Speaker 2: because the Council of Financial Regulators may be conscious of
Speaker 2: the effect of a rate reduction in reinvigorating house price
Speaker 2: growth and the ef that could have in terms of
Speaker 2: wealth effects and inflationary pressures as well. So I think
Speaker 2: as long as we're getting to this kind of sticky
Speaker 2: last leg of our high inflation journey, and by the way,
Speaker 2: high interest rates have been working to bring that inflation down,
Speaker 2: it's just the final leg is a little bit trickier.
Speaker 2: I think they're going to want to keep lending conditions
Speaker 2: pretty conservative while that is happening, and while we get
Speaker 2: an adjustment to interest rates. So that's my guess. I
Speaker 2: don't have any particular inside knowledge or anything like that.
Speaker 1: But we wouldn't want to be waiting for those buffers
Speaker 1: to be removed. We wouldn't start. It might be a
Speaker 1: mistake to think that they are temporary, even though they
Speaker 1: are supposed to be temporary.
Speaker 2: Look, I think they may be temporary. I just think
Speaker 2: it's longer that they may be in place on the
Speaker 2: other side of the rate hiking cycles. Because lending has
Speaker 2: already been incredibly resilient. Property prices have already been incredibly
Speaker 2: resilient to high interest rates. Once those interest rates move lower,
Speaker 2: there could be some risk of a resurgence in housing
Speaker 2: implications for wealth as X, and so I think they'll
Speaker 2: want to keep lending growth pretty contained while that change
Speaker 2: is made in the cash rate.
Speaker 1: The temporary position of a buffer of three percent, folks,
Speaker 1: it could be temporary for a long time. Interesting. Okay, Hey,
Speaker 1: thank you very much.
Speaker 2: Eliza, absolutely, thank you so much for having me.
Speaker 1: Great to have you, always, great to have you, and
Speaker 1: great to have you folks on board. We were hoping
Speaker 1: on the show today just to ask you something. Perhaps
Speaker 1: you might think about this, and we get lots of
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Speaker 1: Keep in mind that we have an email for all correspondents.
Speaker 1: It's the Money Puzzle at the Australian dot com dot
Speaker 1: a you and today's show was produced by Leah Samangli.
Speaker 2: Talk to you soon.