Maria Irene
A trip down the memory lane of Australian economic history sees us travel from that high-water mark of 17.5% in 1989-90, charting a steady descent to the unprecedented low of 0.1% by April 2022. A soothing journey, one might think, a gentle lull from the violent waters of financial tumult to a placid pool of low cash rates. But this trip hides treacherous undercurrents – the spectres of inflation and the silent erosion of real wages, a phantom that has clawed back 14 years of growth since the second quarter of 2021.
Today’s inflation serves as a potent reminder of a challenge not faced for over a decade, a seemingly distant adversary rearing its head once again to taunt the Reserve Bank of Australia (RBA). The numbers whisper cautionary tales, with the ANZ Consumer Confidence Index teetering at levels reminiscent of the 1990-91 recession, despite today’s unemployment rate nestling near 49-year lows and the RBA cash rate languishing at less than a quarter of its 1990 counterpart.
Yet the issues faced by the RBA don’t stop at the simple task of inflation management. There are the vagaries of the Australian dollar to contend with, and the herculean task of tackling Australia’s formidable household debt load, a weighty issue that has seen an alarming leap from less than 50% of disposable income in 1990 to a worrying 211% in 2021. The spectre of debt is not merely a local apparition but takes on global proportions, with Australia’s household debt towering above any developed G-20 nation and doubling that of the United States, according to data from the Bank For International Settlements.
This burden, as AMP’s chief economist Shane Oliver points out, is nearing an all-time high, even though households are spending the smallest proportion of their disposable income on interest repayments in 30 years. An intriguing paradox, one might say. But add principal repayments into the mix, and the picture morphs into one of rising dread – the strain of servicing Australia’s household debt load is reaching its highest level on record.
The intriguing game of numbers continues with mortgage rates. The average payable variable rate on outstanding owner occupier mortgages dances at around 6.32% in 2023, a rate less than two-fifths of the headline mortgage rates of 1990. It presents a deceptively lighter burden. But scratch the surface, and you find households buckling under the pressure of falling purchasing power and escalating mortgage servicing costs.
While these complexities present a multi-faceted challenge in itself, Australia is simultaneously wrestling with an equally critical and inextricably linked issue – housing. With immigration rates set to soar, thanks to a markedly liberalised immigration programme by the Labour Government, the housing sector is gasping for breath. The statistics are daunting: approximately 497,984 additional dwellings required to house a projected 1,235,000 net overseas migrants expected to land on Australian shores over the next four years.
This translates to a herculean task of constructing 341 new homes daily for four years, a feat akin to squaring the circle. With construction rates stumbling amidst builder failures and soaring costs of materials and financing, the question looming large is how Australia will accommodate this population surge. It’s a situation that Migration Watch Australia candidly describes as an “insane demand driven by record-level immigration.”
Indeed, it’s as though Australia is caught between Scylla and Charybdis, with the raging tides of immigration on one side and the steep cliff of financial and housing challenges on the other. It remains to be seen how the country navigates this economic odyssey, as it finds itself stuck between a house and a hard place.
