Housing crisis, what housing crisis?

Economy, Housing, Politics

Aug 16, 2023

Newspapers decry it; yet market-led inflation more broadly is tut-tutted away as a ‘sacred mystery’ central to a free and working capitalist system. Government mandated inflation however, which society must pay to maintain a balanced economy, does not please anyone.

As more and more social and economic ‘data’ is captured in society, details of trends have become evident. We are told that the leading institutions and players in the financial world are consummate experts, controlling, managing, leading the economy to ever better outcomes, to more wealth and better societies.

Why does this claim not feel accurate for ordinary people? As neo-liberalism spread world-wide from the 1970s onwards, policies in all economies were affected. Fifty years on, somehow we all seem to have less, despite the obvious proliferation of personal technological tools to which we worship daily.

The economic data from over the last 50 years consistently shows growing wealth inequality in all economies – Western, Third World, Socialist, Communist, and Capitalist societies. Wealth inequality is when the proportion of wealth held by the wealthiest 1% or 10% of people increases disproportionately compared to the poorest 50% or 60% in the same society. There is a net flow from the poorest to the richest – unstoppable, and yet rarely revealed.

Remarkably, this flow continues in both good times and bad, whether the economy is performing well, or if there are crises. During the GFC in 2007-2009 when banks worldwide were destabilised by sub-prime mortgage mismanagement in the US, or during the Covid-19 epidemic when societies locked down and economic activity was curtailed, the flow of money from the poor to the rich, particularly to the very rich, continued unchecked.

Recent probity scandals involving international business compliance companies – financial and business experts who audit and advise the wealthiest companies and governments world-wide, reveals that this money flow results from active efforts of consultants to prevent taxation of the rich. Economic data shows that global crises are detrimental only to the bottom half of societies; the wealthy really do not experience them at all. This not the impression given by popular media, they suggest that economic crises damage everybody, that ‘we are all in this together’.

This representation of how a crisis is experienced by all is deliberate. It is one of the delusions presented in respect to the economy and its workings by mainstream media and indeed by governments. None at the top want people at the bottom to understand that their society is deliberately unfair.

The uniformity of wealth flowing from poor to rich indicates that the mechanisms devised to regulate the economy are designed to deliver this unidirectional flow by default. ‘Market-led’ sources of inflation, by their nature, increase the cost of goods and services, and profits which flow inexorably upward. Inflation is Capitalism’s method of keeping the flow increasing, and moving in the right direction. Populations, after initial grumbles, accept the new higher price of potatoes, petrol, rent or whatever. And after an inflationary period is eventually halted, prices never return to levels before the disease – the economy remains infected with an inflated residue.

Then there is government regulated, or ‘prescribed inflation’ set by the central banks of all countries by increasing the base bank interest rate, and used to bring market-led inflation downwards. In Australia, the RBA had successfully held the base interest rate to 0.1% for an extended period, but the base rate has now been increased 12 times since May last year, sitting now at 4.1%, whilst undesirable market-led inflation increased by 7-8%.

How much additional inflationary pressure will these base interest increases add to depressing the economy? Not enough it seems, because industries have responded by increasing prices yet higher, passing the higher bank interest charges on to the Australian public. We now have to cover these extra costs, or curb other spending to levels we can afford.

Food prices increase, fuel, housing, transport and clothing are all more expensive. These extra costs are only really experienced by the poorest half of society – ‘they are doing it tough’ as Treasurer Jim Chalmers constantly reminds us. Unsurprisingly, higher base interest rates also result in increased profit flows to select parties, to commercial banks, financial services, housing and rental marketers, and to their shareholders.

In all this, the Australian housing market is remarkable in the world. The Hawke/Keating government introduced ‘negative gearing’, allowing investors to offset mortgage interest costs on investment properties against personal income. Minister Chris Bowen has admitted ‘… negative gearing was introduced to encourage new house building, yet 93 per cent goes to buying existing houses”. The purchase of multiple properties is virtually loss-free, so investors will pay a premium for more properties. Higher house prices mean larger mortgages – whoopee say the banks, who win both ways.

The effect of ‘beneficial investment housing’ policies has driven house prices to levels unaffordable to many in the population and ensures renters remain trapped for exploitation by landlords, who recover costs with higher rents. Add to that the Albanese government’s reluctance to introduce rent controls, and the property market and house prices are exploding yet again. All despite the ongoing inflation crisis, where ‘Australians are all in this together, doing it tough’.

Remarkably, we heard evidence recently that RBA rate rises are now really biting. A lady interviewed on Radio National told that her daughter ‘… was having trouble paying private schools fees for her three children, and servicing the mortgages on her numerous investment properties was becoming rather troublesome’. These are troubles many of us would like to have too.