What does Philip Lowe have to say?
The outgoing Reserve Bank governor, Philip Lowe, seems unconcerned about the potential challenges posed by the transition from cheap fixed-rate mortgages to more expensive variable-rate loans.
About 1 million borrowers have already made this shift, with another 1 million expected to follow in the next year. Lowe believes that this increase in interest rates has been widely anticipated and that evidence from major banks indicates borrowers are managing the transition well and maintaining their spending habits.
This optimism is based on a couple of factors. First, information from senior bankers suggests that borrowers' incomes have risen by approximately 10% in the past year, giving them the capacity to handle higher interest costs. Second, stricter lending regulations following the banking royal commission have made bank loan portfolios more conservative, reducing the risk associated with mortgage loans.
Lowe's main concern lies with renters rather than mortgage holders. He estimates that rental prices have increased by around 10%, affecting consumption and economic growth. Additionally, rising rents could lead to persistent inflation, potentially necessitating further interest rate increases. While the Reserve Bank aims for a more cautious approach to interest rates at present, Lowe emphasizes the need for governments to address housing affordability issues by improving housing supply through zoning and planning deregulation. However, he dismisses rent controls as a short-term solution that wouldn't address the root problem.
Lowe's call for structural changes to address housing affordability and supply is hampered by political challenges, similar to the difficulty of implementing productivity reforms. The hope is that politicians will pay heed to these concerns and take appropriate action.
source:
https://www.afr.com/chanticleer/lowe-nails-the-real-source-of-property-pain-20230811-p5dvu7
