Rate rises risk pushing property prices higher as production stalls
Governments and housing authorities must take into account the effect of their actions on home building, and failing to do so will be costly for all.
The most recent manifestation of this problem was the rise in interest rates, which was completely the wrong call. The Reserve Bank thinks that if it raises interest rates, prices will fall.
However, if they raise interest rates, the housing production drops and prices rise. It is important to note that to talk about 2-3 per cent inflation is completely wrong.
If I made 2-3 per cent I would not build anything and nor would anybody else.
It is essential that planning departments ensure that home production goes up. So far, the production has gone down every year and prices have gone up and people can’t afford to buy.
In NSW, the department wants everything to be perfectly correct. But no one cares if everything is perfectly correct, except them. People need housing, which is constantly going down in production.
And it is looking at the market wrongly to say that only 25 per cent of people pay mortgages. The relevant figure is how many new homebuyers take out mortgages, probably 100 per cent, and that is why interest rates must fall.
The chair of the Federal Reserve, Jerome Powell, has been raising US interest rates for over a year without any significant fall in inflation. Now he can’t afford to pay the high interest for the bank, so interest rates stopped going up.
Something will happen here too, and interest rates will stop going up. I am waiting for them to start going down.
Our banks scrupulously obey the government, but then profits are minimal. The banks must learn to make profits. They must be easier on lending. If needed, the government must cover some of the banks’ risks. But banks must lend on buildings under construction. Too many properties that are a good risk don’t get bank finances.
Excessive tax is another risk. The foreign buyers have to be spared the high extra charges the state and federal governments have introduced. Foreign buyers are charged stamp duty plus an additional 8 per cent foreign surcharge, exorbitant application fees and an annual 4 per cent foreign land tax surcharge.
On a $1.1m apartment, total fees and charges equate to $171,100 – or about 15 per cent of purchase price – which means foreigners go elsewhere.
I have been lending for 50 years and I have very few bad debts. Australians love their homes and are a good risk. We have finished Epsom Rd, Rosebery of 271 units. In Pagewood, we are close to finishing 718 units and in Carter St, Homebush 548 units are well advanced.
Harry Triguboff is managing director of Meriton Apartments