Records tumble as 80s brick and tile home sells for $1.26 million in Wanniassa

Low interest rates mean people borrow more. Large loans means people have more money to spend and higher buyer demand pushs up house prices. Prices, rents and rates also rise because of ACT govt land policies. Ratio of mortgage, rents and rates repayments to income rises. If and when interest rates do start their inevitable rise people will borrow less and budgets will be sqeezed. Many will be unable to pay their mortgages because they borrowed to the limit of their incomes. Houses will be sold off and house prices will fall. In 1989 home loan interest repayments rose to 17.5%. All borrowers must allow for future rate rises.

The ACT Government is releasing less land for housing than at any time since the 1960s. We can’t place all the skyrocketing property prices on the banks and federal property investment schemes.

With what seems likely weekly explosions of excitement about the latest “suburb price record smashed”, the ACT government’s land valuers and revenue gatherers must be feeling like the proverbial pigs in mud – “rates shock” is going to be even more of a thing for Canberra households in coming years.

The spiraling home prices all, of course, depend on the banks continuing to have access to plentiful funding at exceptionally low rates. Another part of the price rise equation, which tends to be overlooked here in Canberra, is the extent to which incomes that can support mega-mortgages rely on a federal budget that has been massively boosted by minerals revenues – primarily from purchases by China. What could possibly go wrong…..?

Low lending standards and inflated bonuses for originating mortgages based on ever rising values are core features of our banking system. This has diverted investment away from more productive activities and created a growing wealth divide between the asset rich and the rest.

It is the liberalisation of finance and the treatment of housing as an investment product that got us into the housing affordability mess – Mark Limb (QUT) & Cameron Murray (USYD).

Former RBA head Ian Macfarlane is on the record saying that those who profit from rising house prices “are making themselves richer at the expense of their children.” i.e. engaging in intergenerational theft.

Niall Ferguson, describes the traditional intergenerational compact as our most important social contract and one that is being broken in Western economies.

In 1981, 60 per cent of people in the lowest wealth quintile aged 25-34 owned a home. Today the figure is just 20 per cent.

While bankers, real estate agents and landlords celebrate someones indebtedness, civil society withers away, fertility rates fall, wealth and thus power is concentrated into fewer and fewer hands.