One way this is punishing the young is that the low interest rates we’ve had in response to flat official inflation have freed existing homeowners to borrow and buy more, pushing prices up and blocking the way for those who weren’t yet. in the game.
Second, tens of thousands of homeowners use their redrawing facility for consumption. Getting off the mortgage, or “eating the house,” is a luxury for those who see their home prices rise, increases the relative disadvantage of those who can’t, and adds to inflation that will now punish everyone equally, or it whether they have a house or not. Nice (lack of) work if you can get it.
There is a lively discussion about whether existing house prices should be included in the CPI. Gareth Aird, a senior economist at Commonwealth Bank, has argued that the exclusion masks intergenerational inequalities. “For households that don’t own a home and aspire to buy one, the CPI is a very poor measure of changes in the cost of living,” he wrote in 2017, before the most recent boost in the long property boom even kicked in.
Australia flirted with including house prices in the CPI in the 1980s. Politicians were reluctant to acknowledge higher inflation, which would lead to interest rate hikes and cost votes. An American economic statistician, John Williams, coined a term for concealing house price increases: “Pollyanna creep”. The beneficiaries of Pollyanna creep, he said, were politicians who could tell voters that inflation was lower than it actually was, and wealthy elites who could pile up cheap debt and deploy it in the financial markets.
Pollyanna creep further entrenches the inequality between generations when interest rates finally catch up. Only those living off their savings will benefit from rising rates… and guess what, that also excludes the young.
Australians are ahead of their policymakers by knowing this – hence the mockery of Scott Morrison’s ‘you’ve never had it so good’ statement about the economy. The shift in voting last month was driven by a grand alliance between young people and those who care about young people – a voice for action on climate change and housing affordability.
Those who have benefited from a large unearned Ponzi scheme are now seeing their children grow up with diminishing opportunities to participate. generations. House prices are turning 21st century Australia into something more like an old-fashioned country, where inheritance trumps everything else and if you were born without it, chances are you will stay that way.
This is not the Australia where all those beneficiaries of undeserved wealth grew up, and not the Australia that I would like to leave behind.