Letter from Colin Cook (SA)

Re: Finding the tools to end the cost-of-living crisis [ERA Review Jan/Feb 2024]

Towards the end of 2020 there was talk of lifting the restrictions on borrowing for housing; changes became effective in the New Year. Over the four years preceding and including 2020 the RBA figures for Bank lending to persons, housing and owner-occupiers along with lending to investors averaged $61billion per annum. For the next three years – ending last December – the comparable figure was $121billion. Thus, there was a step jump of $60 billion in finance for housing between 2020 and 2021, practically a doubling – and this continues.

One might reasonably assume that this has caused house/land prices to increase – as per the simple demand-supply model; Dr Steven Hail says this price pressure would be particularly effective in the primary sector of the economy and that it was in this sector ‘that the recent acceleration in the cost-of-living began – with power and food prices rising’. Weber is quoted as discussing ‘.… how inflation can be propagated, with primary sector price increases feeding through to the secondary sector and eventually the tertiary sector….’.

Modern monetary theorists may well attribute the cost-of-living crisis mostly to supply line disruption but – as is now apparent – these were/are temporary; the $60 billion annual input to the housing market seems here to stay. In late 2020 bank lending restrictions were lifted, with extra money available for housing at double the previous rate.

The poor affordability of access to land, housing and rentals (or ALHR to coin a new acronym) has evoked near-daily commentaries – mortgage stress, rental stress, no foot on the ladder, etc – so it is strange that this segment of the economy is not mentioned at all in the article ‘Finding the tools to end the cost-of-living crisis’. Nor reference to the fact that the new money flowing to this sector doubled between pre-2020 and 2020 onwards – a matter of an average extra $5 billion per month for the last 36 months.

There is passing reference to ‘credit controls on our banks’; it would seem that the relaxation of early 2020 and subsequent flow of money to housing – as per RBA data – may have boosted inflation for ALHR and thus strengthened the case for credit controls. The banks are THE ‘big businesses’ of the primary sector.