Stephen Parry (Tasmania, Liberal Party) Share this | Hansard source

I also rise to speak on the motion proposed by Senator Sherry, No. 623 in today’s Notice Paper, and in particular:

(a)

that the interest rate rise on 8 November 2006 is the eighth consecutive increase since May 2002 and the fourth since the 2004 election ...

We need to understand that interest rates move within bandwidths; they do not just sit at one particular level and stay there forever, otherwise we would not be discussing interest rates and economies would not work the way they work. Interest rates will move. They will fluctuate constantly, depending on world and local issues. Equally, interest rates move according to factors that are necessary for any Western economy. It would be just ludicrous to think they were going to stay in one spot. But one thing that this government has achieved is that we have maintained interest rates within what I call a low bandwidth.

There are bandwidths that interest rates will fluctuate within. Under the previous government, the Labor government, the bandwidth was very high, and interest rates did not stay at one level within that bandwidth; they moved. They moved to very high positions and they moved to moderately high positions. Over the last 10 years, in particular the last couple of years, they have been at the low end of our low bandwidth. I think that is a record that no-one could deny that this government has achieved through good economic management. Good economic management is one issue; it is not the only issue. I shudder to think what interest rates would be like under a Labor government, where the economic management record is not as sound and not as good as ours.

I want to address a couple of issues that Senator Lundy just raised. I want to quote from Real Estate Market Facts, a publication that comes out quarterly from the Real Estate Institute of Australia. In the March quarter, there were some interesting facts concerning generation Y and the change in that generation, in an article headed ‘Generation Y sacrifices for great Australian dream’. The article was produced by Warren O’Rourke, the National Corporate Affairs Manager of Mortgage Choice Ltd. It states:

In order to better understand the next generation of property borrowers, Mortgage Choice surveyed Generation Y on their property investment intentions.

It continues:

In the independent online survey conducted with over 1,000 Australians aged 18 to 28 years, 85.2 per cent who are purchasing a property or saving for a deposit within the next two years intend to make sacrifices in order to achieve their goal.

This is one of the issues that come to the core of the matter—that is, income levels are higher under this government. There have been enormous increases in real wages compared to when Labor was in office. The disposable income of people has increased. Younger people who want to go into the housing market also want to have other things.

I know the sacrifices I went through in the late seventies and early eighties when I started to buy my first home. I know what it was like. We went without. We simply went without things. That meant that you did not have a new car. That meant that you did not have furniture. In fact, I had some rooms of my home that were not furnished at all in the early stages. That is what you do, and that is what you have to do. You have to make sacrifices. I will continue with some of the interesting figures and interesting facts that came out of this survey. It stated:

‘Generation Y’ and ‘making sacrifices’ are not usually spoken in the same sentence but it seems this group of Australians are just as determined as previous generations to anchor a substantial amount of their financial future into property.

It continues:

With multiple answers allowed, the most common sacrifice was to cut back on spending—

81 per cent said that—

while 40.4 per cent planned to miss out on overseas trips. Next were—

that is, the next issues that people in this generation were considering were—

changing to a higher earning job—

if they could—

remaining in a current job ... purchasing a less expensive property—

and this is another important factor. To enter the housing market—I know that in Tasmania, my home state, there are plenty of houses that could be purchased for very modest amounts of money—people set their sights on higher property values when they probably should be entering the market at a lower level. It is a choice for everyone to make, but to say that it is the interest rates alone that are causing people not to enter the property market is absolutely false. This article also stated:

In previous decades, that number would have been higher. Housing affordability is a big issue for this generation but it doesn’t appear to have much impact in deterring them away from the market.

I will repeat that: ‘It doesn’t appear to have much impact in deterring them away from the market’—contrary to what has been proffered from the other side. It continues:

Property ownership—whether for the purpose of making money or making a home—is a goal that the majority of Generation Y is aiming for.

So the bandwidths that interest rates move within under the coalition are low and are not deterring new entrants into the property market—in particular, the people under the age of 28 years, as that survey bears out.

There are some other matters on housing affordability which are very important. In the world, Australia still has traditionally very high ownership rates—around 70 per cent. I think only Italy has a higher rate than we do. The most important way that we can improve housing affordability is not simply keeping interest rates at a certain low level, certainly within the low bandwidth that this government is proud of achieving, but keeping unemployment low. And what a record we have for keeping unemployment low! That is a significant factor in creating housing affordability.

Another way is to keep real wages rising. We have proven that over our decade in office. The real increase in wages, the disposable income level, is certainly higher under the coalition than it ever was under the Labor Party when they were in government. Yes, keeping interest rates within a low bandwidth is very important, but it is not the only factor. I keep stressing our bandwidth of low interest rates because a bandwidth of fluctuating interest rates is very important to remember, not just a single low interest rate figure.

Maintaining competitive and efficient housing construction is another important factor. I could go on forever explaining how we have created a very competitive and efficient industry sector. Some of the government’s policies have assisted greatly in that. These things do not happen by accident; they happen with deliberate hands on the levers of the economy and all the aspects that go with the national economy. Ensuring adequate land release is another very important aspect in keeping land prices relatively low. Whilst increasing with inflationary aspects, it is important to keep land prices at a low level.

If the opposition were serious in keeping housing within what they say is the reach of every Australian, they would need to make sure that it is affordable at every level—not just interest rates, not just the mortgage. What about the add-on costs? What about stamp duties on land transfer? They represent 1.6 per cent of the GDP in Australia, compared with the OECD average of 0.7 per cent. I know it has been quoted before, but it is worth repeating and placing on the record that on 18 August this year the former Reserve Bank of Australia governor said:

I think it is pretty apparent now that reluctance to release new land plus the new approach whereby the purchaser has to pay for all the services up front—the sewerage, the roads, the footpaths and all that sort of stuff—has enormously increased the price of the new, entry-level home. That is a supply-side issue, not a demand-side issue.

It is important to understand that land release and the up-front costs, not interest rates, prevent people from entering the housing market. Interest rates are not a single determining factor; it is these other factors. And Labor state governments have control over these other issues that contribute to the inability of some people and the reluctance of others to enter into the housing market.

The Reserve Bank’s September 2006 Financial stability review showed that the mortgage repayment burden on a new home occupier mortgage was 27.7 per cent of average household disposable income, compared with 30.4 per cent in 1989 under Labor. So homeowners are clearly better off today than they were under Labor, when interest rates reached 17 per cent. That is a very important aspect for us to remember. I know that when we had two young children and were struggling with a mortgage on our family home it was very difficult for us to pay interest rates at that high level. Under this government, interest rates have never been anywhere near that high level, and they have been much lower within that bandwidth. From an interest perspective, I think that makes housing affordability extremely reachable.

There are some other matters that I wish to mention which concern mortgage interest rates. It is important to reflect that, apart from maintaining substantially lower interest rates than those during the Hawke-Keating years, we are also facing the worst drought in 100 years. This has an inflationary aspect. We have experienced the highest oil prices for a long time, in fact ever. The effect of natural disasters has been mentioned in this chamber before—in particular, the effect of Cyclone Larry on fruit prices. Fruit prices, which do affect people’s day-to-day spend, rose by 20.5 per cent in the September quarter. Enough has been said about the price of bananas over the last few months, but they rose in price by 45 per cent. Automotive fuel has also increased in price. It increased by 10.5 per cent. These factors can also affect a person’s disposable income, not simply interest rates. It is important to acknowledge that interest rates are just one aspect, and we still maintain and argue—I think successfully—that interest rates are still within a very low bandwidth.

As I mentioned before with that study from the Real Estate Institute of Australia, another aspect that we need to consider is how people spend and what their priorities and their focuses are. The priority for an overwhelming number of people is to own their own home, and they are not deterred by the entry cost. They realise that they have to make sacrifices, as many people have in the past, when buying their first home. I think that is a very important thing to consider.