Rising Interest Rates attribute to (not stop) Inflation
According to 2021 Census data, in Greater Sydney, 27.8% of households own their property without a mortgage, 33.3% are paying a mortgage and 35.9% rent.
Mortgage payments do not make up part of the CPI figures, but the price of new dwellings and rentals does.
So technically, rising interest rates only affect 1/3 of us? Wrong. Owners of investment properties also have a mortgage and general increase rents as interest rates increase, DIRECTLY impacting CPI figures (adding to inflation). Higher interest rates also impact the cost of capital, leading to reduced investment into housing, limiting future supply, once again adding stress to rental prices.
This trend isn't limited to the residential sector. Higher interest rates will encourage investors to seek higher yields from commercial properties as well. Every single business is either carrying a loan or pays rent. These increased costs are inevitably passed on to the consumer.
In theory, raising costs should stump demand, however, food, shelter and fuel are necessities we can't choose to consume less of.
Even if demand drops, most retailers will still increase prices as their costs continue to rise (rising power costs, rising fuel/transport costs, rising labour costs, rising insurance premiums)
This trend can already be seen in the ABS CPI June 2022 New Dwelling prices. The price of New Dwellings has increased in a weakening market with reduced demand. The price increase is purely cost driven with higher rates set to contribute further.
One thing higher rates will definitely reduce is property transactions. Less transactions means less stamp duty for the State Gov. and less CGT revenue for the Federal Gov
Albo, congrats on the win, but I don't envy you. Who wants to be the Prime Minister of higher fuel costs, high grocery costs, higher rents and higher interest rates? Yes this is a global problem, but we live and vote in Australia.
Will the Government and RBA keep following the lead from the US or realise they don't have all the answers and try to come up with their own solutions?