So if you were between the ages of 21 and 35, and earned the national average income for people in your age group of $ 58,635 a year, the price of a house in Sydney is rising every day by an amount equal to a week’s wages . The message for the average Australian is to despair of being able to do what your parents most likely bought a home for.
What an excellent national achievement. Weve valued the next generation by the ability to buy a home. We have only 26 million people living on an entire continent, but we cannot provide affordable housing in our major cities.
Crazys quite crazy in many parts of the rich world at the moment because interest rates everywhere are so low, but there is only one city in a country where price increases are craziest this year in Vancouver, Canada, according to CoreLogic.
And besides, this acceleration is just the latest in a national failure for a long time. Historically, housing affordability has been similar among nations until a few decades ago, says Mr. 2021 Demographic Survey on International House Prices.
For example, national price-to-earnings ratios were 3.0 or less in Australia, Canada, Ireland, New Zealand, the United Kingdom, and the United States by the late 1980s or 1990s. That means you can buy an average home for three times the average annual salary.
Since then, the ratio has quadrupled average incomes in the US and Canada and a whopping six times in Australia. New Zealand alone is worse off these decades, with the ratio growing to seven times the revenue.
This is a betrayal of generations. Any Australian in my generation or older who thinks he or she is a great investor because of the fat gains in housing prices is simply a participant in the betrayal of the next generation.
Another piece of news this week was the performance of the Australian stock market. The ASX 200 price reference index rose to new all-time highs in four consecutive days, peaking on Wednesday at 7406. That is 62 percent from the low pandemic level 15 months ago. And 10 percent above its level at the opening of 2020.
Once again, this is good news if you happen to own a stock bunch, or have a stable retirement balance, because the typical super fund is invested primarily in Australian stocks. But if you do not and if you rely on wages, the situation is not so happy.
Frydenbergs’s budget fully expects wages to rise so easily that they are surpassed by inflation. In other words, the purchasing power of the average wage will go backwards this year. And real or inflation-adjusted wages are projected to remain stagnant for years.
In summary, property owners are getting richer at a rapid rate and revenue earners are facing stagnation. If this continues, it would represent a new phase in Australian inequality. Andrew Leigh is a federal Labor MP who also happens to be a world-class economist and an expert on the topic of inequality.
The history of inequality in Australia over the last 30 years has been about different job incomes, says Leigh. It has been a wage boost that lawyers ‘wages rose faster than cleaners’ wages and in part a history of technology.
But the next generation of inequality may be divergence between workers and owners of capital. Returns on stocks and property in the past year have been astronomical and the main factors of this are likely to continue with low interest rates and a tax system that encourages investment in housing. In terms of stocks, he cites potentially stable factors such as high commodity prices, high ratings of tech companies and increasing priority in health services.
Leigh, a former professor of economics at ANU who wrote several books on inequality, tells me: You move more and more into a two-class society, it takes many generations as a group of people pass houses to their children and a group else there is nothing to pass.
That would put Australia in Piketty territory, he points out. Thomas Piketty is the French economist book of 2013 The capital in the 21st Century became a bestseller companion. A bestseller because it was bought by a lot of people, a shock because it continued to be illegible.
Pikettys core point was that there is a central contradiction of capitalism when the rate of return on capital exceeds the rate of economic growth. If there is no counter-force, it creates a persistent inequality that eventually destroys democratic societies.
You can make a good case that this is what happened in the US, where staggering inequality created the political market for Donald Trumps ’destructive populism. Trump then had a heated attempt to overthrow the U.S. election and install him as an unelected autocrat.
Leigh says that, so far, Australia has not proven the Pikettys contradiction of capitalism. But that now seems to be the case for Australia if we enter an era where property owners consistently earn higher profits than the rest of the population. In other words, today’s Australian reality is set for a long time.
Frydenberg has a point to make. His strategy is to lower unemployment so low that employers are forced to pay higher wages to their workers. Wage growth is accelerating and, hey presto! The problem is solved.
Unfortunately for the Treasury, the Governor of the Reserve Bank has a point against. In a speech this week, Philip Lowe said that while conditions were available for wage increases, they simply were not.
The large volume of stimulus is unprecedented, unemployment is falling and workers are scarce in many sectors. But employers are not offering higher wages. Why not?
Partly because state and federal governments have cut the wages of their workers, the public service. And partly because bosses have a fixed opinion that they can not raise prices. If profits cannot be increased by expanding or raising prices, then it must be achieved by reducing costs, Lowe says. This mindset can be helpful in making businesses more efficient, but it also has the effect of making wages and prices less responsive to economic conditions.
In other words, the Frydenbergs plan is not working to raise wages. It may be definitive, but there is no hint so far.
Of course, Lowe can help by raising interest rates. This would clear up the housing market. But the Reserve Bank says its main job is to keep rates low to help deliver economic recovery, rather than trying to control house prices.
It is true that there are many reasons for boosting house prices with low interest rates, of course, but so are federal government tax policies, and how state and local governments manage stamp duties, land releases, zoning, and approvals. of buildings.
The big question for Frydenberg is this if your plan to raise wages does not work, what will you do instead? Do not expect him to respond to this before the election, it is very difficult for a government uninterested in real economic reform. Workers have an opportunity to answer the question in the meantime.
Australian inequality will never be as bad as America. Not as long as we have policies like Medicare, NDIS and a mandatory pension tax. But if wages continue to stagnate as asset prices rise, inequality will destroy the social structure. Australia will never be American, but it will be less Australian.
Peter Hartcher is a political editor.
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