For 12 of the past 14 months, the Reserve Bank of Australia has raised the cash rate, with the result seeing thousands of households spending hundreds of dollars more per month in June 2023, than they were in May 2022.
In explaining this “complicated picture” of balancing inflation, and in stating that mortgage arrears remain “very low” despite mortgages increasing, RBA Governor Philip Lowe shared a suggestion on Wednesday.
“If people can cut back spending, or in some cases find additional hours of work, that would put them back into a positive cash flow position,” he said.
The comment followed last week’s efforts from Lowe telling Senate Estimates that Australians may need to find housemates, or stay living with their parents, to bring rent prices down.
Lowe shared his take on working more and cutting spending at a banking conference on Wednesday, a day after the Reserve Bank’s latest Tuesday rate hike, where he also said the path of bringing down inflation was “likely to be a bumpy one” ahead.
It’s a good thing then that when addressing the Sydney event this week that said he understands rate rises are already being “felt unevenly across the community” and causing “significant financial pressure for some households”.
For context here and possible to state the obvious: those who own their homes outright and potentially have a few extra investment properties paid off, are doing pretty well. Those households that are mortgaged (which is around 35 per cent of households) are experiencing a “painful squeeze”, as are the 31 per cent of households that rent, and taking the flowon impacts of rising mortgage repayments. Households with a $600,000 mortgage were already paying $1000 a month more in May 2023 than they were a year ago, with this latest rise bringing that figure up another $90 a month.
Lowe’s idea to “find additional hours of work” presumably stems from the low unemployment rates that continue, and the idea that employers are desperate for talent, and potential employees have little to nothing else going on that would get in the way of them being able and available to take additional work on.
Already, Australians are stretched on the working front, with more work hours than ever before recorded in the month of June.
And the reality is that many simply can not take up extra hours of paid work, especially those who already have more than enough unpaid work, such as those with caring responsibilities.
Indeed, Lowe’s comments don’t make sense in the context of the already challenged care sector, where accessing early childhood education not only remains unaffordable but even impossible for some — given a shortage of centres and places in many areas, especially regionally. Just look at the medical centre in South West Victoria that is currently advertising for their own educator on site, because their staff — including nurses and doctors — can’t access the childcare they need to be able to come into work.
Lowe’s comments also don’t match up to those who care for parents or grandparents, or someone with a disability, given continued challenges in being able to access aged care, disability care, and carers who can provide relief and support.
And the comments certainly don’t match the reality facing single and sole-parent households who can’t so simply share the care, especially for those contending with before and after school drop offs and other school-related activities.
Lowe’s suggestions don’t work for those will a disability or an illness, who can’t simply take up additional hours of work. Nor does the suggestion work for those facing bias and discrimination in accessing work and opportunities.
Even for those who might be able to find the time and the opportunities for these hours of work, the past few years have been exhausting. While cutting spending is one thing, finding the energy to work additional hours without threatening your already fragile mental and physical health is hardly a simple solution.
So is Lowe out-of-touch, and should that matter? While it’s petty to note the salaries of those in these positions, in this case — when it comes to the head of the RBA offering suggestions for how people can cope with rising rent and mortgage repayments — it is at least a little bit relevant here.
Lowe earns around a million dollars a year in his position. He is married with three grown kids. He owns a home in Sydney’s Eastern suburbs. He is reported to come from “humble” beginnings, and joined the Reserve Bank in 1980, supported as a part time student out of high school. He has been on a straight career trajectory ever since. Presumably (although he is pretty quiet on these things) he hasn’t taken too many career breaks or lengthy stints of part time and casual work in order to manage unpaid care work.
This out-of-touchness might be reflected in the comments he made about interest rates staying unchanged until 2024, which saw thousands of Australians taking out mortgages off the idea they could afford the repayments as they were, for at least that period. He apologised for such comments at a Senate estimates committee six months ago. “I’m sorry if people listen to what we’d said and acted on what we’d said and now regret what they’ve done. I’m sorry that happened,” he said. He added that the comments were made, at the time, off forecasts regarding the economic fallout from the pandemic, including forecasts predicting a massive 15 per cent unemployment rate in line with the pandemic and that young people would struggle to find work and businesses would collapse. It was an uncertain time, and understandable to think and consider such forecasts — but to be so vocal in suggesting interest rates would rise missed the reality of just how much people could hurt when they do.
Meanwhile, the mortgage cliff is coming. There are more than 880,000 Australian households that have fixed-rate mortgages that will expire this year, meaning they may need to access thousands of dollar a month to meet their changed repayments. And it won’t just impact homeowners, it will also impact renters as these owners seek to cover the costs from tenants.
The Reserve Bank prefers to call this a “ramp up” rather than a cliff, highlighting the pressure builds over time as opposed to suddenly falling.
But for those on the treadmill of paid and unpaid work, it can all feel pretty sudden as you eat so far into your savings — should you have such savings — that things can suddenly look extremely dire.