RBA: High unemployment is worse than high housing prices

author-avatar By on May 07, 2021
RBA: High unemployment is worse than high housing prices

Australia's central bank has noted concerns around record-high property prices but insisted its focus is on bringing down the unemployment rate.

In a speech on Wednesday night, Reserve Bank (RBA) Deputy Governor Guy Debelle said monetary policy was not a tool that should be used to stem rising house prices

"Monetary policy is focused on supporting the economic recovery and achieving its goals in terms of employment and inflation," Dr Debelle said.

"It is important to remember that while housing prices may not rise as fast without the monetary stimulus, unemployment would definitely be materially higher without the monetary stimulus.

"Unemployment clearly has large and persistent distributional consequences."


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

Growth in the market slowed in April, with national dwelling values up 1.8% after a record 2.8% growth in March. 

However, values are up 6.8% in the last three months and are 10.2% higher than the low seen in September. 

Dr Debelle said government support schemes brought about by COVID, as well as monetary policy, had contributed to the house price growth. 

"Housing price rises are part of the transmission of expansionary monetary policy to the economy," he said. 

"They help encourage home building, along with government grants such as the HomeBuilder policy, which boosts activity and employment."

Labour market improves but wage growth remains stagnant

Australia's unemployment rate fell to 5.6% in March from 5.8% in February, according to the Australian Bureau of Statistics (ABS). 

Dr Debelle said unemployment was now only half a percentage point higher than it was before the pandemic. 

"Measures of underemployment have declined by similar magnitudes. Participation in the labour market has remarkably increased to a record high," he said. 

"These are much better labour market outcomes than have occurred in other countries." 

However, one of the RBA's main goals is to have inflation sit in a band of 2-3%. 

Inflation rose 0.6% in the March quarter to sit at an annual rate of 1.1%, well below the RBA's target. 

One of the main ways to increase inflation is to increase employment, pushing up wage growth and flooding more money into the economy. 

But even before COVID, Australia's wage growth was low, and the most recent figures show growth sitting at a historic low of 1.4%. 

Dr Debelle said the economy had significantly exceeded outcomes on many fronts but acknowledged wage growth was not one of those. 

"While the Australian economy has experienced better employment outcomes than most other countries, wages growth in Australia has been noticeably weaker than in many comparable economies, most notably the United States." 

However, he said inflation was very close to where the Bank had expected it to be. 

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Photo by Agustin Gunawan on Unsplash 

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Alex joined Savings.com.au in 2019. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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