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Thursday, 2 December 1976


Mr UREN (Reid) -My comments in this debate regard the housing industry. Most comment on the recent devaluation has been about its general economic implications and on the recent distribution of wealth which that implies. Most critics say that it will boost inflation, worsen the real income situation of pensioners and others on fixed incomes, and move resources from labour intensive manufacturing industries to the capital intensive mining sector. That is redistribution from the weak to the strong, from Australian manufacturing to foreign-owned mining companies. Most critics say that the currency speculators who caused the run on the balance of payments which caused devaluation, are also the chief gainers. Most critics say that the Government had open to it other options which would have contained price rises and promoted economic growth. But such options would not have rewarded the rich and penalised the weak. On all this there is agreement.

Today I shall make my grievance about the effect of devaluation on housing; that is, on the housing industry, on home buyers and on home builders. Devaluation will affect housing in 3 ways. Firstly, it will lead to general price rises. These will reduce the real incomes of wage earners, leaving them with less to spend on housing. Secondly, it will distort the capital market by making investment in mining more profitable than previously. Investors will be reluctant to put their funds into housing. They will prefer getrichquick returns from mineral speculation to the steady but sure returns from housing investment. Thirdly, it will lead to rises in housing prices. This is partly due to the increases in the cost of imported housing materials, but mainly to the general cost pressures to which a new inflationary spiral will lead. If this were the total situation it would be bad enough. But it is the secondary effects of the devaluation which are most worrying.

Cynical speculators have taken nearly $900m out of the country recently in the hope of large capital gains. They will now repatriate it, perhaps over the next 3 to 6 months. They have made a huge 17½ per cent profit from their speculations so they will bring back more Australian dollars than they took out. The money supply growth that this will cause will exceed a billion dollars. Growth in money supply will be even greater if devaluation leads to the long term capital inflow which is the Government's aim. The implications for domestic liquidity are worrying. Already this financial year money supply has exceeded the target growth rate of about 12 per cent. It has already grown by almost 16 per cent. I do not want to over-emphasise money supply targets, but the Treasurer (Mr Lynch) seems to think that they are central. If he is to stay on target he will have to cut back the money supply drastically for the remainder of this financial year.

The Treasurer foreshadowed this cutback in his Press statement of last Sunday in which he promised a very tight June quarter. When speculators bring their funds back- very likely in the same quarter- the Government can be expected to begin a program of tight money and high interest rates. The Treasurer hinted at this last Sunday and I am sure he meant it. The Government's policies have come unstuck and its recent decisions have been increasingly ad hoc. The only consistent theme is that the Government is anti-worker, anti-manufacturing and antiAustralian. It favours the strong and the foreign. It rewards the speculator. But at least in the monetary area it seems determined to achieve its set target of 12 per cent money supply growth. I think the Government has only 2 options if this is its aim. Firstly, it could neutralise the effect of the increase in liquidity by operating exclusively in the banking system. Secondly, it could try to sop up the increased liquidity, partly by borrowing from the public- possibly along the lines of the ill-fated Australian savings bond of earlier this year- and partly by restricting bank lending. Either option hurts home buyers.

In the first case, new bank lending is frozen by a combination of calling up bank deposits, that is, by increasing special reserve deposits or by forcing banks to take up more Government bonds and increasing the LGS ratio. At present the banks provide about 50 per cent of all housing finance. Such a policy would virtually prevent new lending by the banks for housing and would deny finance to many intending home buyers. It would also force up interest rates. This would lead to a situation where many prospective home buyers could no longer afford housing. It would also increase the repayments of existing mortgage holders. The more likely Government policy would be to try to sop up the extra liquidity by a combination of some restraints on the banking system combined with an attempt to induce individual savers to buy government bonds instead of depositing with savings banks or other financial institutions such as building societies. This would have the effect of diverting funds from the banks and building societies and so limiting their ability to lend for housing.

This would also force up the general level of interest rates. This would happen because, in order to induce people to take up government bonds, the Government would have to offer attractive interest rates. I think that a rate rise of at least 2 per cent can be expected. It means at least a 16 per cent increase in monthly repayments on an average housing loan. For example, it means that a person on an average income will be required to pay almost 27 per cent of his income on housing repayments, as against 23 per cent now if he had borrowed $20,000 repayable over 25 years. If he borrows $25,000 his repayments will rise by 30 per cent to 34 per cent of his income. If interest rates rise by 1 per cent mortage payments will increase by $ 1 4 a month on a 20,000 loan and $18 a month on a $25,000 loan. I expect the rate to rise by at least 2 per cent over the next year. This means monthly increases of at least $28 and $36 respectively.

The effects of this devaluation will price housing out of the reach of the average worker. Also it wil dry up the supply of housing funds as a result of the Government's attempts to contain the growth in money supply as speculators cash in their gains. The situation for the average home buyer will be worse if the Government's threats to reduce real incomes by a penal wage policy succeed. People on average incomes cannot afford to pay more than 25 per cent of their income on housing. Under this scheme they will have to pay much more than that. If this devaluation causes prices to rise, the supply of finance to dry up, interest rates to rise and real incomes to fall, what will be the result? Workers will not be able to afford housing. Even if they could, they would not be able to obtain finance. The end result is disaster for intending home buyers, deprivation for existing owners and unemployment for those who work in the industry.

The currency speculators have a lot to answer for. This Government is betraying its responsibilities to protect the interests of the ordinary Australians, both those seeking a home and those already committed to heavy repayments. I believe that the Government's policy will have enormous consequences for this country, for the home building and construction industry. That industry is one in which there should be growth and development in the next decade.

Mr DEPUTY SPEAKER (Mr Lucock)Order!The honourable member's time has expired.







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