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On housing interest rates



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(■,- ■ PRESS*£*££*&& TREASURER ^RELEASENO./SZNO EMBARGOSTATEMENT BY THE TREASURER, THE HON. JOHN HOWARD, M.P.,ON HOUSING INTEREST RATESThe explanation given by the New South Wales Housing Minister,Mr. Sheahan, when approving an interest rate rise on permanent building society home loans, should not go unnoted.When announcing the increases last Friday, Mr. Sheahan quite rightly said that building society interest rates on housing loans had to go up. He said, in relation to building societies . as I have said again and again in relation to both savings banks and building societies, that unless those savings institutioi are competitive and able to attract their share of investments, . home loan funds will dry up.Mr. Wran's Housing Minister is realistic enough to admit the ί connection between interest rates and the availability of funds, even if Mr. Wran is not.For days, Mr. Wran has claimed that the Federal Government had the power to isolate housing interest rates from other interest rates, but he understandably fails to act in that fashion in the New South Wales lending institutions over which the State has regulatory power ,in particular the N.S.W. building societies.' After days of vilifying the Federal Government for interest rate rises, Mr. Wran's own Government has been forced to accept the truth of the arguments advanced by the Federal Government in ‘ respect of those rises.../2

If any Government tries to hold down interest rates too far for too long On housing loans, when, other interest rates are rising, it only acts to disadvantage new borrowers by limiting the funds available.

We saw proof of this both last year with savings banks and

this year with building societies when interest rates for these institutions were too far below other rates. In the six months to June, 1980, savings bank deposits ex interest fell by $112 million

compared with an average increase of nearly $150 million in the corresponding periods of the two preceding years.

This year, when building society rates fell too far behind those of savings banks, the drop in deposit intake and home loan approvals was even more pronounced.

I would not want to deny or minimise the burden of extra costs that

high interest rates can impose on home buyers. The Federal Government deeply regrets the fact that these rises were unavoidable. However, we should not completely lose perspective about the impact

of those costs.

The person on average weekly earnings, for example, who took out

a mortgage loan of, say, $30,000 three years ago at a rate of interest of, say, 10 per cent would have seen his mortgage repayments

rise by about $54.00 a month over the three year period. However, his

after-tax income would have risen over the same period by about $226 a month.

Economic reality sometimes means that unpopular measures need to be taken.

If the self-evident need for interest rates in the housing area to go up - a need now endorsed by the N.S.W. Minister for Housing - had been further ignored, the result would ultimately have been a

chronic shortage of funds for housing and a much bigger interest rate hike when reality could no longer be denied.

CANBERRA

16 August, 1981