Rate rises are going to cause a housing affordability crunch

For most of the past decade the talk about housing affordability has focussed on house prices. As fiscal policy director, Greg Jericho notes in his Guardian Australia column, falling interest rates since November 2010 have made paying off a mortgage less onerous than it otherwise would have given the soaring house prices.

But that is about to change. 

The signal that interest rates are going to rise by possibly 2.5% points over the next 18 months means that for new mortgage holders the cost of repaying a mortgage is going to be harder than ever before - harder even than when interest rates hit 17% in 1990.

It is a hit that will only exacerbate standard of living problems as wages will struggle to keep up with the rising cost of of holding a mortgage - especially given the belief that wage rises need to be contained below inflation rises continues in economic debate.


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