Renters on frontline of financial stress, says RBA
Runaway rental costs risk pushing poorer renters into ‘financial stress’ in coming months, Reserve Bank deputy governor Michele Bullock says.
Runaway rental costs risk pushing poorer renters into “financial stress” in coming months, Reserve Bank deputy governor Michele Bullock says, as flooding drives food prices higher and adds to a cost-of-living burden.
Speaking at the Australian Business Economists annual dinner on Wednesday night, Ms Bullock said there were “good reasons to think we are approaching the peak of inflation this cycle”, even as “the outlook for domestic energy prices and rents are two areas we are monitoring closely”.
The RBA last week said it now expected inflation to reach 8 per cent by the end of the year, before easing to 4.7 per cent through 2023.
Electricity and gas bills have increased by 10-15 per cent since the middle of this year, Ms Bullock said, with the bulk of these gains to be reflected in the December quarter consumer price index. She said the large increases in retail power prices predicted for 2023 would add one percentage point to inflation over the coming 12 months, but even that could prove too conservative.
“We have built a large increase in electricity prices into our central scenario but there is a risk we haven’t incorporated enough. The situation in Europe remains very uncertain.
“On the other side of the coin, global supply chain pressures are easing quite quickly and that could turn out to be more of a dampening force than we are currently expecting.”
Ms Bullock said “close to one-third of Australian households rent and many of these households have relatively low income and wealth”.
“Higher rents could push some renters into financial stress, particularly when combined with broader cost-of-living pressures,” she said.
The Australian Institute of Health and Welfare, says of 9.8 million households in Australia, 2.9 million, or 31 per cent, are renting. The average price of new residential leases nationally was up 18 per cent over the year to early November, according to property group SQM Advisory.
The actual price of rents paid in the consumer price index was up under 3 per cent in the year to September, and Ms Bullock said “rental price inflation has picked up and is expected to increase further in coming quarters”.
“Rental vacancy rates have declined since the beginning of the year and are at historic lows in a number of cities.
“Growth in advertised rents for new leases has been very strong as a result,” she said.
Earlier this month, the National Housing Finance and Investment Corporation said most households earning less than $78,000 a year were struggling to pay rent, following decades of “chronic” underinvestment in social housing.
With the price of essentials rising rapidly, Ms Bullock predicted the east coast floods would drive grocery bills higher over coming months. “The areas flooded in NSW, Tasmania and Victoria in October together account for a substantial proportion of agricultural output. Affected products include winter cereal crops, fruits and vegetables, and dairy,” she said.
Ms Bullock said “while there are substantial effects on flood-impacted communities, with significant disruption and damage, the effect of the floods is likely to be less evident in economy-wide activity data (but) prices for some food products are likely to be temporarily higher”.
“With above-average rainfall expected over coming months consistent with the ongoing La Nina event, there is also an increased likelihood of further supply disruptions affecting costs and prices for a range of goods in late 2022 and early 2023,” she said.
A day after Treasury secretary Steven Kennedy said it was “becoming probable that major developed economies will soon experience recessions”, Ms Bullock said China’s zero-tolerance approach to Covid and property market stresses were a “significant concern” for Australia.
“The (Chinese) authorities’ approach to suppressing Covid-19 increases the risk of major lockdowns periodically impacting production and consumption,” she said. “Stress in the property market, one of the engines of Chinese growth in the past, also carries the possibility of a significant downturn in activity. This weakness in the property sector has implications for steel demand and hence demand for our iron ore.”
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