According to this article rents and financial services (does that include loans?) are part of the reason inflation is rising. I may be a tad slow but surely that's a catch 22! Interest rates rise causing rents to rise causing interest rates to rise !! Would those more in the know please explain in simple terms to this little duck.
Rents are pushing up inflation?!
- Thread starter GoAnna!
- Start date
Rents are included in the basket of items for CPI. Mortgage repayments and interest rates aren't.
The thing is, all prices are "weighed" if for example, (I'm pulling these numbers out of thin air) the average household spent 20% of their wage on rent, and rent goes up 10%, then they multiply 10% by 20%, and it increases CPI by 2%.
And the result is not generally a direct feedback. I trust you haven't passed on every single rate rise onto your tennant have you? That's why it's important that the media and government don't go for the beat up "Landlords had better not raise the rent too much". Because when occupancy falls, Landlords must drop rents or accept a vacant property, regardless of where rates are going. Therefore, if they do not take the opportunity to put up rents when they are high, landlords are basically being shafted on the way up and on the way down.
The thing is, all prices are "weighed" if for example, (I'm pulling these numbers out of thin air) the average household spent 20% of their wage on rent, and rent goes up 10%, then they multiply 10% by 20%, and it increases CPI by 2%.
And the result is not generally a direct feedback. I trust you haven't passed on every single rate rise onto your tennant have you? That's why it's important that the media and government don't go for the beat up "Landlords had better not raise the rent too much". Because when occupancy falls, Landlords must drop rents or accept a vacant property, regardless of where rates are going. Therefore, if they do not take the opportunity to put up rents when they are high, landlords are basically being shafted on the way up and on the way down.
So true...it seems that Landlords are the new bogey men! What about state governments and federal governments? It would seem the real light in terms of keeping up with infrastruture spend by the Howard government is clearly showing what a mess this country is in. The question is whether labour can move quickly to resolve these issues.
I have said before the RBA cannot itself resolve the housing crisis....the government needs to having supporting policy. At the same time I agree with market forces setting demand and supply also.
I laugh at some of the commentators on blogs who say that investors should be limited to investments properties or that Neg Gearing should be removed. These people are probably also renters......and they will be the first to squeal when rents increase. Their views are too simplistic
I am thankful we are are free and enterprising nation....but reading some of the remarks from some people....I am astounded of their want to curb this. Having said this....I also believe we need to have a Social Security system for the people who are less fortunate....lets face it 2-3% of population will never work no matter how hard you push them.
And if the commodity boom is driving much of the economic activity in this country, then interest rate increases are hardly going to directly affect commodity prices or the cause for their increase....
I don't put up rents in response to interest rate increases. I put up rents as much as the market can bear. With rising interest rates there is a shortage of rental accomodation and therefore rents rise.
I don't think the relationship is between interest rates and increased rents but rather shortage of properties and increased rents (supply versus demand. Interest rates do impact on supply.
I don't think the relationship is between interest rates and increased rents but rather shortage of properties and increased rents (supply versus demand. Interest rates do impact on supply.
Spot on GoAnna. But people love to jump on the bandwagon. 'Oh, interest rates are increasing - the Landlords will be passing that on to us.' Even experts I've seen on TV refer to LL's passing on some of the IR increases, 'but they're unable to pass them all on' etc. Just perpetuates the story with the masses.
yeh, try and tell the RBA this.. they don't understand basic economic fundamentals.
hi GoAnna
you are right rents do fuel inflation but you have to add one other thing to your equation and thats margins.
as rates move up the margin on a development decreases
and the more the decrease the less development
that then flows thru to your less vacancy rates and that increases rents again.
so by increasing rates yes you do to some degree reduce spending
but you also chop out growth.
the trouble that the reserve arn't looking at is that you can't reduce growth in developing when there is no growth there in the first place.
rents rise only( from my looking at it) on supply and demand.
and if the supply is going down and it has been for a couple of years now and sydney has been dropping since 2004 as the last of the 2003 sites came to finishing and the vacancy rates are climbing
increasing rates basically puts a break on a bus thats already stopped.
dropping interest rates is not going to help either for that matter.
if rates drop
people will want to buy houses that are not there and the ones that are will go up
as buyers will come in looking for properties off the plan.
but they are 2 to 3 years away.
so for at least 12 months to 18 months for me there is nothing that is going to stop rents increasing
as there is no 3000 units comming onto the market here in sydney anyway and I think its the same in bris and melb.
so some one has to work out what they are going to do
and at the moment all we have is a government thats is thinking about what to do
and sending out press releases hoping people will think that they know what to do.
rents won't change with or with out interest rate rises in the whole
what will change them is demand.
and thats not being stemmed
it being increased daily as the vacancy rate drops daily.
the rarer an item is
the higher the price.
I learnt that in kindy when there was only one mars bar left in the jar and was sold to the highest bidder.
well nothing has changed.
they have outlawed rent auctions in sydney well if there 35 couples for 1 x 2br unit
there is nobody on this earth that can tell me that that landlord is not going to push that rent as high as possible.
and if thats not increasing inflation then my maths are all very wrong.
just my .002
you are right rents do fuel inflation but you have to add one other thing to your equation and thats margins.
as rates move up the margin on a development decreases
and the more the decrease the less development
that then flows thru to your less vacancy rates and that increases rents again.
so by increasing rates yes you do to some degree reduce spending
but you also chop out growth.
the trouble that the reserve arn't looking at is that you can't reduce growth in developing when there is no growth there in the first place.
rents rise only( from my looking at it) on supply and demand.
and if the supply is going down and it has been for a couple of years now and sydney has been dropping since 2004 as the last of the 2003 sites came to finishing and the vacancy rates are climbing
increasing rates basically puts a break on a bus thats already stopped.
dropping interest rates is not going to help either for that matter.
if rates drop
people will want to buy houses that are not there and the ones that are will go up
as buyers will come in looking for properties off the plan.
but they are 2 to 3 years away.
so for at least 12 months to 18 months for me there is nothing that is going to stop rents increasing
as there is no 3000 units comming onto the market here in sydney anyway and I think its the same in bris and melb.
so some one has to work out what they are going to do
and at the moment all we have is a government thats is thinking about what to do
and sending out press releases hoping people will think that they know what to do.
rents won't change with or with out interest rate rises in the whole
what will change them is demand.
and thats not being stemmed
it being increased daily as the vacancy rate drops daily.
the rarer an item is
the higher the price.
I learnt that in kindy when there was only one mars bar left in the jar and was sold to the highest bidder.
well nothing has changed.
they have outlawed rent auctions in sydney well if there 35 couples for 1 x 2br unit
there is nobody on this earth that can tell me that that landlord is not going to push that rent as high as possible.
and if thats not increasing inflation then my maths are all very wrong.
just my .002
That sounds good to me, media keeps telling tenants that landlords will put up rents due to rate rises, then the tenant is not suprised when I do increase rents. The media is softening them up and getting them ready for it!
Making my job as a landlord easier.Cheers
Mike
http://www.news.com.au/business/story/0,23636,23316658-31037,00.html
looks like others are saying the same thing! nothing the RBA will do will help inflation!
looks like others are saying the same thing! nothing the RBA will do will help inflation!
How about someone putting a stop to the ridiculous 40months interest free some retailers are spruiking?
Speaking of such - I heard a radio advert yesterday offering finance for a car service. What the?
I like the 40 months interest free. Great way to offer furnished apartments
)
One of the big retailers lives in our street. I was chatting to him about this at one of our Xmas street parties. He reckoned it was his number one strategy for extracting cash off the poor and into his pocket.
But as he said, he simply drops the line with some bait on.....they don't have to bite.....but once they do, he reels 'em in and shoves them on his pile.
The major service (120,000km on anything with a timing belt), can cost between $800 and $1200! Most of us here would budget in advance (dammit, I'd do the service myself over a weekend for under $100!) but remember there are some people for whom $1200 is 3 weeks after tax pay. Those same people generally also live pay packet by pay packet.
Man, I sound arrogant, but I guess it's the truth.
I still struggle to find why people are so incredulous when it comes to interest rate rises... you keep buying plasmas and 4 wheel drives, what do you think would happen??
Jac Nasser, the CEO of FORD Inc, said "We don't sell cars, we sell car finance..." FORD makes more money from refinancing loans than it does from actually selling new cars.
His rationale was that people are such mindless consumers, they will upgrade their cars even when they have no real need to ...
I tried to convince a friend last month that an apartment 20 kms out of town was a good investment for him. Instead, He used his deposit on a $2,500 plasma to watch football, and over 10k on other toys ... while he is renting.
Then its people like him that turn around and complain that they can't afford to get into the property market.
Then those who actually own property are called vultures... and the cycle starts again.
Jamie.
Jac Nasser, the CEO of FORD Inc, said "We don't sell cars, we sell car finance..." FORD makes more money from refinancing loans than it does from actually selling new cars.
His rationale was that people are such mindless consumers, they will upgrade their cars even when they have no real need to ...
I tried to convince a friend last month that an apartment 20 kms out of town was a good investment for him. Instead, He used his deposit on a $2,500 plasma to watch football, and over 10k on other toys ... while he is renting.
Then its people like him that turn around and complain that they can't afford to get into the property market.
Then those who actually own property are called vultures... and the cycle starts again.
Jamie.
And rent from us. Such behaviour results in more extreme swings in interest rates and the market. But that can be good if we have the means to take advantage of it.
Alex
I've stopped trying to convince people. They either have the impetus to change their situation or they don't. Most only talk about taking the leap.
The lesser path and all.....
Aaron
Sunder
As you say, most of us would budget in advance. My youngest daughter is on a scholarship of $380 pw (after tax) and can manage to pay $175 pw rent, pay for all the usual living expenses - and run a car which is regularly serviced. Obviously it is possible - even for those on a low income. Only trouble is: one must modify one's expectations.
The point I wanted to make is: surely people realise that the $1200 service which they "put on the never-never" is going to end up costing them twice as much (or more) in the long run!!!
Sorry! I'll get off my soap box now - am afraid the subject of 'financial illiteracy' gets me going every time.
Cheers
LynnH
