The myth of cost of living pressures

Mike Seccombe looks at how, except for the unemployed, cost of living pressures in Australia are a myth in Economic Hypochondria Down Under:

By the time we members of the vast Australian middle class have saved some 10 per cent of our income (not counting superannuation), paid for the private school fees, the house extension, the new flat screen TV, the overseas trip (did I mention the number of Australians taking advantage of the high Aussie dollar by holidaying abroad was up 13 per cent in the year to November 2011, compared with the same period the previous year, and up 34 per cent in two years?), our wallets are a little light.

Thus we notice the power bill and the price of bananas.

One thing that is expensive in Australia is housing:

The big cost rise he identified was housing. He compared the two most recent Housing Expenditure Surveys from the Australian Bureau of Statistics, done for 2003-04 and 2009-10. They showed weekly mortgage payments had jumped 37 per cent in real terms over six years. Over the same period consumer prices, as measured by the CPI, had risen only half as much - 18.7 per cent.

The cause did not appear to be interest rates; they were almost identical at the time of both surveys. He attributes much of it to the "quite frightening undersupply" of housing. The reasons for this are many, including a shortage of suitable land, convoluted approvals processes, constraints on builders' finances, and Australians' stubborn resistance to higher-density living.

Of course people who already own a home are happy when house prices increase:

Yet even as increasing home prices made it harder for new entrants to the housing market, for those who already owned homes - 70-odd per cent of Australian households own outright or are paying them off - increasing prices were often perceived as a good thing.

"I am reminded of one election night, when John Howard had just won re-election, and I asked someone why he had voted Liberal, and he said, 'When Johnny Howard was elected my house was only worth $200,000 and now it's worth $400,000. He made me real well-off,'" McAuley says.

"Over the past two years, we've had a flattening, and some falls in house prices, and it's made people feel nervous."