Dan Carton | Canberra housing should shape 2024 ACT election for Andrew Barr, Elizabeth Lee, voters

The inflation numbers across the globe continue to frighten and while the Reserve Bank of Australia is raising rates more slowly than the US federal Reserve and the Bank of England, they have not stopped raising rates just yet.

Is your household emerging from super low fixed rates to rates that are much higher?

Imagine in the 1980s having a fixed mortgage rate of 17 per cent and then finding in the space of six months they are now 50 per cent.

That, in relative terms, is what some households will be facing. So in simple terms a $1 million mortgage going from 2.5 per cent to 6 per cent has to find another $35,000 a year to cover the interest bill.

How will households cope? How do you find that much spare money in your household budget?

Pull the kids out of private school? Stop getting the one to three takeaway coffees each day? Home brand spaghetti? Switch to interest only (if you can) to ride it out?

Housing might show more resilience than units due to constraining of land for detached housing by the ACT government. Builders are going broke and many developers have already put projects on hold until the market stabilises and improves. And this is linked to COVID and the Russia-Ukraine war impacting input costs as well.

Canberra is insulated, I hear people say, due to high levels of public service employment. And they are right and wrong. Yes, Canberra is insulated compared to other jurisdictions due to the high proportion of the workforce in secure well-paid public service jobs but when rising interest rates smashes the weekly budget, the impact becomes very real. And these are household budgets already being smashed by inflation.

The body-shop-consultant-outsourced-public-servant-caper coming to an end under the new federal government will also have a material impact. The reversal in incomes for many households as, for example, EL1s on $200k as consultants return to the public service on standard wage levels, will impact making ends meet (not to mention the impact on aggregate economic demand in the ACT).

And if unemployment starts to rise? For those households impacted an extra $35k per year is hard enough when employed, unemployment will unfortunately in some cases force the sale of their home.

Based on 2020 data, 42 per cent of Canberrans own a home with a mortgage with a median mortgage of $350,000. After the recent housing boom, how much larger will the median mortgage be and how much will that compound the problem?

The issue is in the speed and relative change of those rates i.e. 2 per cent to 4 per cent is the same as 10 per cent to 20 per cent on the household budget if you borrowed at the lower rate and move to the high rate.

This represents a genuine shock to many a household budget particularly households who reasonably made investment decisions based on the RBAs promise of no rises in rates for many years.

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Not much, so much of this needs to be ridden out. If anything, a stronger focus will be required on supporting those most in need.

What intrigues me most of all is what impact will rising interest rates and a slowing economy mean for the local election in 2024. The hip pocket nerve arguable shapes voting more than any other factor.

And after 30 years of uninterrupted economic growth (minor COVID blip aside), memories of tougher times are absent for many under 30 and fleeting for many under 40. If your hip pocket nerve (beyond the pressure to keep up with the Joneses) has not been hit in a long time or has never been hit, do you vote differently when it all of a sudden it is hit (and hit hard)?

So could we have the economic conditions coming that could see a change in government in the ACT in 2024 for the first time in 23 years?

Hare-Clark preference flows aside, only a few thousand people in certain pockets of the ACT electorate need to change their vote for a change in government.