Australia breaks three records for disposable income, rental rates, entrenched inflation

This month, the Albanese government has broken three records for poor economic management and declining living standards.

The first of these records relates to Australia’s real household disposable income, which is arguably the single best measure of living standards.

The latest national accounts from the Australian Bureau of Statistics (ABS) showed that real household disposable income suffered its largest ever annual decline last financial year, plunging 5.1 per cent:

As a result, Australian households relinquished all of the income gains from the Covid-19 pandemic’s stimulus measures.

Australia’s real per capita household disposable income has fallen back to levels observed in early 2019, which were only a little above 2010:

This means that Australian households have endured 13 years of near-zero income gains.

The AFR’s Michael Read conducted an analysis of how the decline in Australia’s real per capita household disposable income compares globally using OECD data.

According to Read, Australian households suffered the largest income collapse in the world last financial year:

This collapse in household disposable income helped pull real per capita spending by households down by 0.2 per cent, driving a corresponding decline in the nation’s economic growth:

The result would have been worse had the household savings rate not fallen to its lowest level since the June quarter of 2008, which helped bolster spending in the face of falling incomes.

Alex Joiner, chief economist at IFM Investors, published the below chart tracking the family finances sub-component from Westpac’s latest consumer sentiment survey against per capita household spending:

Family finances are clearly in the doldrums, portending further declines in per capita household spending in the period ahead, alongside a continuation of the per capita recession afflicting Australia.

The world’s worst rental crisis?

This brings us to the second record broken by the Albanese government this month.

Bloomberg published a report showing that Australia has the lowest rental availability among peer nations, with a vacancy rate of only 0.9 per cent:

The collapse in Australia’s rental vacancy rate follows the strongest net overseas migration and population growth in history, which saw the nation’s population grow by more than 600,000 people last financial year.

This surge in population, combined with the tight rental market, has combined to push Australia’s rental inflation through the roof, which is also driving up overall CPI inflation:

“High rent inflation has been broadly based, consistent with tight rental market conditions across the country. Housing supply has not kept pace”, the RBA noted in its latest Statement of Monetary Policy (SoMP).

“Advertised rents have increased 30 per cent since prior to the pandemic, much more than the increase in CPI rents so far”.

“Together with historically low vacancy rates, and little sign that tight rental market conditions will ease in the near term, this is expected to keep rent inflation elevated for some time”, the RBA SoMP warned.

Australian inflation “entrenched”

Finally, The Economist magazine this month ranked Australia number one for entrenched inflation, in part because of its strong rental growth.

The Economist’s “entrenched” inflation measure is based on an assessment of actual inflation and inflation expectations, with Australia ranking poorly on both counts:

More pain to come for Australian households

The prospects facing Australian households remain poor, given that housing debt servicing costs had already reached all-time highs prior to this month’s interest rate hike from the RBA:

The debt repayment burden will rise further following this month’s increase in the official cash rate by the RBA, along with the further expiry of cheap pandemic fixed-rate mortgages.

In the meantime, the RBA SoMP forecasts that Australian real wages will remain in the red for years tracking below pre-pandemic levels:

Australians, therefore, face a prolonged period of declining living standards amid a severe per capita recession, falling real wages and incomes, escalating mortgage repayments and rents, and overburdened infrastructure and services.

Never before have we seen a federal government wreck living standards so quickly, caused to a large extent by extreme levels of net overseas migration that is crush-loading everything in sight, pushing up inflation and cost-of-living, and forcing the RBA to retaliate with higher interest rates.

If the Albanese Government genuinely cared about ending the nation’s housing crisis and curbing inflation, it would moderate net overseas migration to a level that is below the nation’s ability to supply housing and infrastructure, not run it at record levels.

Leith van Onselen is co-founder of MacroBusiness.com.au and Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.