“The Sydney property market has
become so expensive that most young couples will never pay off their
mortgage within their lifetime,” The Daily Telegraph reported
on Saturday. “The cost of buying a home in Sydney is now $518,000, far
outstripping other cities. The average annual salary in Sydney is
$61,000.”

Premier Morris Iemma, immediately suggested that the
Federal Government should look at a reduction in interest rates to help
young homebuyers.

The Barry Unsworth de nos jours was clearly struggling with his shoelaces when Reserve Bank Governor Ian Macfarlane
told the House of Representatives Economics Committee the previous day,
“It is more likely that the next movement in interest rates will be up
rather than down”.

Before Christmas, a study by The Economist
found Australian houses are now the most overpriced homes in the world
– above their correct value by 48%. Yesterday, the Sunday Herald Sun warned that up to 300,000 Victorians have mortgages greater than the values of their homes.

Answering
a question on housing affordability in the Senate a fortnight ago,
Finance Minister Nick Minchin had all the usual lines:

“Can I first say
that the most important thing for home purchasers and homeowners in
this country is to maintain as low as possible the level of interest
rates that pertain to mortgages, and we welcome the announcement by the
Reserve Bank today that the interest rates will not be moving. That is
another reflection of the great economic management which this
government has brought to his country.”

But the amount of debt, not the interest paid on it, may be a real problem for the Government.

The Australian‘s demographic demi-god George Megalogenis had more from Macfarlane on the weekend:

This week, the Reserve Bank revised its tables for
household debt, and in doing so made Paul Keating’s 17%
mortgage rate at the end of the 1980s seem relatively benign with the
benefit of hindsight…

The debt debate has taken on a new edge with these revisions.

Macfarlane
warned yesterday that household debt would rise further before it
stabilised. “For more than a decade, household indebtedness has grown
at a rate well in excess of the growth in household incomes,” he said…

The
McMansion helped to shape the last two election victories for the
Coalition. In 2001, Howard managed to revive the housing market just in
time, after the indigestion of the GST the previous year. In 2004, he
ran a successful interest rate scare against Labor’s Mark Latham.

Yesterday,
Macfarlane played an interest rate card of his own. “It is more likely
that the next move in interest rates would be up rather than down,” he
said.

Expect voters to be confused if that day comes.