It’s that leap in mortgages, being funnelled into the property market, that has economists worried.
RBC Capital Markets managing director Su-Lin Ong said a huge amount of capital was being driven into housing instead of more productive pursuits by low interest rates, government incentives and the tax system.
She said while construction was a key part of the economy, it did not employ as many people as the professional and scientific sectors.
Banks found it much safer, and easier, to hand over hundreds of thousands of dollars to people to buy an existing home rather than sinking it into a new business.
“You can apply for a home loan on an app, but it’s a hundred times harder for an SME to get a loan,” she said. “From a bank’s point of view, it is a safer channel for lending. It’s a much higher risk profile to lend to business.”
Ms Ong said if more money went into research and development or innovative companies, there would a long-term benefit to the country.
“It’s a simple question of opportunity cost. What aren’t we doing because we’re putting so much money into housing?” she said.
Earlier this year, the Bank for International Settlements, which acts as the central bank to the world’s central banks, released research showing that while higher house prices delivered a short-term boost to economic activity via higher household consumption, longer-term productivity was actually lower.
In Australia, the Productivity Commission earlier this year found productivity growth in the decade to 2020 had fallen to its slowest rate in 60 years.
Stephen Anthony, chief economist with Macroeconomics Advisory, said without a lift in productivity, all Australians would suffer.
“If you want living standards to improve, if you want wages to increase, then you need an increase in productivity,” he said.
Mr Anthony said both here and around the developed world, housing had become a Ponzi scheme that was being propped up by both central banks and governments.
He said with monetary policy totally exhausted, governments had to step up by putting in place policies that rewarded risk taking and ensuring all their spending was done with an eye to efficiency.
“You need to stop the buckets of money that are leaking,” he said. “That means making sure every dollar is spent properly, is doing what it’s supposed to do. That means looking at decisions around health, around aged care, around hospitals – if you’re going to spend money then do it wisely.”
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