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THE LATEST FROM THE KOUK

Be careful what you wish for in the Canning by election

Sat, 22 Aug 2015

Every pundit and their dog are saying the result of the Canning by election on 19 September will be vital in determining whether or not Tony Abbott remains Prime Minister through to the next general election.

A small swing against the Liberal Party, say 4 or 5 per cent (or less) would be a great result for them and shore up Mr Abbott’s position. A swing of 8 or 9 per cent (or more) against the Liberal Party of Mr Abbott is toast.

Here is a dilemma for both sides.

There are many in the Liberal Party who are desperate to see Abbott go so that a new leader, Mr Turnbull or Mr Morrison, could lead them to the next Federal election with a policy clean slate and a renewal of the Ministry, especially in Treasury. Their secret wish would be to see a Liberal Party blood-bath in Canning and for this to be the catalyst for a change in leader. Their incentive is to boost Labor’s vote. Some Liberal members might even vote Labor in Canning to make sure Abbott is gone before Christmas.

The Labor Party, on the other hand, know they will win the next Federal election if Mr Abbott remains Prime Minister. They reckon, on the other hand, that they will be soundly beaten by a rejuvenated government lead by Mr Turnbull, for example, and there are secretly hoping that the Canning result is not so bad to see Mr Abbott replaced. The incentive of these Labor people with a longer time horizon and a bigger prize in mind is to vote Liberal in Canning, minimising the swing and see Mr Abbott remain in the top job.

Housing affordability should include interest rates

Tue, 18 Aug 2015

This article first appeared in the Adelaide Review at this link: http://adelaidereview.com.au/features/business-finance/flawed-analysis/#.VdKzB6-Z0jh.twitter 

 

Any analysis that does not take account of the level of interest rates in the measurement of housing affordability is flawed.

In a very simple stylised example, is a $500,000 house with a $400,000 mortgage more affordable if the mortgage interest rate is five percent or eight percent?

The answer is, of course, rather straightforward. The annual interest cost with a five percent mortgage interest rate is $20,000 while an eight percent interest rate sees the annual interest payments jump to $32,000. That $12,000 a year difference is substantial and is clearly a factor when potential borrowers are looking to take out a loan. Blind Freddie can see that a decision to borrow money and buy a house is hugely enhanced in a low interest rate climate versus one where interest rates are high.