With the property market Australia-wide on its knees, we have the Reserve Bank talking up interest rates. And at the same time we have bank lending margins at record highs coinciding with record profits.
The concentration of bank power, exacerbated by the Global Financial Crisis, has allowed the banks to collude on lending margins because there is virtually no second tier bank lending.
The current level of mortgage rates is working against investment in rental accommodation because the spread between borrowing rates and net returns is too high. We have not seen any significant investment in rental accommodation in Queensland since 2003, which has seen rents driven up at the average rate of 10% per annum.
So what is needed is a reduction in interest rates of at least 1.0% over the next 12 months.
The housing industry is a much bigger employer than the mining industry (with all its multiplier effects), but it is depressed due to unrealistic bank lending margins in a mega-bank profit environment.