How a People’s Bank can solve Australia’s housing crisis

The Reserve Bank of Australia left interest rates on hold on Melbourne Cup Day, dashing the hopes of 47 per cent of households hanging on by their fingernails.

According to comparison website Finder, 47 per cent of households are struggling with mortgage repayments, and an equivalent of 1.3 million mortgage holders would have to cut back further if the RBA doesn’t cut rates.

Finder also revealed that 1 in 7 mortgage holders say they’d have to sell or apply for hardship concessions if interest rates remain the same until February next year, which is 462,000 households!

Graham Cooke, Finder’s head of consumer research, said: “With emergency savings depleted and the RBA yet to signal significant rate cuts, many fear their livelihoods are at stake. As the new year looms, urgent relief may be needed to prevent a wave of financial hardship.”

Cut out the cancer

Australia’s housing market is a cancer at the heart of the economy, a huge tumour of unaffordable prices, which is crushing the population under excessive debt.

Australia has the third-highest level of household debt for countries in the Organisation for Economic Co-operation and Development (OECD), a shocking 211 per cent of net disposable income per household.

Most of that enormous debt is for mortgages: the RBA’s figures show that total loans outstanding are $1.58 trillion for owner occupiers and $749.1 billion for investors.

When one of life’s necessities—housing—is both unaffordable and the source of a crushing debt burden on society, it means Australia’s economy is dysfunctional and breaking down.

Something has to be done to cut out the cancer.

The People’s Bank solution

The Australian Citizens Party (ACP) is insistent that if Australia had not departed from its former People’s Bank in its mad embrace of neoliberal economics starting in the 1980s, it’s certain the economy would not be in this mess caused by the housing debt cancer.

The People’s Bank was the Commonwealth Bank, owned by the Commonwealth government (hence the name), which was a tool for the government to ensure public benefits like affordable housing.

The most effective way it did this was by funding the construction of public housing, which both provided accommodation for the neediest in the community and was a check on overall house prices.

From 1945 onwards, the Commonwealth Bank made loans to state housing commissions, building 100,000 public homes in a decade.

In Victoria, the Commonwealth Bank assumed this role from another public bank, the State Bank of Victoria, which had been successfully funding affordable housing construction since the 1920s.

Victoria’s State Bank construction program was amazing—the bank didn’t just fund the construction, it actually built houses! Having a house built by the State Bank was a badge of quality, used in advertising for the sale of the homes.

In one year, 1922-23, Victoria’s State bank funded and built 5,000 homes, at a time when the population was 1.5 million.

With a population of 6.5 million today, that would be the equivalent of 21,600 homes in Victoria in one year; extrapolated out to the whole of Australia, it would be the equivalent of building 80,000 homes nationwide today in one year.

By contrast, the Albanese government’s policy is to build 30,000 public and affordable homes over five years—barely touching the sides in terms of the need.

The Commonwealth Bank was also required to give preference for loans for new homes at “the lowest practicable rate of interest”, under the Commonwealth Bank Act 1959, which encouraged private housing construction.

If Australia hadn’t closed down this capacity by privatising our public banks, there’s no doubt housing would have remained affordable.

It’s essential we return to this policy approach to manage our housing needs and the market into the future.

A public Post Office People’s Bank would have the same capabilities as the original Commonwealth Bank and state banks, and enable the government to ensure this happens.

But what about the housing crisis now, and the desperate households losing their homes?

A public bank can be a tool of government economic policy, which, if one existed now, the government could use to lower interest rates regardless of RBA decisions.

The government could cut the interest margin on its deposits and loans, from the standard 2 per cent to 1.5 per cent or even 1 per cent, to provide immediate relief for borrowers, and force the other banks to do likewise to compete.

Currently, the banks are enjoying a huge boon from the interest rate rises since 2021, raking in billions more in interest payments.

The People’s Bank could also refinance stressed households on more affordable terms, and even support the private banks to do the same.

The ACP would combine this approach with its policy of a foreclosure moratorium on family homes and farms, so the banks can’t evict struggling households en masse for a problem they created, but would be forced to work with the government and the People’s Bank to reorganise loans to see households through the crisis.

ACP Research Director Robert Barwick said: “Australians are like the frog in near-boiling water, having gradually grown accustomed to a situation which is destroying us.

“But if previous generations could see us now, they would be screaming that we are mad.

“We can no longer tolerate a crisis that could claim almost half a million households by February; all Australians should demand solutions that work, not window dressing, and that means returning to the People’s Bank solution.

“The Albanese government indicated in August that a public post office bank is back on its agenda—tell your MP the nation desperately needs the government to act decisively to make it happen.”