Mark Bouris<\/a>, Mr Rennick said this was the moment house prices were \u201cdecoupled\u201d from wages. <\/p>\nWhile the reforms helped modernise Australia\u2019s economy, he argued they also laid the foundations for decades of debt-driven asset inflation, with the benefits flowing disproportionately to a relatively small group.<\/p>\n
Everyone else \u201cis now paying for it\u201d.<\/p>\n
Mr Rennick contends that Aussies were \u201cbrainwashed\u201d into conflating debt with equity, and for a brief period, asset owners saw unprecedented gains.<\/p>\n
\u201cWhen we lifted capital controls, we could suddenly borrow more money than we earned here in Australia,\u201d he said.<\/p>\n
\u201cWhat that did was inflate asset prices instead of increasing the supply of goods and services.\u201d<\/p>\n
The result, he argued, is an economy where younger Australians, even those in households earning above-average wages, are feeling like they\u2019re moving backwards.<\/p>\n
Figures he cited show around 40 per cent of Australians now retire with a mortgage, compared with about 10 per cent in the early 1990s.<\/p>\n
Rather than focusing on the culture wars dominating modern politics, Mr Rennick said governments should be judged on whether ordinary Australians can afford to buy a home, raise a family and retire debt-free.<\/p>\n
\u201cI want every young person to have enough money for a deposit by the time they\u2019re 25, have their mortgage paid off by the time they\u2019re 45, and comfortably retire at 65,\u201d he said.<\/p>\n
Economists divided on the root cause<\/p>\n
Rennick\u2019s argument is that Australia\u2019s great housing rupture began with financial deregulation.<\/p>\n
But economists Saul Eslake and John Quiggin argue Rennick has compressed several distinct changes into one neat \u2014 and potentially misleading \u2014 story.<\/p>\n
\u201cI don\u2019t think the deregulation of financial markets in the 1980s, in particular the specific factors you mention, were major contributors to the changes in Australia\u2019s housing market which you cite,\u201d Mr Eslake, a Vice-Chancellor\u2019s Fellow at the University of Tasmania, told news.com.au.<\/p>\n
He said the first credit explosion was overwhelmingly directed towards businesses and commercial property, helping bankroll the debt-fuelled rise of Alan Bond, Christopher Skase and other corporate adventurers before the system crashed into recession.<\/p>\n
\u201cThe entry of foreign banks and other deregulatory measures taken in the 1980s led to a significant acceleration in lending to businesses, rather than households,\u201d he said.<\/p>\n
Foreign banks also lacked the extensive branch networks needed to compete seriously for Australian home loans. Mr Eslake says Citibank was the exception, but it never overturned the dominance of the local banks.<\/p>\n
Mr Quiggin broadly agreed that foreign institutions were more useful as a political bogeyman than a direct source of suburban mortgages.<\/p>\n
\u201cNone of that had much to do with foreign banks,\u201d he said.<\/p>\n
The more immediate change, Mr Quiggin argued, was the removal of interest-rate ceilings and the end of credit rationing.<\/p>\n
Under the old system, banks couldn\u2019t just simply increase mortgage rates to match demand. They rationed loans instead, favouring customers with large deposits, long savings histories and secure incomes.<\/p>\n
The moment those controls disappeared, the question shifted from whether a household qualified for scarce credit to how much it could actually service.<\/p>\n
As Mr Quiggin puts it, banks went from making customers plead for a loan to effectively asking: \u201cHow much money do you want to buy a house?\u201d<\/p>\n
\u201cThe banks got deregulation while also retaining an implicit government guarantee,\u201d he said. \u201cIt was a great deal for them.\u201d<\/p>\n
Mr Eslake places the next major turning point in 1988, when the Basel I capital rules made residential mortgages cheaper for banks to carry than most business and unsecured personal loans.<\/p>\n
Under the new framework, a conventional mortgage received roughly half the risk weighting of an ordinary business loan. In simplified terms, a bank needed to support $100 of mortgage lending with about $4 of its own capital, compared with about $8 for the same amount lent to a business.<\/p>\n
That made home loans considerably more attractive. Banks began chasing borrowers, recognising second household incomes, accepting smaller deposits and higher debt levels, and competing aggressively for investors.<\/p>\n
Foreign capital became substantially more important later, when Australian banks began raising large sums through offshore wholesale markets and mortgage-backed securities. <\/p>\n
That supports part of Mr Rennick\u2019s case, but the money was largely channelled through Australian financial institutions rather than foreign banks marching directly into the mortgage market.<\/p>\n
The final accelerant added to the mix was tax.<\/p>\n
Mr Eslake and Mr Quiggin both pointed to the 1999 capital gains tax discount, which allowed investors to deduct property losses at their full marginal tax rate while generally paying tax on only half the eventual capital gain.<\/p>\n
\u201cThe big discretionary choice was the decision to cut capital gains tax,\u201d Quiggin said.<\/p>\n
So while deregulation opened the financial system and made the later credit boom possible, the mortgage explosion was driven by a sequence of additional decisions. <\/p>\n
What does a successful Australia look like?<\/p>\n
When asked what a successful Australia looks like in 15 years, Mr Rennick jumped deep into the weeds. In layman\u2019s terms, he proposes a country that processes more of its own vast natural resources instead of exporting raw materials overseas. That, and stronger incentives to produce homegrown goods, services and infrastructure.<\/p>\n
\u201cThere is no reason we shouldn\u2019t be making more steel here,\u201d he said.<\/p>\n
\u201cIf we add value to our own resources, we grow the pie instead of simply taxing what\u2019s already there.\u201d<\/p>\n
He is also pushing for a tax shake-up that he believes will give more financial opportunities to those needing it most.<\/p>\n
He proposes raising the tax-free threshold to $45,000, giving minimum wage earners, or young people earning side cash while studying, an immediate leg up to get their savings chugging.<\/p>\n
He also proposes a massive superannuation rejig, arguing Australians will benefit from having greater flexibility rather than be glued to a compulsory superannuation scheme. <\/p>\n
The move, while risky, aims to reduce power from the relatively small group of managers who oversee Australia\u2019s $4 trillion in superannuation, which Mr Rennick says costs around $40 billion a year to manage and operate.<\/p>\n
He also wants more public investment in manufacturing, arguing Australia has become too reliant on financial services, or \u201cpaper engineers\u201d, while allowing productive industries to decline.<\/p>\n
In short, Australia\u2019s white collar jobs economy is extremely weighted towards financial services and People First is aiming to get back to the basics on what built Australia\u2019s economy in the 20th century.<\/p>\n
\u201cWe\u2019ve commoditised childcare, financial-ised university degrees and turned too much of the economy into paper assets,\u201d he said.<\/p>\n
\u201cWe need real engineers, real builders, not financial engineers.\u201d<\/p>\n
\u2018I still believe in this country\u2019<\/p>\n
Despite his heavy criticism of Australia\u2019s economic and political direction, Mr Rennick says he remains optimistic about the country, and believes young people should be as well.<\/p>\n
He believes Australia has the natural resources and workforce to rebuild its manufacturing base over the next decade if governments are willing. But it\u2019s going to take some serious work.<\/p>\n
\u201cThe reason I\u2019m so diehard about it is that I still believe in this country,\u201d he said.<\/p>\n
\u201cI\u2019m extremely driven by the sacrifices of our forefathers.\u201d<\/p>\n
alexander.blair@news.com.au<\/p>\n","protected":false},"excerpt":{"rendered":"Deposit by 25. Mortgage-free by 45. Retire at 65. 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