Trying to tame inflation with higher interest rates is dumb and unfair

October 7, 2026 — 5:00am

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Let me be the last to tell you: the Reserve Bank’s decision to raise the official interest rate for the fourth time this year, taking it to 4.6 per cent, will hurt people with mortgages. That rate’s the highest since 2011, and there may be another rise to go in a month’s time. But it will hurt more today than it did 15 years ago.

Why? Because house prices are now a lot higher than they were back then. This is an important part of the reason owning your own home has become so hard to afford.

When interest rates go up, many would-be home owners are unable to buy, but when interest rates start coming down – bringing some relief for existing home buyers – formerly frustrated buyers surge into the market, causing another burst of rising prices.

According to calculations by Curtin Business School’s Professor Alan Duncan, in June 2011, the average new owner-occupier home loan was about $363,000. In June this year it was more than double that, at $731,000.

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Ross GittinsEconomics Editor

For first home buyers, the average loan has doubled from $318,000 to $610,000.

This doubling in mortgage sizes and, hence, house prices, was matched by an increase in average earnings for full-time adults from $1305 to $2084. That’s only about 60 per cent. Now that’s unaffordability in action.

To put it another way, the average mortgage in 2011 was equivalent to about 5.4 years of average........

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