It’s crunch time. The Reserve Bank could well deliver a severe blow to mortgage holders and renters today, moments before the Melbourne Cup gets underway.

Should it raise rates, part of the RBA Board’s reasoning will be the increased cost of  housing, both to buy and to rent.

It’s worth considering what truly constitutes non-discretionary spending in an inflationary context.

When it comes to food, people have the choice to forego certain products they may like,  if they deem them too expensive.

Although petrol and energy prices are high, people still have the option to shop around,  and there is no specific shortage of energy and petrol for people to buy.

Housing is the outlier. For many people, choice is simply not available. They cannot  walk away from the need to ‘buy’ housing.

Owner-occupiers will have to find a way to absorb higher repayments. Renters will have  to pay higher rents. 

In doing so, they will reinforce a cycle of upward pressure on the cost of housing. Only  a major increase in supply can break this cycle.

Increasing interest rates in the context of the critical under supply of housing is having  the counterproductive impact of increasing inflation for what everyone agrees is an  essential, non-discretionary commodity. 

It’s an anomaly which lays bare the failure of successive Governments to house our  growing population.