Well in fact it is most likely quite the opposite...
If anything interest rates were too low in the first half of this decade. You will remember when the australian dollar was about 48 cents? this was because our interest rates were very low compared to overseas interest rates. I am not suggesting any of this was Howard's doing because at the end of the day if rates were lower than they should have been this would have been the RBA's fault.
The main howard policy that allowed lower interest rates was fiscal consolidation which meant that we were running surplus budgets (except for 2001) allowing the RBA to lower interest rates to levels lower than they might otherwise have to (remembering that economic growth was still quite strong at this time). When interest rates were extremely low (4.25% in dec 2001 was the lowest cash rate target since the bank began targeting the cash rate); we had a housing boom caused by the availability of credit.
So what is the result of this? well what has happened is that we had this property boom that has increased the wealth effects of individuals (i.e. if you buy a house worth 200 000 and its now worth 400 000 then you now feel more wealthy). Subsequently consumption rose with consumer confidence, and people were buying all sorts of expensive items like plasma tv's new cars etc etc. Perhaps this alone would have been ok, but with the appreciation of the terms of trade we have had a double whammy with the resources boom. This has pushed inflation beyond the comfort zone of the RBA and they have had to restore interest rates to their neutral level (6-7% is a fairly average level of interest rates when comparing levels historically, as well as to other countries). Subsequently the dollar has risen (other countries rates have fallen whilst ours has risen).
Whats wrong with all this? well nothing really. For us to be complaining about a cash rate of 7.25% is a bit absurd considering that the cash rate target has been as high as 17.5% (even higher if you consider earlier figures when they werent targeting the cash rate). The reason why this has become such a political issue is because interest repayments are a higher proportion of income than ever before. The so called 'mortgage stress' has increased. The reason it is higher now is because many people who shouldn't have taken out a mortgage when rates were between 4 and 5% shouldn't have. They quite simply cant afford it. They would be fine if rates were permanantly at 4.25% but not now that they have inevitably increased to 7.25%.
People like to blame the government, but it aint their fault. People must take responsibility for their own decisions. If you over extend yourself, you must take the risks that interest rates will rise and you may have to default on your property. I do think that the banks should take some of the blame as well, as of course banks shouldn't have leant to many of these people, but of course the banks are out to make money. The banks are willing to lower lending criteria standards because it means they can suck more people into a mortgage. They can accept the risk of defaults because they have a diversified portfolio. But it sucks if you are someone who doesn't know their limit.
