The Reserve Bank of Australia (RBA) has dropped interest rates for the first time since November 2020, handing some much-needed relief to mortgage holders and prospective homeowners.
But while they might be letting out a sigh of relief, the construction sector isn’t breaking out the champagne just yet.
Despite the RBA lowering the official cash rate to 4.10 per cent, industry leaders warn that the cheaper cost of borrowing won’t do much to fix the housing supply crunch.
With material costs, red tape, and a shrinking workforce still hammering Australia’s ability to build enough homes, the quarter percentage point drop will have little impact on the government’s ability to build 1.2 million new homes by 2030.
Despite recent price stabilisation, the residential construction sector remains under enormous strain, with builders struggling to source materials, find skilled workers, and keep projects moving.
Rate cuts won’t fix housing crisis, warn HIA
While the move may ease cost-of-living pressures, the Housing Industry Association (HIA) has warned that it will not significantly increase home construction.
Housing policy, land shortages, and government red tape keep supply from catching up with demand. Construction costs have risen by 40 per cent over the past five years, and build times have increased by 80 per cent over the past 15 years.
As revealed by Build-it yesterday, the nation’s peak housing industry body believes that only drastic policy changes will be enough to cement the housing crisis into recession.
“While yesterday’s decision could act as a catalyst for more on-the-ground home-building activity, it will not be sufficient to achieve the Australian government’s target of 1.2 million homes over five years,” HIA Chief Economist Tim Reardon said.
“Even with the ongoing expectation of cuts later in the year, there are far more important structural reforms required of policymakers for Australia to address its housing crisis.”
Mr Reardon called for critical policy changes such as urgent tax reform to address the burden of stamp duty on aspiring homeowners and investor surcharges that deter those who want to build new homes.
“Up to half the cost of a house and land package in Australia is because of government taxes, costs and restrictions,” he said.
“Crucially, Australia (also) needs the workforce to build 1.2 million homes over five years. HIA estimates this will require an extra 83,000 workers in key construction trades – a 30 per cent boost on the current workforce.”
“The skilled migration system needs to be simplified and fit-for-purpose, and there needs to be an ongoing domestic workforce development plan that supports apprentices, the public and private organisations that train them, and the businesses that supervise and provide on-site experience for them.”
“Failure to address these constraints on home building will not only fail to address Australia’s housing crisis but also act as a major drag on economic growth, productivity and living standards.”
Master Builders’ back policy calls
Master Builders Australia backed the HIA’s position, saying that government policy intervention is urgently needed to tackle the housing crisis properly.
“The RBA’s cut is positive news, but interest rates alone are not the silver bullet to fix the housing crisis,” said Master Builders CEO Denita Wawn.
“Without government action, housing affordability and business costs will remain a major challenge.”
“The Federal Government must remove barriers to productivity and bring down construction costs to ensure new projects stack up.”
Homeowners still set to save
However, the drop still means real savings for mortgage holders. A homeowner with a $600,000 loan could see their monthly repayments shrink by around $92 – putting an extra grand a year back in their pockets.
Meanwhile, a $700,000 loan holder will save around $112 a week.
However, while homeowners will welcome the reprieve, the RBA has hinted that homeowners should not expect a rapid rate-slashing cycle.
“The forecasts published today suggest that, if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range,” The RBA said in a statement yesterday.
“In removing a little of the policy restrictiveness in its decision, the Board acknowledges that progress has been made but is cautious about the outlook.”
“Sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority.”
“The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions.”
