Yesterday’s 0.25% increase in the cash rate will do little to arrest the rising cost of building materials, according to the Housing Industry Association. The HIA’s Chief Economist Tim Reardon said that home building activity was expected to ease modestly from its current elevated levels, partly in response to yesterday’s interest rate decision. Source: Timberbiz
“Demand for housing has been exceptionally strong over the past two years, driven by record low interest rates but also due to fiscal support, strong employment conditions, rising house prices, changes to household formation and a decentralisation of population,” he said. “These factors have offset the adverse impact of the loss of migration.”
Mr Reardon said that demand for homes increased during the pandemic across most developed economies as households sought additional space. This had resulted in a similar boom in demand across most developed economies.
“The subsequent surge in demand for building materials, combined with constraints in global supply chains, have caused a significant shortage of building materials across the world,” Mr Reardon said.
“This has seen the cost of key building materials escalate and was a major contributor to recent inflation data.
“These supply constraints are a major cause of the inflationary pressure. The increase in the cash rate will slow demand for homes, but it does not ease the constraints on global supply chains, increase the supply of skilled labour or improve productivity.”
Mr Reardon said yesterday’s increase in interest rates alone should not have a significant impact on most household budgets.
It did, however, send an important signal for homeowners and investors considering home purchase that the period of ultra-low interest rates, was nearing an end.
“Combined with the lagged impact of migration, the volume of homes commencing construction is expected to slow to more average levels by early 2024,” he said.
“Finally, concerns that this rate rise could lead to instability within the financial sector in Australia or cause extraordinary declines in home prices are unwarranted. Australia has an unquestionably strong financial system.”
