The building and construction industry acknowledges the Reserve Bank of Australia’s difficult decision to raise interest rates today but warns that without other fiscal and policy measures to control inflation, further interest rate rises would leave the industry and homeowners bearing the brunt of the current economic challenges, says Master Builders Australia CEO Denita Wawn.
A strong building industry means a strong economy. The industry is an important pillar of the Australian economy, generating jobs and providing homes and infrastructure for the community.
However, rising inflation and interest rates have already forced building and construction activity to slow sharply making it much harder to deliver the housing and infrastructure needs for Australians. Today’s RBA statement notes how accelerating rental prices are already contributing to inflationary pressures across the economy. Further interest rate increases will deepen the new home building downturn and magnify these rental market pressures.
New home building activity has dropped to its lowest monthly number in over a decade, decreasing by 27.6 per cent in January alone. Separate lending data shows that loans for the purchase of new homes have fallen to their lowest level since November 2008, according to the ABS’s January figures.
While we recognise the RBA will likely need to continue to lift interest rates over the next few months to reduce the risk of locking in high inflation, there’s more that can be done to avoid locking a generation out of homeownership and exacerbating our housing supply and affordability challenges.
Accordingly, to allow for the full impact of these ongoing increases to be realised, we believe that interest rate increases should either be paused in April or consider that any further rate adjustments be more finely tuned with increases of no more than 10 to 15 basis points.
The pain of high interest rates and high inflation is real and if not controlled, could result in a lengthy period of pain and depressed construction activity.
Inflation is a hidden tax on everything. It makes people and businesses poorer by eating into our savings and making investments by businesses less attractive. It is particularly bad for construction because of the higher capital requirements for the work we do and how closely construction activity is tied to private sector investment decisions.
Without actioning sensible fiscal measures, we are likely to see a further reduction in new detached house building and higher density homes, which renters are crying out for.
We already see these stark impacts in new housing construction. Not addressing the symptoms of inflation now risks these symptoms spilling into other sectors of construction.
The vast majority of the money for commercial building projects comes from private sector investment. High inflation makes business investment more expensive and less attractive by reducing returns and increasing the cost of inputs.
The upcoming federal budget should focus on policies that ensure spending is carefully targeted at boosting productivity for business and allowing for more favourable outcomes when it comes to the cost, quality and quantity of building and construction output.
Insufficient supply of titled residential land, high developer charges, and inflexible planning laws are also holding back detached house building.