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{{propApi.successMessage}} {{region}} Change locationRaising interest rates to fight housing-driven inflation is like killing the patient to cure the fever
Raising interest rates to fight housing-driven inflation is like killing the patient to cure the fever
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Housing costs are the largest and most persistent contributor to inflation, yet the primary tool used to fight inflation, higher interest rates, directly restricts the supply of new homes.
This is inflation driven by housing scarcity.
Rents, new home construction costs and related housing services are keeping inflation elevated. These pressures reflect a prolonged shortfall in housing supply relative to population growth and household formation.
When inflation is driven by supply constraints, higher interest rates do not solve the problem, they actively intensify it.
Higher rates raise the cost of borrowing, reduce the number of new homes coming to market, further inflating prices and rents, keeping inflation elevated for longer. At the same time, higher interest rates will slow business activity, create unemployment and worsen economic and social outcomes. This cost would weigh heavily on those least able to afford it.
This creates a self-reinforcing cycle. Housing shortages lift inflation, higher rates suppress new supply and inflation persists. It is the economic equivalent of the Oozlum bird, flying in ever tighter circles while chasing its own tail.
Housing is a binding macroeconomic constraint. It is influencing inflation persistence, labour mobility, productivity growth and fiscal pressures across the economy.
Fixing housing driven inflation does not require creating unemployment across the rest of the economy.
Measures that reduce taxes embedded in new housing and accelerate delivery can ease inflation by expanding supply. This approach tackles inflation at its source, rather than suppressing activity elsewhere in the economy.
Australia does not need to fly faster in circles. It needs to make it easier and cheaper to build homes to flight higher interest rates.
For more information please contact:
Update on recent HIA advocacy activities
Over the past few weeks HIA has been advocating strongly on behalf of members on a range of policy and regulatory issues that have significant implications for housing supply, business confidence and the capacity of our industry to deliver the homes Australia needs.
Tasmanian builders shouldn't be shut out of housing work over union membership
The Housing Industry Association (HIA) has today written to the Tasmanian Government calling for a commitment that state-funded and state-partnered housing work will continue to be awarded on merit, not industrial arrangements, warning new federal procurement rules could shrink the pool of builders able to deliver the homes Tasmania needs.
Rushing Working from Home laws will only lead to more bungling
The Victorian Government continues to push ahead with its Working from Home laws despite the Housing Industry Association’s (HIA) call for it to abandon its proposed legislation, warning the changes would impose additional regulatory pressure on businesses already struggling and kill productivity.
Hobart named Australia's most restrictive city for planning
Hobart has been identified as the most restrictive capital city in Australia for planning, according to the Australian Zoning Atlas, which found 97 per cent of the city's residential land is subject to restrictions that limit new housing.