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{{propApi.successMessage}} {{region}} Change locationHigher financing costs mean the Budget must lower building costs to lift new home supply
Higher financing costs mean the Budget must lower building costs to lift new home supply
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“Monetary policy has an important role in managing inflation, and the RBA’s actions reflect the persistence of price pressures across the economy,” Mr Reardon said.
“However, higher interest rates increase the cost of financing new homes and make it more difficult to bring new housing projects to market.”
“As a result, this decision is likely to reduce the number of new homes commencing construction at precisely the time Australia needs more housing supply.”
Mr Reardon said the latest rate rise comes just a week before the Australian Government hands down the Federal Budget, which will play a critical role in determining whether Australia can meet its housing supply challenge.
“Higher financing costs mean that the task of delivering new homes has become more difficult,” he said.
“That places greater responsibility on the Budget to lower the cost of building new homes and ensure that supply is not further constrained.”
Mr Reardon said the impact of higher interest rates on housing supply risks intensifying the structural shortage of homes, placing further upward pressure on both rents and house prices.
“Constraining the supply of new homes does not reduce housing costs, it does the opposite,” he said.
“When fewer homes are built, competition for existing housing increases, pushing prices and rents higher and adding to housing inflation.”
Mr Reardon said the key test for the Budget will be whether it reduces the cost of delivering a new home and supports an increase in supply.
“If governments are serious about improving housing affordability, they must focus on increasing the supply of new homes,” he said.
“The only sustainable way to reduce housing costs is to lower the cost of delivering a new home.”
“This means reducing the taxes, charges and regulatory barriers that add to the cost of new housing.”
Mr Reardon said proposals to increase taxes on property investors, whether in the established or new housing market, would move policy in the wrong direction.
“At a time when higher interest rates are already restricting housing supply, increasing taxes on investors would further discourage the investment needed to finance new housing projects,” he said.
“Policies that reduce investment in housing will inevitably reduce supply and push housing costs higher.”
“The logic that increasing taxes on investment in the established market will see more investment in new home building is flawed.”
Mr Reardon said the focus should instead be on policies that encourage the construction of new homes, particularly in the context of higher financing costs.
“With financing costs rising, it is more important than ever that governments act to reduce the cost of building new homes,” he said.
“Reducing taxes and charges on new housing, speeding up planning approvals and lowering regulatory costs would do far more to improve affordability than policies that further restrict housing investment.”
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