The Real Estate Institute of Queensland (REIQ) and the Housing Industry Association expect housing shortages across Australia to be exacerbated by June's monetary policy decision.

High rates have seen the number of loans written for the construction of new property falling to the lowest level since 2008.

March 2023 was the weakest quarter for new building approvals since 2012, with 15% less new private sector properties approved in March '23 compared to '22.

Meanwhile rental rates have risen more than 10% in the past year, while the number of new properties listed for sale is almost 25% lower than the previous five year average.

The Albanese Government is aiming for one million new houses in the next five years, primarily coming from the private sector, but HIA Chief Economist Tim Reardon expects Tuesday's cash rate increase to mean even fewer new homes in the coming months.

"Home building activity today reflects rate increases a year ago. [June's monetary policy] decision is going to see an ongoing slowdown in home building, while demand for new homes continues to grow,” Mr Reardon said.

He believes that we are yet to feel the full extent of the slowdown that high rates will cause.

"The impact of rate increases to date are starting to emerge in official housing data, but it will take a further 12 months for this slowdown to be apparent in work on the ground, and the wider economy,"Mr Reardon said.

"This will see the number of homes commencing construction slow, as population growth accelerates."

REIQ COO Dean Milton is also concerned about the high cost of borrowing for home loans dissuading both investors and first home buyers, which in turn keeps the boot on the neck of the rental market.

"This rate rise will further the hardship of tenants, especially those on low incomes, when striving to enter home ownership, both saving the deposit and simply qualifying for a loan," Mr Milton said.

"Accordingly, we call on APRA to reduce their serviceability buffer back to pre-December 2021 levels, as we need more investors to bring rentals to the market and opportunity for tenants to realise their dreams of home ownership."

APRA currently requires banks to stress test loan applicants using a 3% serviceability buffer to the loan rate.

A 'blunt and ineffective' tool?

Throughout the tightening cycle, RBA Governor Philip Lowe has been consistent that inflation is the most pressing issue, and that while rate hikes are causing significant financial pressure for some households, it is necessary to bring goods and service prices down.

The idea that rising rates is the only way to bring down inflation has been questioned by many, including Mr Reardon, who feels the government could be doing more to combat inflation through taxation and other economic policy.

"Interest rates are a very blunt and ineffective tool in managing inflation and the wider economy. Fiscal policy is a far more effective and precise tool,” Mr Reardon said.

Edwina McDonald, Australian Counci of Social Service Deputy CEO, believes increased regulation would be a preferable approach.

"Instead of relying on the blunt tool of interest rate hikes, the government should be tackling inflation directly by better regulating the rental market and taking further action to reduce energy and healthcare costs," Ms McDonald said.


Building a home? This table below features construction loans with some of the lowest interest rates on the market.


VariableMore details
  • 10% deposit minimum
  • Up to 30 yrs loan term
  • Interest Only during construction – Solar Construction 90

  • 10% deposit minimum
  • Up to 30 yrs loan term
  • Interest Only during construction
VariableMore details

Great Southern Bank – Basic Variable Owner Occupier Construction (LVR ≤ 70%)

    VariableMore details

    Qudos Bank – Construction Home Loan (LVR < 80%)

      VariableMore details

      Geelong Bank – HomeBuilders Loan (Interest Only) (LVR < 80%)

        VariableMore details
        • Interest-only during construction
        • No monthly or ongoing fees – Construction Home Loan (LVR < 90%)

        • Interest-only during construction
        • No monthly or ongoing fees
        VariableMore details

        La Trobe Financial – Construction Home Loan

          VariableMore details

          Gateway Bank – Construction Home Loan

            Important Information and Comparison Rate Warning

            Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of December 10, 2023. View disclaimer.

            Picture by Josh Olalde on Unsplash

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