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The upcycle in the Reserve Bank\u2019s cash-rate target could potentially hamper building activity as it slows demand for homes.<\/p>\n
Housing Industry Association (HIA) chief economist Tim Reardon said the recent move by the RBA to lift the cash rate from its historic low of 0.10% to 0.35% could see home building activity ease modestly from its current elevated levels.<\/p>\n
\u201cThe increase in rates send an important signal for homeowners and investors considering home purchase that the period of ultra-low interest rates, is nearing an end,\u201d he said.<\/p>\n
\u201cCombined with the lagged impact of migration, the volume of homes commencing construction is expected to slow to more average levels by early 2024.\u201d<\/p>\n
Mr Reardon said demand for housing has been \u201cexceptionally strong\u201d over the past two years as the environment was supported by record-low interest rates, fiscal support, and strong employment conditions.<\/p>\n
\u201cDemand for homes increased during the pandemic across most developed economies as households sought additional space, this has resulted in a similar boom in demand across most developed economies,\u201d he said.<\/p>\n
However, Mr Reardon said the increase in rates will do \u201clittle to arrest\u201d the rising cost of building materials.<\/p>\n
\u201cThe 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 \u2014 this has seen the cost of key building materials escalate and was a major contributor to recent inflation data,\u201d he said.<\/p>\n
Building approvals starting to slow down pre-rate hike<\/h2>\n
Latest HIA figures show a 3.1% decline in building approvals for detached houses in March, reversing the strong turnout recorded in the preceding month.<\/p>\n
HIA economist Tom Devitt said despite these declines, approvals for detached home were at a higher level than they were over the first three months of 2022 compared to the same period prior to the pandemic.<\/p>\n
\u201cThis continues to reflect the strong ongoing demand for housing in the first quarter of 2022, albeit at levels below those observed over the past two years,\u201d he said.<\/p>\n
Over the month, multi-unit approvals also declined by 37.7%. Mr Devitt said there are factors that could potentially lift the demand for this housing segment.<\/p>\n
\u201cAffordability issues, land constraints and a return of overseas migrants, students and tourists will help support demand for units, townhouses and apartments,\u201d he said.<\/p>\n
Mr Devitt said the impact of the latest cash rate announcement would likely take more than six months to reflect in the approvals data.<\/p>\n
\u2014<\/p>\n
Photo by @ballonandon on Unsplash<\/p>\n<\/p><\/div>\n
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