Low interest rates a good start, but not enough to meet new housing demand: HIA

Yesterday, the Reserve Bank of Australia (RBA) decided to keep interest rates at a record low 2.5% for the 16th consecutive month.

This is the longest time interest rates have remained on hold since 1996 when there was a 19-month period of stability.

The official cash rate has fallen 225 basis points since November 2011, with the RBA cutting interest rates twice in 2013, in May and August.

The steady period of interest rates seems set to continue; CommSec expects interest rates to remain stable until the second half of 2015.

Overall the RBA’s decision has left home loan customers happy. The RateCity database shows that over 1,000 home loans have had rates cut out-of-cycle since July.

But despite record low interest rates helping boost the new home building sector, more needs to be done to ensure demand is met, argues Housing Industry Association’s (HIA) chief economist, Harley Dale.

“Super low interest rates have unleashed substantial pent-up demand for new housing to the benefit of many parts of Australia’s domestic economy beyond residential construction,” said Dale.

“There is a lack of titled residential land, excessive planning delays and restrictions, and a plethora of taxes and charges which combine to make new housing one of the most heavily taxed sectors of the Australian economy.” 

This is a problem which cannot be solved solely through through keeping interest rates low, warns Dale. 

“A lack of policy action... robs the Australian economy of a further burst of growth in new housing supply,” he said.

The RBA will next meet on Tuesday, 2 December 2014.