‘Killing the patient’: Builders slam RBA rate decision

Construction industry leaders have expressed their dismay at the Reserve Bank’s latest decision, saying the rate hike will work against the government’s economic and housing goals.

Master Builders Association of NSW executive director Matthew Pollock was among the dissenting voices, saying the increased level of friction may not have the intended effect.

According to Mr. Pollock, the inflation caused by the increase in the rate is mainly due to the increase in costs and constraints in the construction sector, and the increase in the interest rate is not the solution to this problem.

“Cutting out the mistakes, dealing with the shortage of workers and finding solutions to the financial and insurance challenges must be the priorities of the government,” he said.

“Finance costs are already a major barrier to new housing investment and rising prices will put the performance of multi-unit developments under further pressure at a time when the business case for many is failing to accumulate.”

Mr Pollock said Master Builders is seeking greater investment in skills and new financial solutions from the Minns Government in the next Federal Budget, to address rising costs and “energy challenges” seen in the rate hike.

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Matthew Pollock of Master Builders NSW says the government must focus on stopping red tape. Photo: Chris Kidd

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Housing Industry of Australia chief economist Tim Reardon also dismissed the rate decision, saying raising interest rates to fight housing-driven inflation was “like killing a patient to treat the flu”.

“Housing costs are the biggest and most persistent contributor to inflation, yet the main tool used to fight inflation, high interest rates, directly inhibits the supply of new housing,” he said.

“When inflation is driven by supply constraints, higher interest rates don’t solve the problem, they exacerbate it.”

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HIA Chief Economist Tim Reardon said the RBA’s solution amounted to ‘killing the patient’. Photo: Tertius Pickard

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Mr Reardon said higher rates would increase the cost of borrowing and reduce the number of new homes coming to the market, which would keep inflation higher for longer.

“At the same time, high interest rates will slow down business operations, create unemployment and worsen economic and social consequences,” he said.

“These costs will be very difficult for those who cannot afford them.”

Mr Reardon said fixing housing-driven inflation did not require creating unemployment across the economy, but rather reducing the tax burden on new homes and accelerating their delivery.

“This approach tackles inflation at its source, rather than suppressing employment elsewhere in the economy,” he said.

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