Interest rate rise puts housing supply at risk

03 November 2009

The Reserve Banks decision to raise the cash rate by 25 basis points to 3.5 per cent is based on faulty logic, according to the Urban Taskforce.

The Taskforces chief executive, Aaron Gadiel, criticised the Reserve Banks assertion that higher dwelling activity … [is] starting to provide more support to spending.


The Reserve Bank has clearly jumped the gun, Mr Gadiel said.


We are still in the midst of a major development crisis. Developers still have great difficulty in securing bank finance for their projects.


The Reserve Bank has too quickly assumed the recent increases in new home approvals will automatically translate into construction starts.


Mr Gadiel said that any increase in interest rates boosted the holding costs faced by developers.


This increase means there is a wider gap between a developers interest bill when holding land and the escalation the lands value.


It will reduce the viability of development across Australia particularly in NSW which is burdened by very lengthy approval processes.


Ironically, the Reserve Bank has been highlighting housing supply constraints as a macroeconomic risk, while its two interest rate rises make boosting the housing supply even more difficult.


The Urban Taskforce is a property development industry group, representing Australias most prominent property developers and equity financiers.


For every $1 million in construction expenditure, 27 jobs are created throughout the broader economy. The construction activity made possible by property developers contributes $78 billion to the national economy each year and creates 849,000 direct jobs.



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