RBA should not jack up interest rates on the strength of today’s home price figures

03 May 2010

The Reserve Bank would be ignoring the Henry Tax Review Report if it responded to the latest home price data by lifting the cash rate to 4.5 per cent when its board meets tomorrow, according to the Urban Taskforce.

Today’s Australian Bureau of Statistics figures show the price index for established houses for the weighted average of the eight capital cities increased 4.8 per cent in the March quarter 2010, and 20 per cent for the year to March 2010.

 

The Taskforce’s chief executive, Aaron Gadiel, said the Reserve Bank should take note of the Henry Tax Review findings released only yesterday.

 

“The Henry Review makes it clear that it is the lack of housing supply that is placing upward pressure on home prices,” Mr Gadiel said.

 

“The report finds that higher home prices are the consequence of restrictions on the supply of housing that result from zoning, lengthy approval processes and building standards.

 

The report also said that development levies could be complex, opaque or set too high, discouraging investment in housing, lowering the overall supply of housing and raising its price.

 

“Increasing interest rates will not solve these fundamental issues, but will further dampen efforts to boost the supply of new homes.

 

“As long as the supply of new homes is heavily constrained, there will be upward pressure on homes prices.

 

“Interest rate increases won’t change this.”

 

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