The Reserve Bank of Australia’s decision to raise the official cash rate for the second month in a row is premature, according to the development industry.
Yesterday's widely tipped 25-basis-point increase raises the central bank's cash rate to 3.5 per cent and marks the first month-on-month increase since March last year.
“The Reserve Bank has too quickly assumed the recent increases in new home approvals will automatically translate into construction starts,” Aaron Gadiel, CEO of the Urban Taskforce, said.
Any increase in interest rates boosted the holding costs faced by developers, he said.
“This increase means there is a wider gap between a developer’s interest bill when holding land and the escalation the land’s value. It will reduce the viability of development across Australia.”
The Housing Industry Association said it would be “prudent” for the RBA to “sit on its hands” after yesterday’s increase and assess economic developments domestically and globally.
The impact of rising interest rates falls very unevenly on different sectors of the economy, consumers and small business, the HIA said.
“There is no justification for retail lenders to act off their own bat and move rates beyond the change in the official cash rate,” HIA chief economist, Harley Dale, said.
