Housing costs continue to rise despite trimmed inflation reaching target

A new monthly inflation data from the Australian Bureau of Statistics has confirmed the underlying inflation is below 3% for the first time in three years.

Underlying inflation is a truer measure of price pressures in the economy and has now reached the Reserve Bank’s target of 2-3%.

However, peak building and construction industry association Master Builders Australia has warned policy makers not to become complacent as rents continue to rise at unsustainable levels.

Housing-related inflation must be controlled, and this requires a focus on the supply side of the economy.

Rents rose 6.2% over the 12 months to December and is one of the economy’s worst sources of cost pressures.

While this is slowly trending downwards, more needs to be done to address the household cost of living pressures being faced in the community.

“A period of declining interest rates would be very beneficial for the economy and help lift new home building activity,” says Shane Garrett, Chief Economist, Master Builders Australia.

“The gross mismatch between supply and demand for rental accommodation is continuing to force rents higher.

“Encouragingly, the cost of owner occupier home purchases dipped slightly during the December 2024 quarter.

“However, the cost of a new home is still 39.5% higher than it was 5 years ago.”

“We hope this is what the Reserve Bank is looking for to start bringing down interest rates,” says Denita Wawn, CEO Master Builders Australia.

“Australia desperately needs to boost housing supply, and this will only be achieved when the cost of new home building starts to moderate, and project costs stack up.  Builders have been feeling the impact of prolonged high interest rates on business costs and their forward books as people are holding off investing in new projects.
 

“It’s more than just a number, the lack of housing supply is leading to rising rents, homelessness, and higher mortgages, which negatively impacts the well-being of individuals, families, and communities.”

According to Wawn, the government is not off the hook just yet.

“This Federal Election we are looking for policies to make home building even more attractive including critical infrastructure investment, lower business taxes and charges, speeding up approval processes, and addressing workforce shortages.”

Image: A view of the Sydney Harbor Bridge from The Rocks by edemarco5 / Envato