Housing and retail industry groups have voiced concerns with today's interest rate rise suggesting it was counterproductive to a housing recovery, damaging to household budgets and devastating news for retailers.
Housing and retail industry groups have voiced concerns with today's interest rate rise suggesting it was counterproductive to a housing recovery, damaging to household budgets and devastating news for retailers.
The Housing Industry Association (HIA) said today's rate rise, lifting the official cash rate by a further one quarter of a percentage point to 4.5 per cent, pushes rates above the 'normal' level which will hit household budgets hard and Master Builders Australia (MBA) warned of further risks to the building and construction industry while the Australian Retailers Association (ARA) said the Reserve Bank of Australia's sixth 25 point interest rate rise since October last year was devastating.
HIA senior economist, Ben Phillips urged the RBA to exercise caution and not lift rates further over the short term in light of the still considerable risk attached to future economic performance and the blunt impact rate increases impart sectors of the economy not directly benefiting from the China-induced boost.
"The double-whammy of increasing interest rates and a dire housing shortage will combine over 2010 to see housing affordability again reach record lows for both the home purchase and rental market," Mr Phillips said.
"Negative signs are already appearing in the new homes market with both building approvals and home lending figures down over 2010. The housing shortage will only worsen over the next 12 months as the full impact of higher rates filters through."
MBA chief economist, Peter Jones said the higher interest rates threaten to derail a private sector housing recovery already hamstrung by the lingering effects of the credit crunch on investor-driven activity.
"The Reserve Bank appears to be concerned that established house prices have generally been rising strongly in recent times," Mr Jones said.
"While a rate rise may temper established house price growth in the short term, the risk is that the Reserve Bank's interest rate strategy can only exacerbate an already significant undersupply of new housing and, ironically, put pressure on house prices further out."
"After stressing for many years the need to remove cumbersome and costly planning requirements and to solve the problem of state and local government developer charges, Master Builders calls for the implementation of Henry Tax Review recommendations to confront the chronic housing shortage."
ARA deputy executive director, Jennifer Cromarty said retail trade figures show the sector is struggling to post any strong or consistent trade and instead of the Commonwealth and the RBA implementing measures to offer some relief to the small business sector, they're stifling recovery.
"If trade was strong, retailers may be able to manage these hikes in operational expenses but they are also bearing the brunt of the RBA's decision to continuously take cash away from consumers with rate hikes," she said.
"The Commonwealth Bank - ACCI Business Expectations Survey released today confirmed small businesses continue to face soft trading conditions and a dreary employment outlook with rate hikes only putting more pressure on retailers grappling with dampened demand.
"The RBA is continuously ignoring pleas from retailers to let rate hikes impact the market fully before they rush like a bull at a gate bombarding consumers with rate rise after rate rise. Consumers need time to properly manage increases to their mortgages without pulling back so much on their spending.
"For mortgage holders, today's rate rise will add about $46 to the average monthly payment for a standard $300,000 home loan. That's $46 taken out of consumers' wallets and another reason for them to tighten their belts at a time when retailers are still trying to stimulate consumer spend.
HIA announcement below:
Rates Move Beyond 'Normal'
The Housing Industry Association (HIA), Australia's largest building industry organisation, says the decision by the Reserve Bank of Australia (RBA) to lift interest rates today pushes rates above the 'normal' level and this will hit household budgets hard.
"HIA urges the RBA to exercise caution and not lift rates further over the short term in light of the still considerable risk attached to future economic performance and the blunt impact rate increases impart sectors of the economy not directly benefiting from the China-induced boost," said HIA Senior Economist, Ben Phillips.
"The RBA has lifted rates six out of the last seven meetings which in combination with non-official rates has seen mortgage rates increase by 160 basis points in just 8 months, in contrast with the rest of world which has mostly left rates unchanged,"
"The rate increase today adds $51 per month to the typical monthly repayment meaning that first home buyers are now forking out an additional $317 per month more than September 2009.
"The double-whammy of increasing interest rates and a dire housing shortage will combine over 2010 to see housing affordability again reach record lows for both the home purchase and rental market.
"Negative signs are already appearing in the new homes market with both building approvals and home lending figures down over 2010. The housing shortage will only worsen over the next 12 months as the full impact of higher rates filters through.
"As pointed out in the Federal Government's Henry Taxation Review, the key action to prevent undue upward pressure on existing home values (and rents) is to ensure a sustainable boost to the new housing stock, to alleviate Australia's chronic shortage of dwellings.
"Higher interest rates doesn't advance that cause, indeed it hinders it, as does the current severe lack of finance being extended to the residential development sector," Ben Phillips said.
MBA aanouncement below:
RISING RATES RISKS RESIDENTIAL BUILDING RECOVERY,
MAKES URGENT HENRY REVIEW RECOMMENDATIONS
Statement by Peter Jones, Chief Economist
Australia's peak building and construction industry association, Master Builders Australia, warned of further risks to the building and construction industry arising from today's decision by the Reserve Bank of Australia to raise the official cash rate by a further one quarter of a percentage point, the sixth increase in eight months after rates bottomed at 3 per cent in April 2009.
Mr Peter Jones, Chief Economist, said "Higher interest rates threaten to derail a private sector housing recovery already hamstrung by the lingering effects of the credit crunch on investor-driven activity."
Mr Jones said, "The Reserve Bank appears to be concerned that established house prices have generally been rising strongly in recent times."
He said, "While a rate rise may temper established house price growth in the short term, the risk is that the Reserve Bank's interest rate strategy can only exacerbate an already significant undersupply of new housing and, ironically, put pressure on house prices further out."
"A higher interest rate strategy is counterproductive in terms of adding to the supply of houses, adding cogency to the urgent need to deal with supply bottlenecks."
'After stressing for many years the need to remove cumbersome and costly planning requirements and to solve the problem of state and local government developer charges, Master Builders calls for the implementation of Henry Tax Review recommendations to confront the chronic housing shortage.
The Henry Tax Review found that housing supply is currently insufficient to meet demand and that planning, zoning and approvals are restricting supply. It recommended reform to stamp duty, land tax and developer charges.
"Governments should not wait until housing becomes more unaffordable and the undersupply worsens before tackling the hard structural reform issues in the areas of planning, developer charges and regulatory costs being planned for housing."
Mr Jones said, "This must be the number one issue for COAG."
ARA announcement below:
Sixth RBA rate hike to further dampen soft retail spend
Peak retail industry body the Australian Retailers Association (ARA) said the Reserve Bank of Australia's (RBA) sixth 25 point interest rate rise since October last year was devastating news for retailers who were still struggling to cope with reduced consumer demand.
ARA Deputy Executive Director Jennifer Cromarty said retail trade figures show the sector is struggling to post any strong or consistent trade and instead of the Federal Government and the RBA implementing measures to offer some relief to the small business sector, they're stifling recovery.
"Retailers are trying hard to get back on their feet and stay there but they are taking hits from all sides at the moment. While they struggle to recover, they are having difficulty accessing finance and the Federal Government is coming at them with increased wage bills and compliance costs for new legislation including tobacco point of sale display restrictions in seven states.
"If trade was strong, retailers may be able to manage these hikes in operational expenses but they are also bearing the brunt of the RBA's decision to continuously take cash away from consumers with rate hikes.
"The Commonwealth Bank - ACCI Business Expectations Survey released today confirmed small businesses continue to face soft trading conditions and a dreary employment outlook with rate hikes only putting more pressure on retailers grappling with dampened demand.
"The RBA is continuously ignoring pleas from retailers to let rate hikes impact the market fully before they rush like a bull at a gate bombarding consumers with rate rise after rate rise. Consumers need time to properly manage increases to their mortgages without pulling back so much on their spending.
"For mortgage holders, today's rate rise will add about $46 to the average monthly payment for a standard $300,000 home loan. That's $46 taken out of consumers' wallets and another reason for them to tighten their belts at a time when retailers are still trying to stimulate consumer spend.
"Retailers are Australia's largest employers, and while they struggle with limited access to affordable finance as well as wage bill pressures as a result of the modern award, they must have incentive to hold onto staff. Taking cash away from consumers after over a year of patchy retail sales doesn't encourage employment in the sector," Cromarty said.
For over 105 years, the Australian Retailers Association (ARA) has been the peak industry body in Australia's $292 billion retail sector which employs over 1.5 million people. As an incorporated employer body under the Workplace Relations Act and with a range of member services including business consulting, policy development, advocacy and education, the ARA promotes and protects over 5000 independent and national retailers throughout Australia.
