Last week’s rate cut and the argy-bargy over how hawkish or indecisive the RBA remains overshadowed important details in our central bank’s statement on monetary policy, Michael Pascoe reveals.

With the Coalition matching Labor’s bulk-billing announcement, blunting a Mediscare campaign, the Albanese Government needs a major differentiator to halt its slide in the polls. The Reserve Bank pointed to one last week: housing.

Not only is the housing crisis not going away, it’s set to worsen according to the RBA’s figures. New dwelling investment is expected to grow by only 0.9% this financial year and just 0.3% in the next. That 2025-26 forecast is a downgrade from 1.3% growth the RBA forecast in November to bugger-all now, to use a technical term.

Jim Chalmers’ May budget was based on a fantasy forecast of 6.25% new dwelling investment growth next year, revised to a still fantastical 5% in December’s mid-year economic forecast.

The RBA has effectively told Jim he’s dreamin’.

Even out in 2026-27 the bank only sees 2.5% growth.

That is nowhere near enough to make a dint in our housing shortage to absorb our population growth. It again labels the “1.2 million new dwellings in five years” target as nonsense. But at the same time, the bank reports there are signs of improved capacity to build shelter.

Capacity growth

The RBA states there are still capacity constraints “for tradespeople employed towards the end of the construction process e.g. plasterers and tilers,” but the RBA’s business liaison contacts “report that builders are offering discounts in some cities in response to weak demand, which has contributed to an unexpected easing in new dwelling inflation.”

“New demand remains weakest in the higher density sector, with liaison contacts continuing to note that construction costs remain too high relative to selling prices, while detached commencements picked up over 2024.”

That cuts to the core of insufficient housing starts. Regardless of a little interest rate cut and some prices falling, prices ran so high as to finally meet buyer resistance on one hand while the cost of building new supply on over-priced land is unprofitable for private developers.

Prices need to fall further to encourage buyers, but lower prices make it harder for developers to take up the various state government offers of higher-density permissions. Leaving housing to “the market” means supply will continue to be inadequate until prices are again on the upward march, maintaining the crisis.

As economist Cameron Murray, one of the very few to see past the developers’ lobby bulldust, sarcastically tweeted: “I thought regulations were the constraint on new homes, but it turns out the market always limits the rate of new housing development.”

Which is where opportunity is knocking for Labor. If “the market” won’t build enough housing as capacity constraints ease, the chance is there for the government to step in to fill the gap.

Government’s responsibility to act

It’s more than the chance; it is the responsibility of the government to do so, as it should in the provision of any essential service where the private sector fails.

The danger for Labor is the knowledge that it already is taking clearly superior housing policy to the election. Dutton’s promise to scrap the Housing Australia Future Fund would end a solid attempt to at least maintain the existing (though inadequate) level of social and affordable housing.

The LNP’s housing policies are all about increasing demand, not filling the gap in supply, listening only to the developers’ lobby, to “the market” that has steadily built this crisis over the past three decades.

Every poll pings housing as one of the electorate’s biggest concerns. If it comes down to deciding which way independent MPs jump with minority government, a clearly positive housing policy versus a clearly negative one should be right up there with the two parties’ climate credibility.

This is the chance for Labor to claim the spirit of Robert Menzies, the founder of the Liberal Party,

in direct government action to support the Great Australian Dream.

It was Menzies who knew housing could not be left to “the market” and poured Federal funding into building both to buy and to rent.

More recently, there was the Social Housing Initiative, an overshadowed but very successful part of the Rudd/Gillard government’s GFC stimulus.

The $5.6B delivered 19,700 new social housing homes plus repairs to 80,000 existing dwellings, including 12,000 major upgrades to housing that was vacant and in danger of becoming uninhabitable.

Without a bigger, bolder initiative, housing supply is set to plod along, maintaining the status quo. The industry reports improving demand for detached houses while the high-rise apartments being promoted by state governments are going nowhere.

The SMH ($) quotes Housing Industry Association economist Tom Devitt: “Land and construction costs are too high both for people to afford those kinds of housing volumes and for it to be viable for the industry to build.”

That looks like tautology to me.

Where governments already own the land, there is the opportunity to do what the private sector cannot and actually get serious about the crisis instead of only trying to be better than the LNP’s drive to push up demand and, therefore, prices.

But it would take strong leadership, bold leadership prepared to have a crack and ignore developers’ lobbying and the doctrinaire rantings of the national dailies.

Three decades of policy failure. Productivity Commission’s housing shame file

 

This post was originally published on Michael West.