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Most economists, including the big four banks, are penning a 25-basis-point cut at tomorrow’s meeting (12 August).
Bringing the cash rate to 3.60 per cent will benefit home owners and prospective buyers as borrowing power will increase.
However, Domain’s chief of research Dr Nicola Powell said the effects could add further strain to an already undersupplied housing market.
According to Domain, house prices are predicted to jump 6 per cent and unit prices 5 per cent by this time next year.
“With more money chasing too few homes, prices are set to rise again,” said Powell.
An analysis by Domain revealed just how much extra borrowing power a 25-bp rate cut will grant Aussie households, based upon how much they earn:
- For an income of $50,000, borrowing power would be lifted to $4,000.
- $100,000: $11,400
- $150,000: $17,300
- $200,000: $23,700
- $250,000: $30,900
- $300,000: $37,000
- $350,000: $42,100
- $400,000: $48,700
If the Reserve Bank follows through with a 25-bp cut, a surge in borrower activity is expected to follow.
Can we meet the demand?
Powell called for reforms to planning to help speed up approvals as demand continues to outpace supply.
Cotality’s head of research Eliza Owen agreed that reform is needed to alleviate supply issues, but the focus shouldn’t be on approvals.
She said that delivery needs to be improved if we are to keep up with the rising demand.
“The real bottleneck lies in the build phase,” Owen said. The focus governments have on approvals is stalling progress.
“With completion times already above average, and construction costs elevated, it seems an odd time to be incentivising more dwelling approvals and commencements to the backlog of work to be done.”
Cotality said that at the Economic Reform Roundtable from 19–21 August, there needs to be a shift from focusing on approvals to delivery.
“With calls mounting to revisit negative gearing, capital gains tax concessions, and other structural incentives driving housing demand, the conversation is finally shifting beyond approvals and into the real levers of change,” said Owen.
“If governments are serious about delivering 1.2 million homes, they must focus on building capacity, lifting productivity, and ensuring every approved home actually gets built.”
[Related: Borrowers leveraging rate cuts to upsize their home]
