Rapid RBA rate hikes will drive builders into the ground, industry association warns

The top body of the construction industry has pushed for the Reserve Bank to smooth out rate hikes or risk the financial ruin of already-stressed companies in the construction sector
After the RBA imposed her third price increase in as many monthspushing the official cash rate to 1.35 percent, Master Builders Australia boss Denita Wawn claimed the central bank was now “turning the economic knob too far” and moving too fast.
The RBA spikes have left millions of Australian households paying hundreds of dollars more each month on their mortgagewhile others considering building or buying a new home are now recalculating the feasibility of such a move.
Australian central bank triggers third rate hike in as many months
Australia’s central bank has initiated a third rate hike in as many months. (Peter Rae)

“Our industry has been disproportionately affected by interest rate hikes,” Wawn said.

A hard economic landing would “endanger the viability” of many builders who survived the pandemic and are now being tested by severe pressures in the supply chain, she said.

“Many now lack the resilience to withstand stronger economic shocks,” she said.

The RBA hikes have taken everyone by surprise, as the bank’s governor, Philip Lowe, had said throughout the year that interest rates probably wouldn’t rise until 2024.

Yesterday, Lowe said more rate hikes are likely to follow in the coming months.

Wawn said the building association acknowledged that the RBA needed to address the dire consequences of inflation, but questioned whether Lowe was pulling aggressively on the levers.

“We are concerned that an ongoing regime of steep rate hikes risks turning the economic knob too far in the opposition direction and slowing economic growth needed for the ongoing recovery from COVID,” she said.

“Time should be given to observe the impact of monetary policy changes on the economy.”

Most market analysts have predicted that the spot interest rate could be anywhere between 2 and 3 percent.

The RBA has raised cash interest rates in an effort to address high and rising inflation.
The RBA has raised cash interest rates in an effort to address high and rising inflation. (Scott McNaughton)
Many building and construction companies have been facing turbulent headwinds since 2020, with the rising material costsStaff shortages and non-viable fixed-cost contracts have sunk major players across Australia.
As construction giants want probuild and condev collapsed, there is a cloud of doubt about billions of dollars worth of major projects.

Subcontractors and crafts have been left out by the fallout, and many would-be homeowners have seen projects stall and slumber.

Road torn in two by flooding

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