Pressure is mounting on the Reserve Bank of Australia to cut interest rates at its first board meeting of the year which started today and will conclude with an announcement tomorrow.
Some of Australia’s best known builders have joined the chorus calling for a cut, including Metricon, Queensland’s largest builder in the Top 25 Queensland Builders Half Time Report.
CEO Brad Duggan said the uncertainty over interest is costing his business customers.
“Many potential buyers are hesitant to commit, lacking confidence to take the next step and pay a deposit.”
“A rate cut would result in some change, turning the high amount of customer interest into action. Buyers want to build—our high engagement proves that—but financial hesitation is holding them back.” Mr Duggan said.
“Lower rates would restore some confidence, provide an indication that there are no more increases coming, making homeownership more attainable while also stabilizing costs across the construction industry.
“It is also not just about the current high interest rates; it is the uncertainty of the future of financing costs that prevails due to lack of guidance from the Reserve Bank of Australia that is worrying the average customer.
“If statements had been made that we had reached the top of the interest rate cycle three or so months ago, however qualified that statement was, it would have been a strong boost to confidence.”
Brighton Homes finished in the top 5 in the Top 25 Queensland Builders Half Time Report, CEO Brad Collins said the higher interest rates means people can’t borrow as much.
“We know the average borrowing capacity has reduced by 30 per cent. An average household income of $100,000 has seen their borrowing capacity fall from $750,000 to $497,000,” Mr Collins said.
“This reduced borrowing capacity then identifies itself in a couple of ways.
“The type of product we are now selling. For example, 18 months ago, 70 per cent of our sales were double-storey homes. Now they are 30 per cent.
“And customers usually have some wriggle room in their budget, that has disappeared.”
“A rate cut would bring some confidence back to the customer base. We know there is some demand out there and people are waiting for rates to drop so they build the home they want.
They don’t want to build what they can afford now, they want the home they could afford before rates went up, so they are sitting on their hands.
“From a mortgage payment perspective, we know the repayments on a typical Brisbane house of $890,000 a 0.25 point rate cut would save $120 a month on repayments. This combined with inflation falling into the RBA’s 2 to 3 percent band would create some opportunity for new home buyers.
“If the February rate cut is a reality it will give hope, but the real movement will come after the second cut.”
Both CEOs said interest rate cuts are not the only things that needs to happen to get the industry back where it should be – governments also have a role to play.
Collins said the availability of land is the critical issue in new home affordability.
“To see real change in new housing affordability, our state needs to have a competitive land market,” he said. “When there is more supply the price point is more competitive. We currently don’t have enough supply.
“Should the supply of land improve it would ensure that the benefits of interest rate cuts are delivered to the consumer.
“The government should also press pause on build code changes. We have just gone through the biggest code changes with NCC2022.
“The South Australian Government recently placed a 10-year ban on building code changes to allow the industry to recover from the impact of NCC 2022. That would help here.”
Duggan said streamlining planning approvals would have an immediate impact.
“Right now, red tape delays construction, frustrating buyers and slowing housing supply.
“Faster approvals would get homes built sooner and give customers greater confidence to commit.”
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