The fifth rate rise of the year was expected. The bigger story for builders sits in the Reserve Bank’s own forecasts, which show today’s busy sites giving way to two years of falling dwelling investment.
The Reserve Bank lifted the cash rate by 25 basis points to 4.85 per cent this afternoon. It is the fifth increase this year, and it takes the cash rate to its highest level since 2008.
The vote was split. Six members of the Monetary Policy Board backed the rise, while three wanted to hold at 4.60 per cent.
For builders, the decision itself was largely priced in. What matters more is what the Bank published alongside it. Its November Statement on Monetary Policy now forecasts dwelling investment to stop growing by mid 2027 and then go backwards for the rest of the forecast period.
The RBA expects dwelling investment to fall from 2027
Here is the shape of it. Dwelling investment grew 5.8 per cent over the year to June 2026, according to the Bank’s forecast table. It is forecast to grow 5.1 per cent over the year to December 2026, then slow to 1.3 per cent by mid 2027.
After that it turns negative. The Bank forecasts falls of 2.8 per cent over 2027, 3.5 per cent over the year to June 2028 and 1.8 per cent over 2028.
That is a sharper turn than three months ago. In August, the RBA had dwelling investment falling less than 1 per cent through late 2027 and early 2028, and flat by the end of 2028.
The Bank says the downgrade reflects a higher assumed path for interest rates, a steeper fall in established housing prices and higher oil prices. National housing prices were 4.7 per cent below their recent peak in September, and the Bank describes the current downturn as one of the steepest in 50 years.
What is dwelling investment?
Dwelling investment is spending on building new homes and on altering and renovating existing ones. It is the part of the national accounts that most directly tracks residential construction activity, and it excludes the value of land and the purchase of existing homes. The RBA forecasts it as a percentage change over four quarters.
Sites are busy now because of sales made earlier in the year
This part will match what many builders are seeing on the ground. The Bank says dwelling investment was much stronger than expected over the first half of 2026, led by higher density construction and renovations. Detached housing construction also increased over the year.
Its liaison with businesses tells the same story. Residential builders in most markets report solid activity, carried by sales made earlier in 2026. The RBA expects that to keep construction moving into early 2027.
The difference is in the length of the pipeline. Contacts in Sydney and Melbourne told the Bank they hold around six months of work. Builders operating elsewhere report longer pipelines.
After that, the Bank expects softer activity. Builders and developers in its liaison program put the drop in sales down to higher interest rates, tax reforms and broader economic uncertainty. Some report buyers taking longer to decide, and some report a rise in contract cancellations over recent months.
Put simply, the work on site today was sold months ago, and the sales that would fill late 2027 are not coming through at the same rate.
The work on site today was sold months ago, and the sales that would fill late 2027 are not coming through at the same rate.
September approvals show houses slipping and apartments bouncing
The latest building approvals data from the ABS, released on Monday, fits that pattern.
Total dwelling approvals rose 5.1 per cent in September to 17,948 in seasonally adjusted terms. The lift came from the apartment side, which moves around a lot from month to month.
Private sector house approvals fell 5.3 per cent to 10,432, with falls in every state. The ABS said it was the largest monthly fall in private house approvals since August 2025. House approvals are still 9.6 per cent higher than a year ago.
Private dwellings excluding houses rose 16.6 per cent to 6,579, after a 21.7 per cent fall in August. That category is still 20.5 per cent lower than September last year. New South Wales drove much of the rebound, with 1,995 apartments approved, up from 901 in August.
One month of approvals is noisy. But detached house approvals falling in every state at once is the kind of early signal the Bank is describing in its forecasts.
Builders are finding it harder to pass on costs
Costs have not gone away. The RBA says homebuilders still face elevated labour and materials costs, and its liaison found competition for construction trades remains strong in some regions.
What has changed is the ability to recover those costs. New dwelling construction prices rose 1.0 per cent in the September quarter and 5.2 per cent over the year, which the Bank says was weaker than it expected in August.
Its liaison explains why. Builders have generally been able to pass on cost increases where demand is stronger and land supply is tight. In Victoria and New South Wales, pass through has been more limited, with some contacts reporting discounting to support sales.
The Bank notes that new dwelling prices tend to lag the established market. It reads the September result as possible early evidence that the housing downturn is starting to weigh on what builders can charge.
That combination is what squeezes cash flow and margins. Costs that stay high, sale prices under pressure and a cash rate that is still rising.
Data centres will compete for the same trades
One part of construction is expected to stay strong. The Bank forecasts business investment to grow 12.0 per cent over the year to December 2026, with data centre investment a major driver.
September approvals point the same way. The value of non residential building approved jumped 45.9 per cent in the month.
The RBA lists data centre construction as a risk to inflation, because it draws on the same construction workforce and materials. It says most of that pipeline sits in New South Wales and Victoria, where it judges construction capacity constraints to be somewhat less binding.
For residential builders in those two states, that means two forces pulling in different directions. Softer home sales on one side, and a non residential sector competing for the same trades on the other.
Where does the cash rate go from here?
The Board did not commit to another increase. It said it will be attentive to the data and the evolving outlook, and will do what it considers necessary to bring inflation back to target.
The forecasts assume a cash rate that follows market pricing. That path sits around 4.9 per cent by mid 2027 and 4.8 per cent from late 2027 through 2028. In other words, the forecasts that show dwelling investment falling do not assume any relief on rates.
The Bank expects inflation to stay above 3 per cent until the end of 2027 and reach the middle of its 2 to 3 per cent target band in mid 2028. It forecasts unemployment to rise to 5.1 per cent by the end of 2028, up from 4.6 per cent in the September quarter.
The forecasts describe two very different years
The next few months look a lot like the last few. Programs are full, house approvals are still above last year and costs remain high.
From early 2027, the picture changes. The Bank’s forecasts describe a market with fewer new sales feeding the pipeline, less room to pass on costs and no rate relief assumed.
For builders weighing new staff, new commitments and fixed price work running into 2027, that second picture is the one the central bank is now planning around.
The Good Builder Take
The rate rise is the headline. The forecast table is the story.
The Reserve Bank is telling the market it expects home building to contract through most of 2027 and 2028, and it gets there without assuming a single rate cut.
Builders who are busy today are busy because of decisions buyers made in the first half of 2026. The sales being made, or not made, this quarter are what fill the back half of 2027.
We track approvals, rates and forecasts as they land in our Australian Construction Industry Trends Guide. Follow along for the next update when October approvals are released on 1 December.
Frequently Asked Questions
The Reserve Bank lifted the cash rate to 4.85 per cent on 3 November 2026 because inflation remains elevated and broadly based, and its inflation forecasts were revised materially higher. It pointed to higher fuel prices linked to the Middle East conflict and domestic capacity pressures that were a little tighter than previously thought. Six board members voted for the increase and three voted to hold.
In its November 2026 Statement on Monetary Policy, the RBA forecasts dwelling investment to grow 5.1 per cent over the year to December 2026 and 1.3 per cent over the year to June 2027, then fall 2.8 per cent over 2027, 3.5 per cent over the year to June 2028 and 1.8 per cent over 2028.
The RBA’s business liaison found residential builders in most markets report solid activity that should carry into early 2027. Contacts in Sydney and Melbourne reported around six months of work, while builders in other markets reported longer pipelines.
The ABS reported total dwelling approvals rose 5.1 per cent to 17,948 in September 2026, seasonally adjusted. Private sector house approvals fell 5.3 per cent to 10,432, with falls in every state, while private dwellings excluding houses rose 16.6 per cent to 6,579.
Yes, but more slowly. New dwelling construction prices rose 1.0 per cent in the September quarter 2026 and 5.2 per cent over the year. The RBA says builders have had less ability to pass on costs in states where demand has weakened, particularly Victoria and New South Wales.
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Last updated 3 November 2026. Data current to the RBA Statement on Monetary Policy (3 November 2026) and ABS Building Approvals, Australia, September 2026.
General Information Only: This article provides general information about economic data and forecasts and is not financial, legal or business advice. It does not take into account your circumstances. Seek professional advice before making decisions based on this information.
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