Rising Inflation to Worsen Homeownership Dreams – REIA

Recent data from the Australian Bureau of Statistics showed that the consumer price index (CPI) for all groups jumped 2.1% in the first quarter of this year alone – the biggest quarterly increase since December 1990.

On an annual basis, the data showed that headline inflation increased by 5.1%. As a reminder, the last time inflation was this high was in June 2001.

More importantly, the Reserve Bank’s preferred measure of inflation or so-called trimmed average inflation – which excludes volatile one-off price effects – came in at 3.7% for the year.

The figures are well above the central bank’s 2-3% target and could mean a rate hike could be on the RBA’s cards as early as next month.

REIA Chairman Hayden Groves described the latest inflationary spurt as regardingthe industry expert warning that it will trigger a domino effect that will result in a major decline in housing affordability.

“With all measures of inflation, the highest in over a decade and outside the Reserve Bank of Australia’s target zone, cash rate increases are imminent which will increase mortgage payments and reduce affordability for first-time home buyers,” he said.

“With the prospect of first-time home buyers finding it increasingly difficult to enter the housing market, home ownership in Australia will continue to decline. This is already manifesting in all states and territories and is more pronounced in the 35-44 age group.

Mr Groves further explained that first-time home buyers have been able to afford mortgage payments due to historically low rates over the past two years, but the cost of stamp duty on top of large deposits has continued to increase. ‘be a major obstacle.

However, he warned that the worst is yet to come for homebuyers if a rate hike occurs without a decisive action plan. of senior government management.

“With an impending increase in interest rates, this obstacle becomes more difficult. It is time for the federal government to take a leadership role in the elimination of state-based stamp duties,” he urged. .

With federal elections scheduled for May 21, the industry expert urged major political parties to put their policies on improving housing supply and replacing stamp duties at the center of their campaign platforms.

“The availability of affordable housing is a goal shared by the coalition and the opposition. It impacts the functioning of the economy as well as the well-being of individuals and the cohesion of communities and society,” he said.

Mr Groves added: “Tackling homeownership now by the two main parties will reverse the downward trend in homeownership and avert the significant political problem looming on the horizon of a large number of long-term tenants aged 45 and over remaining in the rental industry and possibly requiring rental assistance in later years.”

He also warned that failure to tackle the housing problem would have a detrimental effect on the long-term budget.

The proof is in the numbers

Adding to his argument that urgent action on housing and stamp duty is needed, Groves said the housing component of the CPI rose 2.7% for the March quarter and 6.7 % for the year.

“This is the largest annual increase since June 2001 and is largely attributable to rising construction costs for new housing,” he said.

The capital-weighted average increase for the March quarter was 0.6% and 1% for the year – the lowest annual increase since December 2015.

He pointed out that there was a wide variation between capitals, with Sydney and Melbourne having declines of 1.2% and 0.9%, respectively. Meanwhile, Darwin and PerthPerth, TAS Perth, WA posted gains of 11.3% and 9.7%, respectively.

“In short, the CPI numbers demonstrate the need for urgent action on housing affordability and leadership from above,” Groves concluded.

Rising Inflation to Worsen Homeownership Dreams – REIA

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Last update: April 28, 2022

Posted: April 29, 2022