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Rate rise must be ruled out-HIA

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November 2, 1999

RATE RISE MUST BE RULED OUT - HIA . . Q jU je *^ u A M s *~

Raising official interest rates would severely retard one of Australia’s key domestic economic drivers - the building industry - and with substantial downturns predicted in all building sectors following the introduction of the GST, a rate rise should be ruled out of any strategy to reduce inflation risks.

Australia’s peak building industry body, HIA, said today’s Building Approvals figures released by the Australian Bureau of Statistics are beginning to show signs of weakening and with recent

favourable CPI and earnings data, the outlook for inflation must be seen as favourable and within the bounds set by the Reserve Bank.

HIA Managing Director, Ron Silberberg, said that recent strong activity in both home lending and building approvals is essentially artificially inflated by the expectation that building costs will rise following the introduction of GST.

“Stable low interest rates are a key fundamental that will help underpin Australia’s economy in the post GST downturn. With building activity in all sectors forecast to fall by up to 15 per, any precautionary adjusting of monetary policy at this stage would bring forward and accelerate the significant downturn predicted over next year.”

“ Home buyers are very sensitive to interest rate movements and the effect on them would also be significant. A rise of 0.25 per cent would add an extra $56 to a monthly mortgage payment on an average loan.”

Today’s approvals figures for September showed a seasonally adjusted fall of 4.4 per cent in total dwellings approved, and more importantly a continued slowing in trend growth over the past 3 months. The trend for total dwellings approved is now down to 1.5

per cent following 3 consecutive falls.

On a state by state basis, New South Wales recorded the largest seasonally adjusted decrease, falling by 20.1 per cent - some 1000 less dwellings than in August. Victoria also fell by 13.5 per cent followed by Tasmania - 3.4 per cent. Rises were recorded

in South Australia up by 15.1 per cent, Queensland, up 14.9 per cent, and Western Australia, up by 2.5 per cent.

FURTHER INFORMATION: Please contact Ron Silberberg, Managing Director, (02) 6249 6366 or Simon Tennent, Senior Economic Analyst on (02) 6249 6366(w) or 0419 445 557

Housing Industry Association Limited ACN No 004 631 752