by Sanjeev Sah | Dec 05, 2023 | Market Updates

The Reserve Bank of Australia’s recent cash rate hike is expected to significantly slow down home building in Sydney and Melbourne, according to the Housing Institute of Australia (HIA). 

HIA’s latest economy and industry outlook report forecasts a sharp decline in building activity indicators, with detached home starts expected to drop 10.9% in 2023/24 to reach a low not seen in over a decade (see image).

Similarly, multi-unit construction is also predicted to be its weakest since 2011.

HIA chief economist Tim Reardon said the low volume of new home commencements is at odds with the goal of increasing the supply of housing stock, especially in the tight rental markets of Sydney and Melbourne. 

“The higher costs of delivering a new house and land package, or a new apartment, in Sydney and Melbourne is resulting in a greater impact from the rise in the cash rate in these areas,” he said.

“House building activity is set to slow in all regions, except for Western Australia, under the weight of rising interest rates.”