Is Australia’s worst-case housing scenario about to hit? Grim warning issued – despite Albanese’s optimism

Prime Minister Anthony Albanese has embraced the RBA’s recent rate cut despite experts raising fears the decision will price more Aussies out of the property market.

On Tuesday, the Reserve Bank of Australia decided to cut the cash rate for the third time this year, bringing it down 25 basis points to 3.60 per cent.

Within an hour, Mr Albanese praised the decision as the result of his government’s efforts to tackle the cost-of-living crisis.

‘Interest rates have just been cut again. It will mean Australians paying less on their mortgages,’ he said.

‘We’re working hard to help families with the cost of living. There’s more to do and that’s what we’re focused on every day.’

The announcement fell on deaf ears, with a number of Australians pointing out the decision will drive up demand for housing, ultimately pushing up prices.

‘Historically, every time interest rates have been cut, home prices tend to increase,’ Mr van Onselen told the Daily Mail.

‘Cutting interest rates is a band-aid. It can increase your borrowing capacity and it can reduce your monthly mortgage payments – so if you already have a mortgage, it’s great if you’re looking to buy again.

‘It can lower your payments on a new home loan because you’ve got to pay less monthly.

‘But as that lower interest rate gets capitalised into higher prices, it then reduces affordability going ahead. So, it makes affordability structurally worse down the road.’

Mr Van Onselen says the root cause of the housing crisis was rising immigration.

‘We’ve grown by 8.7million people in less than 25 years – 46 per cent population growth – and you wonder why we don’t have enough housing, we don’t have enough infrastructure.

‘We’ve run one of the biggest immigration programs in the world, and we haven’t built enough houses, enough infrastructure, enough anything, to cope with it.’

According to his analysis, if Australia’s population growth slowed by 15 per cent over the next five years, the country would end up with a surplus of 40,000 homes.

‘That was buried at the back of the NHSAC’s report and what that tells you is that the solution to this mess is to cut immigration,’ Mr van Onselen said.

The Albanese government has committed to shoring up Australia’s housing supply, with a target of 1.2 million new homes in the next five years.

Meanwhile, the National Housing Supply and Affordability Council predicted in May the government will fall short of its goal by at least 250,000.

Even if it were to reach its goal, Mr van Onselen said rising demand fuelled by government policy would keep accessibility out of reach.

‘It’s a government policy failure – we’ve got the supply issues but it won’t get better until the government stops pumping demand with things like its five per cent deposit scheme and mass immigration,’ he said.

Despite the government’s efforts to address the supply issue, NSHAC predicted Australia’s housing shortage will worsen over the next five years.

According to Loan Market, home loan pre-approvals spiked across the country last month as homebuyers scrambled to secure financing ahead of an expected rate cut.

Loan pre-approvals were 53 per cent higher in July compared to the same time last year, with an 80 per cent spike in the Northern Territory and South Australia.

Pre-approvals were up 79 per cent in Western Australia while the eastern states all recorded upticks of nearly 50 per cent.

Loan Market chief executive David McQueen said a tight housing stock was forcing homebuyers to test their borrowing capacity ahead of the Spring rush.

‘Customers are looking for every edge and that starts with reaching out to brokers to know exactly what they can borrow and afford to repay,’ he said. 

‘Buyers want to walk into an auction with confidence or put forward strong private treaty terms that help them stand out.’