Industry interest in rate rise increases
Growth in the non-residential construction market will continue to rally despite the latest rise in interest rates, according to Australian Industry Group deputy chief executive Heather Ridout, however residential building activity is likely to suffer.
Triggered by a booming economy, the Reserve Bank of Australia (RBA) as expected announced a 0.25 per cent rate rise to 4.75 per cent on June 5 - the second rise in just a month.
“Although the rise won’t cause an absolute dive in the housing industry, it will certainly be affected,” she said.
“It will reinforce an existing softening trend in residential building activity.”
Prime Minister John Howard has said that the rate rise was anticipated, following the economy’s strong growth levels driven by last year’s fears of a global recession and subsequent decreases in interest rates to very low levels.
Although frenzied home-buying activity over recent months has been a factor in the boom in the economy, the housing industry is currently slowing, according to Housing Industry Association senior economist, Simon Tennent.
With economists predicting further rate increases over the next six months the HIA is concerned about the possible effects on the residential building industry.
“It is extremely disappointing to hear the RBA and the government say that the housing market is overheating when in fact the housing industry is currently slowing in terms of approvals and financing,” he said.
Although escalating house prices have been highly publicised, there has been a failure to distinguish between the new homes construction market and the established home-buying market, according to the HIA.
The new home building industry has kept prices under control, rising by only 2 per cent last year, it said.
A 14 per cent downturn in new housing is forecast between this financial year and next, according to Tennent, which will increase pressure for employment on new home building sites.
Meanwhile, solid growth is predicted in the non-residential sector for the 2002/03 financial year, according to Ridout.
“The outlook for non-residential construction is strong and improving,” she said.
Australia’s low currency and the increasing globalisation of the construction industry has attracted a high volume of foreign investment, according to Ridout.
“I don’t think the rise in interest rates will significantly affect an already buoyant investment trend,” she said.
Ridout has warned however that the bank should not get too far ahead of the economy and expects interest rates to peak at around 6 per cent.
The outlook is good, with a large number of infrastructure developments planned, which will in turn benefit downstream suppliers in the residential sector, she said.
11-Jun-2002