Reserve Bank governor Philip Lowe has warned not enough homes are being built to keep pace with population growth, driving up rental prices and exacerbating the cost of living crisis.
The rapid increase in the cost of renting a property and higher energy costs were flagged as a key concern for the bank boss in his battle against inflation, during an address to the National Press Club on Wednesday.
The reopening of the international border and the return of international students and skilled migrants is forecast to see an influx of more than 650,000 people to Australian shores, according to Treasury estimates.
“Population growth has picked up sharply and it now seems likely that the annual rate of population growth will soon be around 2 per cent, which would be close to the peak reached during the resources boom,” Dr Lowe said.
The rush of migrants comes at a time where vacancy rates are already at a record low of 1 per cent further placing pressure on an already squeezed market, due to a fall in the average number of people living in each household.
“In contrast, the expansion in the supply side of the housing market is expected to be fairly modest,” he said.
Asked why housing continued to remain expensive, Dr Lowe placed the blame on Australians’ preference for large blocks of land in capital cities.
“The price of land is high … because of the choices we made of a society where to live, how to tax housing and how to invest in transport,” he told the NPC.
Mr Lowe’s speech comes just a day after the RBA put the pause on the most aggressive tightening of monetary policy since the 1980s to give the board more time to assess the effects of successive interest rate rises.
But that “does not imply that interest rate increases are over,” given the inflation remains “persistently high” at 6.8 per cent in the 12 months to February. The RBA forecasts inflation will return to its target 2-3 per cent range by 2025.
He warned that almost 10 per cent of household disposable income would be eaten up by required mortgage repayments by the end of 2024.