Supply-Side Reforms Needed To Increase Housing & Reduce Rents

One of the RBA’s main concerns is housing and Governor Lowe noted that changes to planning regulations could increase supply in a high demand environment, which is pushing up rents and house prices. It is forecasting rents to rise close to 10% and that they should stay high for some time. It is the largest component in the CPI, so a significant inflation risk.

• Population is expected to rise 2% this year while the growth in the housing stock is very low (April approvals were their lowest since 2012), thus putting pressure on house-related prices. These higher prices should mean household size rises again after declining during Covid. However, increasing the supply of housing will take time, so these pressures are likely to persist for now.
• Governor Lowe said investment in infrastructure is needed if population is to continue to grow, as housing and transport challenges inhibit productivity.
• He also clarified that measures such as rent controls should be avoided, as need to free up the supply side. They are not a solution to high prices.