'If history is a guide, a policy response will be forthcoming'
The market was delivered a bombshell this Thursday when housing costs spurred a 3.8% blow out in annualised inflation numbers.
This figure was substantially above market forecasts, with every analyst and their dog suggesting it has put the nail in interest rate cuts for the foreseeable future.
NAB chief economist Sally Auld (pictured) is one such analyst.
“We got some pretty nasty numbers for the third quarter of 2025,” she said of the inflation print. “All the different bits and pieces that make up inflation… all went up in the quarter. And that's actually quite unusual,” she added.
Auld contended that some of this data is “noise” that shifts from month to month, “but there is genuine signal there” too.
Put simply, Australia still has a long way to go before the economy reverts back to long-term averages, if indeed it ever does.
While NAB does expect inflation to revert to 2.5% down the line, “we've had to revise up our expectations of where underlying inflation is going to travel over the next couple of quarters”, said Auld.
“It's going to sit probably for three quarters minimum above the top of the RBA's (Reserve Bank of Australia’s) target band, sitting in the low threes,” she added. “We have a period which is going to feel a little bit uncomfortable for the Reserve Bank over the next couple of quarters where inflation is sitting too high, probably (meaning) that they won't be doing anything on rates and they definitely won't be cutting rates.”
Amid this inflationary macroeconomic setting, house prices have naturally continued to surge, with Brisbane and Perth the real standouts with between 15% and 20% annualised growth.
The rest of the country, barring Hobart, is collectively growing somewhere in the 5% to 10% range.
“Even when we look at just the monthly numbers for October, we saw cities like Perth, Brisbane and Adelaide with house price gains somewhere between 1.5 and 2%, and that's too fast, I think, for the RBA at the moment,” said Auld.
Will history repeat?
Data compiled by NAB, the Australian Bureau of Statistics and Macrobond highlight the breakneck growth of investor lending in the Australian housing market.
Having risen from below $15 billion per quarter at the turn of the decade to nearly $40 billion per quarter today, investor lending now comprises around 40% of the entire mortgage market.
That’s 40% of loans going to house purchasers looking to turn a profit from rental income and capital appreciation, as opposed to occupying the houses they are buying. It is reasonable to suggest that this is distorting the market.
In the three months to September 2025 alone, annualised investor lending surged by a walloping 20%, noted Auld.
“If you times that by four, you get a very big number and a number that's probably not where the Reserve Bank and bank regulators would actually like that to be,” said Auld.
As a result, Auld believes regulatory intervention into the property investment market is a real possibility.
“I do think it's quite possible that we see maybe some macroprudential regulation appear from APRA (the Australian Prudential Regulation Authority),” said Auld. “There's certainly discussion in the broader market that could be coming down the pipe.”
It wouldn’t be the first time. Between 2014 and 2017, the APRA imposed a 10% annual growth cap on investor loans and a 30% ceiling on interest-only lending to cool the market. At the time, Sydney house prices were soaring nearly 20% per annum.
Somewhat ironically, Labor’s 5% deposit scheme, which saw a super-sized expansion in October, could be contributing to growth in investor-side lending.
Auld said: “Some of the anecdotal evidence we've heard from real estate agents is that part of the strength of that investor lending in the third quarter was investors trying to front run what they believed would be a pull forward in demand in October from first-home buyers.”
Causation not proven
There are some economists who disagree that property investors are the primary cause of house price inflation.
AMP Bank chief economist Shane Oliver, for instance, isn’t totally convinced that the unprecedented growth of property investors’ share of the mortgage market is contributing to housing affordability strains.
“The drivers of poor housing affordability are hotly debated,” Oliver said on Tuesday. Many zoom in on things like tax concessions for investors, SMSF buying and foreign demand. But investor and foreign demand were not big drivers of the 20-30% surge in prices over 2020-22,” said Oliver.
High levels of immigration, unsustainable government homebuying incentives such as the First Home Guarantee and restrictive construction regulations are the bigger culprits, in Oliver’s view.
Nonetheless, there are mounting voices in the industry that reckon regulatory intervention could be on the way.
