Investor activity adds pressure to housing affordability
Reserve Bank governor Michele Bullock (pictured) has warned that inflation pressures remain elevated despite several rate cuts this year, citing services and construction costs as continuing drivers of price growth.
Bullock also said the central bank cannot directly control house prices, though investor activity and lending behaviour could contribute to housing risks.
Speaking at a Nomura fireside chat, Bullock said monthly inflation readings have been volatile but pointed to signs of resilience in some sectors. She noted that recent data showed stronger outcomes in housing and market services costs, while consumption patterns were beginning to shift as real wages and household wealth increased.
Bullock described current monetary policy settings as “marginally tight,” suggesting the economy is close to a neutral level where interest rates neither stimulate nor restrict growth. “We don’t think policy is restrictive, but we don’t think it’s accommodative,” she said. “It’s probably a little on the tight side but not much.”
A neutral rate, according to the RBA, supports stable inflation and employment without the need for further intervention. Major banks, including Commonwealth Bank and ANZ, have forecast one more rate cut in February next year. The central bank held the cash rate at 3.6% in its most recent meeting after cutting it three times in 2025 from a peak of 4.35%.
Bullock said that although some inflation pressures were easing, services inflation and high construction costs were proving persistent. She added that these factors were being considered as the board weighed the timing and extent of any further rate adjustments.
On the housing market, Bullock said rising prices were not within the RBA’s control. “Our concern is not house prices per se, it’s if that turns out to result in riskier lending and that is where we are talking to APRA and financial regulators,” she said. Investor lending, she added, tends to respond more quickly to rate movements and can amplify price cycles.
According to the PropTrack Home Price Index, Australia’s median house price rose 0.5% in September and has increased each month since rates were first lowered in February. Bullock said her focus remains on maintaining low and stable inflation while supporting employment, describing that combination as the best way to help households access the property market.
Bullock also discussed lessons from her predecessor Philip Lowe’s tenure, noting that forward guidance in previous years was misunderstood. She said decisions on interest rates are made collectively by the RBA board, which had been split in July, with six members voting to hold and three in favour of a cut. The board eventually reduced rates in August.
