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The Reserve Bank’s latest decision to hike the cash rate to a 15-year high of 4.6 per cent has sparked fresh concerns for Australia’s housing supply, as construction costs and borrowing pressures squeeze builders and buyers. Higher interest rates can increase the cost of financing construction projects and weigh on buyer demand, making fewer new builds financially viable and slowing the pipeline of new housing. The warning comes as the construction sector continues to grapple with elevated labour and material costs after one of the biggest increases in building costs on record.
According to Equifax Australia’s general manger commercial Brad Walters, even a small increase to construction costs could push households already on a tight budget beyond their financial limits.” “Following Tuesday’s RBA announcement, a 4.6 per cent cash rate has the potential to erode what little financial buffer households have, magnifying the financial impact of construction delays,” he said. MORE: Gen Z embraces ‘worrying’ fringe belief The Reserve Bank’s latest decision to hike the cash rate to a 15-year high of 4.6 per cent has sparked fresh concerns for Australia’s housing supply. Picture: NewsWire / Martin Ollman “What this means is that there is little margin for error left in the current climate.
“iCIRT Construction Index data shows 35 per cent of Australians managing a build or renovation cannot absorb a project cost increase of just 1 to 5 per cent – a precarious position given our data shows that only 23 per cent of new builds or renovations are actually finishing on schedule. “In this environment, independent due diligence through tools like iCIRT are not a nice-to-have, but an essential safeguard for consumers before engaging construction professionals.” Mr Walters said higher interest rates for longer will continue to pile pressure on the construction industry that is critical to Australia’s economy. “From an industry perspective, because so many construction projects are debt-funded, as the cost of debt increases, project feasibility reduces – meaning fewer projects progress,” he said.
“This is exacerbated given that construction costs have been rising faster than prices, eroding margins, and higher debt costs only place greater pressure on the industry.” Mr Walters said strain is already being felt for small construction businesses. “Equifax data shows that subcontractor capacity has effectively stalled already under this strain, with small construction business exits surging 58 per cent in Q2 2026 against a 19 per cent drop in new entrants,” he said. “Given the multiplier effect the construction industry has across the economy, this is likely to impact national housing supply targets, leaving buyers to face longer delays and fewer new builds entering the market.” iCIRT Construction Index data shows 35 per cent of Australians managing a build or renovation cannot absorb a project cost increase of just 1 to 5 per cent.
Picture: NCA NewsWire/ Gaye Gerard Housing Industry Association Executive Director Brad Armitage said interest rate rises essentially mean that less homes will be built. “The more expensive it is to build or potentially expensive, mums and dads just hold off on making that commitment and signing the contract,” he said. “We’re seeing new home sales down across the country by 20 per cent, we’re seeing data that says display home traffic is down as well.
“We’re also hearing from our members that a lot of families are struggling to get the finance that they need to build what they want and that’s because of the serviceability buffers that exist. “That issue is going to be further exacerbated by the interest rate rises, which again, means less new homes being built, less renovations and additions as well.” Mr Armitage said this added affordability strain is coupled with already significant increases to the cost of shovel ready or serviced land over the last decade. “That’s especially true in the Sydney market where a relatively small block of land can cost upwards of $600,000,” he said.
MORE: Shock as every Aussie household to lose $120k Mr Armitage said building less homes means the current housing crisis gets worse. Photo by Lisa Maree Williams/Getty Images “When you add all those factors together, we’re in a situation where people just can’t afford to build and so interest rate rises become that nail in the coffin for confidence.” Mr Armitage said building less homes means that the current housing crises gets worse. “All the flow on affects include things like rents will continue to go up in all markets if we’re not building enough homes, the skills issues will continue to compound because if builders don’t have enough of a pipeline of work they will not employ apprentices or put a new apprentice on this year, which further impacts our industry’s capacity to build the homes we need and it also just reduces market confidence more broadly, which means people are less likely to explore the idea of building a new home,” he said.
“State governments and federal governments really need to consider the impact that these interest rate rights hikes will have on the housing industry and the housing supply situation that we have that we find ourselves in. “I don’t think it’s good enough for various levels of government to just wipe their hands of this issue. There are still a lot of levers that can be pulled to reduce the costs and compliance in delivering a home.” MORE: How RBA rate rise has slashed your buying power by five figures
Source: realestate.com.au
