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RBA discusses impact of rate hike on Aussie housing market

The Reserve Bank of Australia headquarters in Sydney - Photo: Alamy

With housing prices showing no signs of abating in Australia, the country’s central bank has begun weighing the pros and cons of using interest rates to cool the market.

At its meeting on 5 October, members of the Reserve Bank of Australia’s (RBA) board noted that a “less accommodative monetary policy” will reduce housing prices and credit growth, although it would result in fewer jobs and lower wages growth.

Therefore, a move to cool housing prices through interest rate hikes would “create further distance from the goals of monetary policy – namely full employment and inflation sustainably within the target range”.

RBA looks at overseas's housing markets

The details of the discussions were released on Tuesday through RBA’s minutes of the 5 October meeting.

The minutes show that RBA board members had lengthy discussions related to housing prices and housing credit growth in Australia, and even compared the current situation to those in Canada, New Zealand, the UK and US.


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Members agreed that currently, macroprudential settings can be tweaked to keep a lid on housing prices and credit growth. Two options for additional curbs on home loan lending by tightening debt-to-income ratio restrictions and limit lenders through stricter loan-to-valuation ratios.

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Australian financial system “resilient”

According to the RBA, the Australian “financial system remained resilient” and banks would be “well protected against even large housing downturns”. While the Australian Prudential Regulation Authority (APRA) has been in close consultation with the central bank for a macroprudential response, RBA will also publish a special chapter on macroprudential policy in its October Financial Stability Review report.

Earlier this month, real estate data firm CoreLogic said that median house prices in Australia in September 2021 were 20.3% higher than the same month last year at AUD674,848 ($504,033). Further, according to the firm, the total value of residential real estate in Australia is now AUD9.1trn, after crossing the landmark AUD8trn valuation as recently as May 2021.

APRA also recently raised the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications - a sort of stress test for retail borrower. The regulator had also said that it will continue to closely monitor the risks in home loan lending and take further steps if necessary.

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