‘Not confident’: RBA governor Michele Bullock pours cold water on Labor’s housing dreams
After warnings from Treasury that Labor’s goal of achieving its 1.2m new homes target in the next four years was unlikely to be achieved, Jim Chalmers was dealt another blow from the RBA boss.
Reserve Bank governor Michele Bullock says government action to address the housing crisis is unlikely to have any meaningful impact on supply within the next two years, and has signalled that the central bank is now tilted towards keeping rates on hold for the rest of the year.
After keeping the official interest rate at 3.6 per cent at its meeting on Tuesday, the RBA said it was using a restrictive policy stance rather than leaning toward a dovish or further easing stance, having already made three cuts of 0.25 percentage point this year.
After warnings from Treasury that Labor’s goal of 1.2 million new homes in the next four years was unlikely to be achieved, Jim Chalmers was dealt another blow from the RBA governor who said she was not confident any government actions would adequately boost supply in the next two years.
“The problem in the housing market is a structural deficit of supply,” Ms Bullock said. “And governments now get that, and you are seeing some action on that, but it’s going to be slow to work its way through. I’m not confident it’s going to make any impact in the next two years.”
The RBA’s move to keep the official interest rate on hold came as S&P reaffirmed the nation’s AAA credit rating despite Labor this week revealing its first budget deficit since coming to power in 2022.
“I think we feel that it’s still probably a little bit restrictive policy,” Ms Bullock said on Tuesday.
As official figures showed building approvals sank 6 per cent in August to just over 14,000 homes, Dr Chalmers insisted the goal of 1.2 million new homes was attainable.
“Our housing target is ambitious, but it’s achievable,” Dr Chalmers said. “It’s important to remember that even though building approvals fell in August, they are still up 3 per cent in through the year terms.
“When you take out the month-to-month volatility and you look at the trends over the last three years, we have actually made some really good progress in the housing market. But it remains the case that our target is ambitious. We know that everybody needs to do their bit.”
The government has pushed demand-side policies such as the first homebuyer deposit guarantee, which the RBA said could lift house prices at the margin. The government has also created a system whereby payments are given to the states for performing on new housing supply targets.
Opposition Treasury spokesman Ted O’Brien said the housing “supply crunch” continued to drive rents higher, leaving renters “squeezed” and mortgage holders stuck with higher rates for longer.
Commonwealth Bank economist Harry Ottley said the 189,000 dwelling approvals in the year to August was “a bit above” the CBA’s expectations.
“This is a solid improvement on the low of about 165,000 in mid‑2024,” Mr Ottley said.
However, the Institute of Public Affairs’ director of research, Morgan Begg said the rate of approvals was not enough for the government to meet its ambitious housing targets.
“Total housing approvals in August 2025 were 26 per cent below the monthly minimum required under the National Housing Accord of 20,000 to reach the target of 1.2 million new homes by 2029,” Mr Begg said.
Master Builders Australia chief economist Shane Garrett said it was “another blow” to the home-building problem. “This trend is deeply concerning because approvals are the pipeline for tomorrow’s housing supply,” Mr Garrett said.
Master Builders Australia chief executive Denita Wawn said there was a “clear gap between policy ambition and reality, with approvals going backwards, not forwards.”
Ms Bullock said the best the RBA could offer for boosting housing supply was to keep inflation low and prevent construction costs from rising too far.
Financial markets are pricing in just a 40 per cent chance of a rate cut at the next meeting in November, with the next full priced in rate cut only expected in March next year. Ms Bullock said she wouldn’t say if financial market expectations of there being no more rate cuts this year were “right or wrong.”
She indicated that progress being made on returning core inflation to its mid-point target of 2.5 per cent would determine the stance of monetary policy.
“We do have to aim at 2.5 so if we think that we’re not continuing to go down to 2.5 per cent then I think we will have to be thinking about what’s the appropriate stance on policy,” she said.
Ms Bullock also clarified the importance of recent monthly inflation data, even though it was “partial and volatile”. It suggested that inflation in the September quarter might be higher than expected at the time of the August Statement on Monetary Policy.
Betashares chief economist David Bassanese called the bank’s decision a “hawkish hold”.
HSBC chief economist Paul Bloxham said the RBA tone was “a bit more on the hawkish side”. “For some time now, we have suggested that while our central case is for two more cuts in November and February, there is a clear risk of fewer cuts,” Mr Bloxham said.
The focus will now be on the next quarterly inflation readings on October 29, a week before the bank’s next meeting on Melbourne Cup day, November 4.
The last quarterly readings of inflation, watched more closely by the RBA than the volatile monthly figures, showed headline inflation at 2.1 per cent, while core inflation reached 2.7 per cent – both within the bank’s target range.
The RBA expects headline inflation to settle at 3 per cent by December and core inflation to be 2.6 per cent. The bank expects unemployment to remain steady at its current rate of 4.3 per cent.
The bank’s interest rate cutting cycle has lit up prices for Australia’s existing housing market this year. Monthly house price data, to be released on Wednesday, is expected to show a strong increase in values in September.
Oliver Hume chief economist Matt Bell said: “The strong outlook for land markets around the country for the remainder of 2025 and 2026 may have to be tempered if today’s hold spills over into the remainder of the RBA board meetings of 2025.”
Ms Bullock acknowledged that higher house prices were leading to stronger consumption.
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