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Rising CPI suggests more affordability worries ahead

The highest inflation in 30 years suggests housing affordability is going to continue to decline, according to an industry body.

According to the latest data from the Australian Bureau of Statistics (ABS), the Consumer Price Index (CPI) rose 2.1 per cent in the March quarter marking the highest annual reading since the introduction of the Goods and Services Tax in 2001, and the highest quarterly figure since 1990.

Real Estate Institute of Australia (REIA) President, Mr Hayden Groves said the concerning CPI figures foreshadow a major decline in housing affordability.

“With all measures of inflation the highest for over a decade and outside the Reserve Bank of Australia’s target zone, increases in the cash rate are imminent which will add to mortgage payments and decrease affordability for first home buyers,” Mr Groves said.

“With the prospect of first home buyers finding it increasingly difficult to enter the housing market, home ownership in Australia will continue declining. 

“This is already being evidenced across all states and territories and is most pronounced in the 35 to 44 age group.

Mr Groves said both the Coalition and the Opposition needed to focus on improving housing affordability.

“It impacts on the functioning of the economy as well as the wellbeing of individuals and the cohesiveness of communities and society,” he said.

“Addressing home ownership now by both major parties will reverse the trend of falling home ownership and avoid the looming significant policy problem of large numbers of long-term renters aged 45 years and over remaining in the rental sector and possibly requiring rental support in later years.

“Failure to address this issue will have long term budget implications.”

Mr Groves said he wants stamp duty removed to ease the burden on home buyers.

“With an increase in interest rates imminent that hurdle becomes more difficult,” he said.

“It is time for the Federal Government to take a leadership role in having state-based stamp duties removed.

Mr Groves said that the CPI Housing category increased by 2.7 per cent for the March quarter and 6.7 per cent for the year.

“This is the highest annual increase since June 2001 and is attributable largely to rising construction costs for new dwellings,” he said.

“Despite various reports of rent increases the capital city weighted average increase for the March quarter was 0.6 per cent and 1.0 per cent for the year – the lowest annual increase since December 2015. 

“There was, however, a large variation between capital cities, with Sydney and Melbourne having decreases of 1.2 per cent and 0.9 per cent respectively and Darwin and Perth having increases of 11.3 per cent and 9.7 per cent respectively.

“In short, the CPI figures demonstrate the need for urgent action on housing affordability and leadership from the top.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.