The July cash rate call from the Reserve Bank of Australia came as a surprise to many.
Following promising monthly economic figures indicating that both headline and underlying inflation were in the bottom half of the RBA’s target, economists were largely predicting a cut to the cash rate following the central bank's board meeting on 8 July.
The RBA's cash rate call on 8 July, 2025, was widely expected to be a cut. Image: Getty
But the board instead decided to “wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis,” according to an official release, and therefore left the cash rate unchanged.
Across Australia, the hopes of mortgage holders and buyers alike were dashed, many of whom were hoping for a rate cut to help with cost-of-living pressures or increase their serviceability.
In the residential building sector, all eyes are on the nation's ambitious home construction targets and how the cash rate impacts its ability to get homes on the ground.
Under the National Housing Accord, Australia aims to construct 1.2 million new homes across the country over the course of five years – a period which began more than one year ago, on July 1, 2024.
Prior to the RBA’s recent announcement, housing industry leaders were hopeful that a third rate cut for the year would further boost buyer sentiment, which had started to rise off the back of the previous two.
“Any action that boosts buyer confidence is a positive for the housing sector, and we are starting to see a shift in sentiment,” Metricon CEO Brad Duggan told realestate.com.au ahead of the board’s meeting.
The residential building industry needs more that rate cuts to help increase production. Image: Getty
Following the cash rate call, the Housing Industry Association characterised the July RBA decision as a missed opportunity, with Tom Devitt, HIA senior economist noting that by the RBA’s own estimates “the cash rate remains in restrictive territory, meaning it is still constraining household and business spending across the economy, including in the home building industry”.
“This decision will leave new home building activity more constrained than necessary, for longer,” he said.
But he, alongside many in the industry, also noted that Australia’s ability to construct homes was dependent on more than interest rates and buyer sentiment.
“More rate cuts cannot deliver the volume of home building required to match the growth in demand or achieve the 1.2 million new homes goal,” Mr Devitt said.
“Broader policy reforms are required to achieve government home building targets and address the housing affordability crisis across Australia.
“To unleash Australia’s home building potential, policymakers need to address the acute shortage of skilled trades across the country and remove the tax and regulatory barriers that make housing unaffordable for more and more Australians."
Mr Duggan had similarly foreshadowed, prior to the announcement, that cash rate cuts alone were no “silver bullet” for construction.
“To truly drive action and get people building again, we need to restore customer confidence in the entire building journey, and that means addressing wider industry challenges – reducing planning and approval delays, increasing investment in infrastructure and land supply and working to expand the trade workforce to improve build times,” he said.
Nonetheless, the sector will still be hoping for a rate cut at the announcement of the next monetary policy decision on 12 August, with all four major banks predicting that outcome.
Are you interested in learning more about home building across Australia? Check out our New Homes section.
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