RBA says property prices 'not its problem': should they be?

Property prices are at record highs and homes are increasingly beyond the reach of average income earners.

Given Aussies have already seen three cash rate cuts in 2025, fingers have been pointed at the Reserve Bank of Australia (RBA) for adding fuel to the fire that is already being stoked by inadequate new housing supply, high population growth and high employment levels.

Whether the Reserve Bank should take soaring property prices into account when setting interest rates remains a live question in policy circles.

RBA Governor Michele Bullock has been unequivocal that it’s not her problem.

The central bank’s remit is to keep inflation within its 2–3 per cent target band and maintain full employment, not to manage asset prices. While the Consumer Price Index includes rents and new dwelling costs, it excludes the price of existing homes.

Ms Bullock has made it clear the RBA cannot control house prices, saying its responsibility lies in managing inflation and employment, with housing policy “a matter for governments” and that property prices are not part of her purview.

“The bottom line is that all I can do is keep inflation low and stable and I keep employment as strong as possible, because that gives people the best opportunity to get jobs and be able to possibly get into the housing market.

“(Regarding property prices) there’s nothing that I can do.”

In 2017, the average income-earning first home buyer in Sydney needed 8.2 years to save the $215,133 deposit required to purchase the median-priced house. That is now out to more than 13 years.

The National Housing Accord came into existence in October 2022 with the goal of improving what has been universally described as a housing crisis.

It also set a target of 1.2 million new homes being built between mid-2024 and 2029. In little more than 12 months the number of new homes needed to meet that goal has blown out from around 180,000 to almost 260,000 per year. The noble but lofty target already seems entirely unlikely to eventuate.

The RBA and property market

As demand continues to outstrip supply, the national median house price has increased by $127,117, or $42,000 a year since that Accord was stillborn three years ago.

The latest approvals data offers little by way of positivity on the affordability front. The number of approved dwellings fell 6 per cent in August after an 8.2 per cent slump in housing in July.

So, should the RBA broaden its remit to take in property prices to ensure interest rates aren’t part of the problem? It is, after all, a form of inflation in that consumers foot the bill for the higher priced items, in this case their homes.

Those who believe property prices should play a greater role argue that unchecked gains deepen wealth inequality and fuel risks in the financial system.

The International Monetary Fund as well as local economists have warned that ignoring property inflation can allow dangerous imbalances to build, leaving households and banks more exposed when rates eventually rise.

Others, however, counter that tying rate decisions to property values would blur the RBA’s inflation focus and overstate its influence on housing markets.

They note that home prices reflect broader forces — from tax policy to supply bottlenecks and population growth — well beyond the reach of monetary policy.

Interest rates levelling out

The prospects of another rate cut pushing property prices higher is, for now, diminishing by the week.

The rush of forecasters who were expecting at least one rate cut before the end of the year has slowed to a trickle.

ANZ on Monday (6 October) joined Commonwealth Bank and NAB in pushing their predictions of another rate cut into 2026.

ANZ and CBA now expect the next cut won't come until February 2026, having earlier said it would happen in November, while NAB thinks a cut is off the cards until May. Westpac is the most bullish of the big four banks, forecasting cuts in November, February and May.

Property prices meanwhile continue to climb.

The latest catalyst for price pressure is the revamped 5 per cent deposit Home Guarantee Scheme, although Treasury modelling suggests the initiative will only increase prices by a marginal 0.5 per cent in six years.

Add to that our growing population and easing but still elevated levels of migration.

Net overseas migration in Australia peaked at over 535,000 in 2022-23 before falling to around 340,000 in 2024.

The 2025-26 permanent Migration Program remains at 185,000 places, with a strong focus on skills to address labour shortages. That equates to many more new homes still being needed just to maintain the status quo let alone alleviate a crisis.

With housing supply failing to keep up with demand, tens of thousands more people needing homes every year and the RBA keeping its nose out of the property business, barring a major global economic upheaval there seems little reason to expect property prices to rein in their constantly renewing record highs any time soon.