Statement on RBA’s decision to lift interest rates

The building and construction industry acknowledges the conditions that led to the Reserve Bank of Australia (RBA)’s difficult decision to raise interest rates today by 25 basis points to 3.85 per cent, however it will leave the industry and homeowners carrying much of the weight of the nation’s economic challenges.

The RBA in their decision statement said while inflation has fallen substantially since its peak in 2022, it picked up materially in the second half of 2025.

Master Builders Australia CEO Denita Wawn said the pain of interest rate increases and high inflation is real and can be expected to suppress construction activity, including higher-density home building approvals, with new data today showing a 31.6 per cent drop during December and are particularly sensitive to interest rate movements.

“The vast majority of money for commercial building projects comes from private sector investment. Higher inflation and interest rates makes business investment more expensive and less attractive by reducing returns and increasing the cost of inputs.

“The pain caused by today’s decision will also fall on small construction businesses and mums and dads embarking on new builds as inflation and rate rises makes businesses more cautious and reduces margins in household budgets.”

Ms Wawn said that higher interest rates make the case for policy and fiscal reform in this year’s federal budget even more urgent.

“Areas including building productivity, reducing red tape, and fixing labour shortages require urgent budgetary attention and policy reform to put downward pressure on housing inflation and help the RBA meet its target.

“This can only be done with a strong and growing economy with the building and construction industry at its core. Building and construction activity has a sizeable impact on the performance of Australia’s economy with every additional $1 million of residential building work generating an extra $2.5 million in activity across the whole economy.

“Master Builders continues to call for red tape to be cut by at least 25 per cent and a continued commitment to modernise the National Construction Code to get more buildings off the ground, people into homes and improve economic conditions across the country.

“These reforms are urgent if the industry is to have any chance of completing 255,300 new homes this financial year to meet the National Housing Accord,” concluded Ms Wawn.

Media contact: Dylan Hafey, Media Advisor
0497 330 064 | dylan.hafey@masterbuilders.com.au