Rate rises are back, but they are a blunt tool for housing-driven inflation – and that matters for Aussie mortgage brokers trying to guide clients through 2026.
Ray White chief economist Nerida Conisbee (pictured left) said the Reserve Bank’s latest move reflects concern that inflation is “not yet under control”, with headline CPI at 3.8% in the year to December and trimmed mean inflation also edging higher.
Housing is now the largest contributor, with costs “rising by around 5.5% over the year, well above headline inflation”, driven by rents, new dwelling prices and household energy.
“Higher rates do little to address the underlying drivers of housing inflation,” Conisbee said. “They do not reduce planning delays, ease regulatory costs, or expand the construction workforce. Nor do they lower the substantial tax burden embedded in the cost of building a new home.”
Instead, she warned, higher rates lift financing costs, reduce development feasibility, and “further discourage new supply” in an already undersupplied market – risking more entrenched housing inflation rather than bringing it under control.
Conisbee pointed to the last tightening cycle as a warning for today’s rental market. After interest rates began rising in May 2022, the number of new loans to investors fell sharply, down 28% within 12 months. Over the same period, rents surged: by May 2024, they were 18.3% higher nationally, with some cities, including Perth, recording increases close to 30%.
Strong population growth, from both overseas migration and interstate moves toward stronger job markets, kept demand high even as investor participation fell. The result was fewer rental properties and significantly higher rents.
Large public infrastructure programs are also contributing to elevated housing costs by competing directly with residential construction for labour, materials, and equipment. This crowding-out effect pushes up building costs, slows the delivery of new homes and adds further pressure to housing-related inflation.
Despite the latest cash rate hike, fresh forecasts suggest prices in several capitals are set to keep climbing strongly this year. ANZ’s latest Australian Housing Outlook, analysed by Canstar using Cotality data, indicates median house prices in both Brisbane and Perth could rise by more than $100,000 over 2026.
Sydney’s growth is expected to slow, but the median house price is still projected to push beyond $1.6 million by the end of 2026. On current estimates, median house prices in six capital cities – Sydney, Brisbane, Perth, Canberra, Adelaide, and Melbourne – would sit above the $1 million mark.
Canstar data insights director Sally Tindall (pictured right) said the latest cash rate rise is unlikely to trigger a major correction. “This latest cash rate hike is likely to act as a speed bump rather than a full-blown brake on house prices, with some pockets barely tapping the brakes at all.”
“Markets such as Brisbane and Perth are being driven by tight supply and strong demand, which is why six-figure price gains remain on the table in 2026, even with higher rates in the mix,” Tindall said. “Sydney’s growth might be forecast to slow, but a median house price pushing beyond $1.6 million is hardly a soft landing.”
For brokers, the sharper near-term impact of rate hikes is on borrowing power rather than on prices.
Canstar research shows a single cash rate rise can cut an average income earner’s borrowing capacity by around $12,000, while two hikes could double that hit. For a couple both on average wages, that translates into around $24,000 less borrowing power after one hike and $48,000 after two.
“Higher interest rates inevitably squeeze borrowing power,” Tindall said. “For buyers looking at price tags of $1 million plus, the reduction in borrowing capacity is a drop in the ocean, but for those with no wiggle room left, it could force them to remain a spectator for now.”
For mortgage brokers, the message is clear: rate rises may slow price growth at the margins, but they won’t fix housing-driven inflation rooted in supply constraints. In practice, that means revisiting pre-approvals, stress-testing budgets for further moves and helping clients understand that in this cycle, tighter monetary policy is more likely to crimp what they can borrow than to make property meaningfully cheaper.
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