According to BIS Shrapnel’s Long Term Forecasts 2010-2015, serious inflationary pressures are expected to challenge any new Australian government before the next election scheduled for late 2013, and may push cash rates up to 6.5 % and home loan rates out to 9%.
The report forecasts economic growth to accelerate by an average of 3.8% per annum over the next three years, while unemployment will fall under 4%. These tightened labour markets and household spending will drive up inflation, the forecaster warns.
BIS Shrapnel says the current housing shortage is a “major problem” because it inflates mortgage debt, increasing consumer sensitivity to growing interest rates and unemployment and expanding the current account deficit. A housing shortage is also a major influence on rising CPI due to its impact on rents.
There is an expectation that weaker population growth will take some of the pressure off future growth in demand for housing in the short term, though the current housing shortage problem is not likely to be addressed in the near future given the level of current interest rates.
There is an expectation that the easing in funding for property developers in the coming years is expected to drive a recovery in activity over short term.