Westpac warns of $50,000 hit to new homes from war in Iran. Builders disagree
The war in Iran could increase the cost of building a new suburban home by 10 percent, or as much as $50,000; This is a clear sign that construction suppliers have already been forced to raise prices.
Westpac said on Friday that despite the federal government’s decision to halve fuel duty, taxes were being introduced on everything from restaurant meals to haircuts to help offset the impact of the war.
But the Housing Industry Association said the increase was much smaller, with prices rising between $3,000 and $4,000 in new construction.
The increase in oil prices, which are still around $97 per barrel despite this week’s ceasefire, has negatively affected drivers and the transport sector after gasoline and diesel prices increased by almost 50 percent since the beginning of March.
But these costs are now starting to spread across the economy.
Westpac senior economist Justin Smirk said the price of some goods had risen by 16 per cent, based on price changes made by suppliers.
While not all products cost more, the number of products priced has also begun to increase, he said.
If this continues, the price increase to build a new home could increase by $50,000.
Smirk said the cut in the excise tax, which cuts 32¢ per liter off gasoline prices, provides some relief to drivers, but businesses outside the transportation sector are also adding fuel taxes to their prices.
Headline inflation could rise to 6 per cent next month, then slowly fall to around 4.7 per cent for the crucial Christmas retail period, he said.
“We expect the increase in oil prices to give the biggest blow to the consumer price index in March and April, and then stabilize in May and June. Auto fuel prices are planned to increase again in July, but this is due to the end of the last temporary discount on fuel,” he said.
Commonwealth Bank senior economist Ryan Felsman said this week’s Melbourne Institute measure of inflation rose 1.3 per cent in March, the biggest monthly increase in its almost 24-year history.
Felsman said the longer the Strait of Hormuz remains closed, the greater the risk that price increases will spread to other parts of the economy, but this could force the Central Bank to adopt further interest rate hikes.
“There is a risk that categories such as transport, food, clothing and footwear, housing, furniture and equipment, and alcohol and tobacco will increase more than expected from April, potentially necessitating the need for more aggressive monetary policy tightening,” he said.
HIA chief economist Tim Reardon said interest from potential home buyers remained strong throughout March despite the Federal Reserve’s back-to-back rate hikes at the start of the year, although there were some price increases largely driven by fuel taxes.
“We are seeing an impact in terms of fuel taxes but it has not spread beyond that,” he said.
“We remain most concerned about the potential negative impacts of the future federal budget.”
Chancellor of the Exchequer Jim Chalmers is expected to use the May 12 budget to unveil changes and negative gearing to capital gains tax, which the housing industry has warned will raise prices and reduce construction.
Master Builders NSW said on Friday most of its members had fixed price contracts, meaning they had to absorb the full impact of the war’s inflationary pulse on the economy.
“These ongoing effects of the Middle East conflict could not come at a worse time for the industry,” said Matthew Pollock, the organisation’s chief executive.
“These combine the effects of persistently high inflation and a quagmire of unnecessary, inconsistent and contradictory regulations that stifle productivity, already lengthening completion timelines and making projects unviable.”
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Shane Wright is senior economic correspondent for The Age and The Sydney Morning Herald.Connect with: X or email.
