The Urban Developer | Double Blow: Cash Rate Rises, Home Approval Crash

Leon Della Bosca and Lindsay Saunders report on a difficult day for the property development sector, published by The Urban Developer, as the Reserve Bank's first rate rise since November 2023 coincided with a sharp fall in apartment approvals.

The 25 basis point increase to 3.85 per cent came on the same day ABS data revealed total home approvals fell 14.9 per cent in December 2025, with approvals for apartments and townhouses dropping 29.8 per cent to just 5,855 homes. Victoria recorded its worst approvals result since June 2013 at just 3,514 total approvals. Industry observers warned the combination of higher borrowing costs and weakening approvals would tighten future housing supply and complicate efforts to meet national housing targets.

Oliver Hume Property Group chief economist Matt Bell noted that while financial markets had priced in around a 66 per cent chance of a hike, the decision was not a certainty, and signals the end of a dramatic shift in market expectations — with markets having anticipated three further rate cuts by the end of 2026 as recently as July 2025. Bell said the increase was unlikely to derail recoveries in Melbourne's established and land sectors, pointing to the city's strong affordability relative to Brisbane, Perth and Adelaide as a key advantage.

Urban Taskforce chief executive Tom Forrest warned the rate rise would flow through to undermine project feasibility, potentially worsening the existing undersupply and driving further upward pressure on both home prices and rents. Forrest called on federal and state treasurers to focus housing initiatives on stimulating supply rather than demand-side handouts, arguing that without new supply, buyer incentives simply push prices higher.

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