The Reserve Bank of Australia (RBA) raised the cash rate by 0.25 percentage points to 4.85% on Tuesday 3 November 2026, its highest level since late 2008. It was the fifth rise of 2026, after increases in February, March, May and September, and the decision was not unanimous: six members of the RBA’s Monetary Policy Board voted for the rise and three voted to hold (RBA, 3 November 2026).
The Board’s reason is inflation. Consumer prices rose 4.3% in the year to September 2026, and underlying inflation, measured by the trimmed mean, was 3.6%, both above the RBA’s target band of 2% to 3%, with new dwelling prices and electricity the largest contributors (ABS, 28 October 2026). The Board now expects inflation to “remain elevated through much of 2027”. Its statement also noted that “housing prices have fallen significantly”, and that higher interest rates and lower housing prices and turnover “are expected to weigh on growth in dwelling investment and household consumption”.
The RBA gave no firm signal on what comes next, saying only that it “will continue to do what it considers necessary to bring inflation sustainably back to target”. Further rises are possible if inflation stays high, so any forecast of a pause should be treated as uncertain.
The RBA raises the cash rate to slow spending across the economy and bring inflation back to its target, and the banks pass each rise through to the rates they charge on home loans, business loans and overdrafts. A rate rise usually takes a year or more to work fully through spending and prices, so the four rises already made in 2026 are still flowing through the economy, separately from any rise announced this week. The effect reaches the economy in three main ways:
A rate rise in November lands just before the busiest spending period of the year, and households were already cautious. The Westpac-Melbourne Institute consumer sentiment index fell 4.7% to 80.4 in October, among the 40 weakest readings since the survey began in the early 1970s, and more than 80% of households expected mortgage rates to rise over the next year (Westpac IQ, 6 October 2026). The Australian Retail Council warned after the September rise that higher rates and fuel costs risk “taking momentum out of consumer spending just as retailers enter the most important trading period of the year”, and Deloitte Access Economics expects growth in real retail turnover to slow from 2.8% in 2025–26 to 1.5% in 2026–27 (retailbiz, 29 September 2026).
There is potential for this caution to carry over into decisions about housing. A household that cuts back on discretionary spending over Christmas because of higher repayments may also be more hesitant to commit to a new build, an extension or a major renovation in the new year, although how strongly that plays out will depend on each household’s circumstances and on where rates and home values go from here.
Demand for new homes was already softening before this week, and a fifth rise in 2026 adds to the pressure on the buyers builders depend on. The September building approval figures, covered in our building approvals article, showed private house approvals falling 5.3% to 10,432 nationally, seasonally adjusted, with falls in every state, which is the clearest sign yet in official data that demand for new homes is softening. Home loan applications fell 19.2% in the year to September 2026, the sixth monthly fall in a row, and applications from first home buyers fell 22.1% (Equifax, 14 October 2026). National home values fell 1.2% in October and are 6.7% below their March 2026 peak, with Brisbane down 2.0% in the month (Cotality, 2 November 2026).
Buyers enquire, arrange finance and sign contracts months before a building approval is issued, so slower enquiries show up first in a builder’s sales pipeline, and a higher cash rate has its most direct effect at that point by reducing how much buyers can borrow when they decide whether to build. Stockland reported that enquiries across its masterplanned communities fell from 36,551 in the September quarter 2025 to 10,452 in the September quarter 2026 (The Urban Developer, 19 October 2026). Costs are not falling at the same pace: new dwelling prices rose 4.7% in the year to September, and large non-residential projects such as data centres are still competing for the same trades and materials. The likely result over the next 6 to 12 months is more builders competing for fewer new projects while their own costs stay high, which puts pressure on the margin built into each quote.
When buying and building become harder, some owners choose to improve the home they already have instead of selling and moving: home sales over the three months to October were 23% lower than a year earlier (Cotality), and the value of alterations and additions approved in September 2026 was $1.32 billion, seasonally adjusted, 13.0% higher than a year earlier (ABS).
The renovation figures also call for care, because the trend value of renovation approvals has eased every month since its April 2026 peak and falling home values leave owners with less equity to borrow against, so renovation demand may hold up better than demand for new homes without necessarily growing. For builders, the practical point is to stay alert to work slightly outside the usual mix, such as extensions, knockdown rebuilds, maintenance and repair work, or commercial and government projects, while checking that each new type of job will earn the margin the business needs before taking it on.
A construction business cannot control interest rates, but it can control how clearly it sees its own numbers. With demand softening and competition for new work increasing, three areas of the business deserve close attention over the coming months.
If you would like a clearer view of your margins, cash flow and sales pipeline as the rate cycle moves on, our construction advisory team can work through your numbers with you and help you put the right reporting in place.
Book a time to talk with a construction adviser
This article is general information about the economy and the construction market and is not advice for any particular business. Please speak with an adviser about your own circumstances.
Sources
