The increase of 0.25% to the official cash rate adds about $50 a month to a $300,000, 25-year home loan, if the increase is passed on in full and brings the official rate up to 4.5%.

Most economists had been tipping the rate rise, with the market pricing in a 69 per cent chance that the Reserve Bank board would hike its cash rate by 25 basis points.

The Reserve Bank governor Glenn Stevens has advised that rates are now back at “average levels”.

“With the risk of serious economic contraction in Australia having passed some time ago, the Board has been adjusting the cash rate towards levels that would be consistent with interest rates to borrowers being close to the average experience over the past decade or more,” Mr Stevens said in his statement to accompany the rates decision.

“The Board expects that, as a result of today’s decision, rates for most borrowers will be around average levels.
“This represents a significant adjustment from the very expansionary settings reached a year ago.”

This expansion project has been tied to the introduction of a growth areas tax that will shoulder the multibillion-dollar expenses for new schools, hospital and public transportation modes. This project will also sustain suburban housing growth.

However, the opposition is against the $95,000 a hectare growth areas tax on reclaimed Melbourne urban territory and they are ready to put the expansion to a halt if necessary. Also, David Vorchheimer, president of the Planning Institue of Australia’s Victorian, stated that though the growth areas tax is needed, its breakdown must be detailed.

The building industry is not happy with the new tax as well. To solidify their stand, the Property Council said that they would settle with zero boundary expansion until the growth areas tax is scrapped.

Opposition planning spokesman Matthew Guy stated that their group has serious concerns about this tax even though they have offered to negotiate with the state parliament ten months ago. On the other hand, the Greens’ Greg Barber told that his party without further scrutiny or analysis, they will not support the urban boundary growth project and the new growth areas tax.

Housing Industry Association Victorian Executive Director Gil King also stated that the proposed tax has a questionable distribution breakdown especially because around 50 per cent of it will be unnecessarily devoted to administration costs.

A report by the Melbourne City Council and the government showed that the cost of building new houses at Melbourne’s boundary is hundreds of millions of dollars more expensive than building in established suburbs due to the extra cost of planning and infrastructure. The report also states that building in established suburbs can be equated to savings of above $300 million for every 1000 housing units.

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