Subject: A viscous cycle How housing policy, inflation and the RBA are now tightly intertwined

⚡️ Highlights:

1. Housing makes up over 20% of CPI and is running hotter than headline inflation, with lower-quartile home values surging since the expanded 5% Deposit Scheme in October.
2. Rents and new dwelling purchases make up close to 80% of the housing component in CPI, and housing inflation is currently running at 5.5% compared to the weighted average CPI of 3.8%.
3. The expanded 5% Deposit Scheme has led to increased demand for housing, with first-home buyer loans rising and housing finance overall lifting by 5.1%.
4. Economical housing stock has become less affordable, leading to increased rental benchmarks and sustained construction costs, which contribute to CPI.
5. The demand impulse from the 5% scheme has contributed to rising dwelling values and housing CPI, potentially leading to future rate rises from the RBA.

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