Younger Australians and first-home buyers are disproportionately being hit by higher interest rate cost, as the Reserve Bank warns it has a job to do.During a Senate inquiry into the nation’s housing crisis RBA chief economist Sarah Hunter acknowledged monetary policy is limited on who it impacts. “Monetary policy is a blunt tool but it does work, it does do the job we want it to do,” she said. In its fight against inflation, the Reserve Bank announced three interest rate hikes in a row, taking the cash rate from 3.60 to 4.35 per cent.This was a complete reversal of 2025’s three interest rate cuts. Despite the three hikes, headline inflation remains at 3.5 per cent in July, above the RBA’s target of 2 to 3 per cent. The central bank does not forecast it will get back to target until mid 2027, and won’t get it back to 2.5 per cent or below until early 2028. “We know it will work to slow down n the economy a little bit and take some momentum out of the system and bring inflation back down,” Ms Hunter said. “It worked in the past, we expect it to work in the future and we know it is working now.”She said Australian households broadly fit into three buckets being renters, owner-occupiers in debt and those who own their house outright. Ms Hunter said the “cash flow channel” which is how interest rates flow through the economy is only hitting the one bucket, as renters weekly budget don’t change and households who have paid off their home typically getting higher interest rates payments.Committee chair Barbara Pocock pushed further saying the quantum of pain on younger Australians is much larger due to higher house prices.Ms Hunter conceded younger Australians are likely to be feeling the pinch, but stopped short of blaming monetary policy, especially when it comes to rental prices. “Rents don’t directly respond to interest rate moves. They are determined by demand and supply in local rental markets,” she said. “It is quite harrowing the stories we hear and it is hard to not be affected by them, so we know people are dealing with tricky situations, but it is not directly related to interest rates.”“For the group in terms of mortgage stress, debt levels are higher than they historically, but is also true going back 20-30 years that interest rates are lower than they were back then.“Other things have shifted, not just the debt levels and if you are in the position of having just taking out a mortgage that is a tough position to be in for a while.Ms Hunter said over the longer term it gets easier for these households. “The tricky thing is we have a job to do and we have to get inflation down. We’ve got to do that, inflation impacts everyone and is a challenge for everyone. “The tool to do that is interest rates”.Banking giant unprepared for senate inquiryAustralia’s biggest home lender has been criticised for appearing to be unprepared to front a Senate inquiry into the nation’s housing crisis, despite receiving the committee’s questions in advance.The Select Committee on Intergenerational Housing is holding hearings in Canberra as part of its investigations into inequity in the housing market. Committee chair Barbara Pocock asked Commonwealth Bank executive general manager, retail banking Robert Parker about the proportion of company profits earned on loans to owner-occupiers, which the executive was unable to answer. “CBA doesn’t report its profit broken down by individual customer segments, such as owner-occupier or first homeowners,” Mr Parker said. “I’m not asking you to repeat what you’ve already told me, Mr Parker. I’m asking you what proportion of your profits are earned,” Senator Pocock responded. After a tense back and forth, the CBA executive later agreed to take the question on notice.He proceeded to take a number of additional questions on notice, including the average level of profit on the average loan over 30 years, and a breakdown of CBA’s profit margins on owner-occupied lending vs. investment. This promoted a sharp rebuke from Senator Pocock, who said: “We’re in a housing crisis.” “This committee has collected evidence from across our country about people who are in levels of housing crisis with mortgages that we have never seen before. True distress, as defined by established authorities,” she said. “Why have you not brought answers to my questions? I’ve sent you questions in advance, which (would) signal my direction of questioning. Why have you not come prepared to answer them?” she asked. Mr Parker insisted CBA understood the questions provided and would provide as many “answers as possible, and take things on notice that require clarification”. ‘It’s just unjust that we treat housing this way’Australia’s social contract has been “broken” in the wake of three decades of house price growth and the skewed concentration of home ownership, the nation’s peak union body has warned. Fronting the Select Committee on Intergenerational Housing – tasked with looking at intergenerational inequity in the housing market – ACTU assistant secretary Joseph Mitchell said the current approach to housing was “unjust”. “The decline of public housing has meant that public housing which was once available to not just the most destitute and desperate Australians has been limited to those,” Mr Mitchell told the committee. “It should not be the most emergency of emergency accommodation, but it has. It has become that over the last few decades, and it needs to be much more available. “And the second part is, home ownership has been turned into a speculative investment by professional landlords.“We see it pulled further and further out of reach for first-home buyers. It’s just unjust that we treat housing this way, and it does need to end.”ACTU senior economist Thomas Greenwell warned that because of the way older people were able to accumulate wealth based on capital gains tax concessions, “determination of whether or not your own home is whether or not your parents are wealthy”. “Which just concentrates and centralises wealth in a particular cohort of people and locks out those who are unable to access the generosity of having been born to rich parents,” Mr Greenwall said.The committee is examining the different aspects of intergenerational inequality in the housing market including its causes, relevant policy settings, and how the issue has been experienced by Australians from all walks of life. It will deliver its report on September 30. More to comeRead related topics:Reserve Bank