Housing: cheap, unaffordable - or both?
Economics editor Peter Martin explains the housing paradox - why buying a house is cheap by some measures, and prohibitive by others.
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The Reserve Bank has warned Australia is experiencing a huge transfer of wealth from its younger to older generations, with property prices rising faster than incomes, that is "unlikely to make us better off as a nation" if the trend continues.
Deputy governor Philip Lowe says the growth in land and property prices in recent years has provided "windfall gains" for some Australians, including older homeowners with no children, and owners of investment properties.
In one of the strongest comments yet from an RBA official on the question of rising property prices, Dr Lowe said on Wednesday that it was arguable that the "main impact" of the pace of the property price increases was a change in the distribution of wealth in Australia, rather than an increase in national wealth.
He admitted that, despite experiencing capital gains on their properties, many Australians may be feeling worse off at the moment because they would be worried about future housing costs for their children.
RBA deputy governor Philip Lowe. Photo: Sasha Woolley
"Many parents around the country look at the high housing prices and worry that their children will not be able to afford the type of property that they themselves have been able to live in, even if their children were to have the same life-time income profile as they have had," Dr Lowe said in Perth.
"How the intergenerational distribution ultimately plays out will depend critically upon the extent to which the gains that have accrued to the current generation are passed on to the next generation."
Dr Lowe said there was evidence younger generations were getting increased assistance with household expenses from older generations, and the trend was likely to continue.
He warned if such assistance became more common, fewer parents would be able to use the capital gains they have benefited from to boost their own consumption because they would be using them to help their children with higher housing costs.
However, Dr Lowe also said if older generations used their capital gains to increase their own consumption today then they would have less ability to help their children with higher housing costs, but that would help to put downward pressure on the price of housing in the future, relative to incomes.
Dr Lowe also suspected that household balance sheets were "a little more risky" than they once were.
He said low interest rates were helping the economy through a period of transition but Australia needed to start seeing more investment in new assets that were crucial to the "sustainable expansion" of the economy.
Australia would benefit from more investment in infrastructure, "including transport," because better transportation would help to increase the supply of well-located land and make housing "more affordable for many Australians".
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