The RBA’s assistant governor (economic) says that although there are some “pockets of potential stress” in the housing market, housing affordability is more layered and complex than much of the commentary surrounding it suggests.
While recent reports have labelled Australia as one of the least affordable countries in the world for housing, the assistant governor (economic) at the Reserve Bank of Australia, Luci Ellis, says the housing affordability situation is more complex than a “single-minded focus on a single metric” such as the median house price.
Speaking at the Australasian Housing Researchers Conference in Melbourne last week, Ms Ellis said participating in the housing market does not need to about owning a home.
She said the way people access housing is not the same and as such, distributional issues should be considered over several dimensions.
“Unsurprisingly, housing ownership and housing wealth are not equally distributed across the cross-section of households,” Ms Ellis said.
“Secondly, fewer young people are home owners now than previous cohorts at the same age. This is partly about demography. If it were purely a story of people being priced out, other outcomes would be different.
“Finally, concerns about access to appropriate housing aren’t only about ownership. We should also think about how housing is experienced, including security of tenure.”
Ms Ellis noted that one issue of inequality, which has been generating public discussion, is whether Australians can purchase their own home.
“Housing affordability is clearly a concern more generally, because adequate shelter is so important to human welfare. But clearly there is great social interest in how that housing is delivered, who owns it and who pays for it,” she said.
Ms Ellis pointed out that Australia’s home ownership rate, at a national level, is neither unusually high nor unusually low.
“Many of the countries that have higher rates seem to manage it by having very high proportions of young adults living with their parents, even into their thirties, rather than renting,” she elaborated.
However, she acknowledged that lower-income households in Australia that have debt tend to have “quite a lot” relative to their incomes.
“Sometimes, this is because they have temporarily low incomes, but overall it does speak to need to be aware of pockets of potential stress within a more benign overall picture.”
‘More complex than a simple statistic’
Much of the commentary regarding the difficulty of achieving home ownership is centred on accumulating a deposit, Ms Ellis said.
“It seems common to assume that everyone needs a 20 per cent deposit when they first buy. This isn't actually true. Although lenders require some deposit coming from genuine savings, it doesn’t have to be as high as 20 per cent.
“So, it’s surprising that as housing prices have risen, the distribution of loan-to-valuation ratios – the converse of the deposit – hasn’t shifted up over time. If anything, it has declined in the past few years for which we have data. It’s not entirely clear why this is. And because a high loan-to-valuation ratio does imply higher risk both for the borrower and the lender, it might not be such a bad thing. But it does suggest that, again, the situation is more complex than a simple summary statistic can capture.”
Ms Ellis concluded that housing issues will ultimately “always be with us” and will always be important to the functions of the Reserve Bank.