The historically low interest rates being enjoyed by Australian households are fuelling talk of a housing bubble, despite efforts by the Reserve Bank of Australia to hose down what it calls “unrealistic alarmism” around these dangers.
Many of these hopeful buyers – particularly first home owners on low to moderate incomes – will look to outer suburbs of our cities. But just how well will they do in accumulating long-term wealth through their housing choices?
Previous generations of lower-moderate income home buyers did acquire wealth from their homes. AHURI research using Melbourne as a model reveals that lower to moderate income home owners (defined as households in the lowest 40th percentile of income, around $35,000) who bought in 1981 accumulated wealth with an average annual real rate of house price increase of 4.4%.
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However, the biggest cause of increased wealth has been the restructuring of the housing market with increasing demand for inner and middle ring suburbs generating higher prices, a process observed in all Australian capital cities.
Once relatively egalitarian across Australian cities, our property markets have become polarised. The most affordable homes for lower-moderate income home buyers are now confined to the outer suburbs and will only increase in value at slower rates compared to housing in the more expensive inner and middle suburbs — effectively trapping poorer households on the edges of our cities.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.