Submission to the Inquiry into Home Ownership Introduction

The Reserve Bank has been invited to make a submission to this inquiry. The Bank recognises the importance of housing to the people of Australia. Shelter is a fundamental human need, and purchasing the home one lives in is usually the largest financial investment a household will make. The affordability of suitable housing is, appropriately, a central concern of government policy, and it has been the subject of several inquiries over the years, most recently the Senate Economics References Committee Inquiry (The Senate 2015). Housing tenure – whether a household owns or rents the home they live in – is an important aspect of people's experience of their home.

The key messages of this submission are as follows.

• The level of the home ownership rate varies across countries for a range of demographic and institutional reasons. It should not be presumed that the appropriate home ownership rate is 100 per cent, or that countries with higher rates than Australia have necessarily achieved ‘better’ outcomes. The important outcome to aim for is that all Australians can access housing that is appropriate to their needs.
• The aggregate home ownership rate in Australia has been broadly steady since the 1960s. Prior to that date, the rate was much lower. The home ownership rate for typical first home buyer age groups has drifted down over several decades. The pace of decline has not increased noticeably recently, but the underlying drivers of the decline might have changed. These trends have been roughly offset by the ageing of the population, so that the overall home ownership rate has been stable.
• Within the owner-occupier group, a larger proportion now has a mortgage. Older age groups are now less likely to own their home outright than in the past. This is an expected outcome of disinflation and liberalised access to finance, and it is unlikely to have affected accessibility of ownership for potential first home buyers.
• Demand for housing, particularly owner-occupied housing, was boosted in the 15 years or so to about 2005 by the effects of disinflation and financial sector deregulation. Finance was easier to obtain, but down payment requirements may not have eased by enough to fully offset the effect of rising housing prices, so this may have delayed or prevented first home purchases in some cases. More recently, strong population growth has added to demand.
• Housing supply is a stock that changes slowly, so in the short to medium term, increases in demand are only partly met by increased physical supply. Much of the initial response is in the price. In addition, there are geographic and regulatory constraints that slow or limit supply response.
• Housing, particularly owner-occupied housing, receives preferential taxation treatment in many countries, and Australia is no exception. Australia's taxation system is also relatively generous to small investors in buy-to-let property compared with some other countries, because investors can deduct losses from their investments against wage income as well as other property income, and because capital gains are taxed at concessional rates. However, there are some other countries where the tax preference for investor property is even stronger than in Australia.

The remainder of this submission provides more detail on these themes.