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The  Reserve  Bank  was recently invited  to  make  a  submission  to the House  of  Representatives  Standing  Committee  on  the  Inquiry  into  Home Ownership in Australia.

The  Bank  recognised  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  aging  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  toobtain,  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  theprice.   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.

If you would like to read the full submission, please click here!

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