The focus of this report (and its companion) is on the key economic effects of problems associated with housing affordability. The basic aim is to provide a broader than normal rationale for, and a basis on which to develop, policies designed to improve affordability outcomes. Housing affordability is here considered in relation to the operation of the national and regional economies and not merely as a question of social policy.
The traditional theory of public finance identifies three fields or ‘branches’ of economic intervention by the state allocation, distribution and stabilisation (Musgrave, 1959). In the first place governments may intervene to of fset or correct market imperfections and failures. Secondly, governments act to change the market determined distribution of income and wealth. Finally, since the mid twentieth centuries, governments and key agencies like central banks, have taken on the responsibility of steering the whole economy to achieve some combination of price stability, adequate aggregate employment and external economic balance.
Ensuring adequate housing affordability has, in recent times, largely been seen as a matter for the distribution and allocation branches of government. Private housing and finance markets, if left to themselves, have shown a tendency to under supply housing at the affordable end. In the neo liberal era, financial deregulation, constraints on government spending, global trade liberalisation and more flexible labour markets have been associated with increasing inequalities in the distribution of income and, especially, wealth (Boreland, Gregory and Sheehan, 2001; Burbidge and Sheehan, 2001; Kelly, 2001). Housing forms a major share of the wealth holdings of people in countries like Australia which have a high rate of owner occupation and a significant private rental sector. Relative access to housing is significantly influenced by the current distribution of income, which in turn reinforces the relative capacity of households to accumulate further wealth. The result over recent times in Australia has been rising wealth inequalities in housing and all other assets except superannuation savings (Kelly, 2001).
CONTENTS
EXECUTIVE SUMMARY
1 INTRODUCTION
1.1 Objectives of the Project
- 1.1.1 A Note on Method
1.1.2 Structure of the Report
2 SETTING THE FRAMEWORK
3 HOUSING MARKETS AND CONSUMPTION: INTERNATIONAL EVIDENCE15
3.1 Overview
3.2 Specific Studies
- 3.2.1 Shiller (2004) Household Reaction to Changes in Housing Wealth
3.2.2 Case and Shiller (2004) Is there a Bubble in the Housing market?
3.2.3 Shefrin and Thaler (1988) The Behavioural Life-cycle Hypothesis
3.2.4 Campbell and Cocco (2004) How Do House Prices Affect Consumption?: Evidence from Micro Data
4 HOUSING PRICES, DEBT AND CONSUMPTION IN AUSTRALIA
4.1 The Senate Inquiry
4.2 Specific Studies
- 4.2.1 Dvornak and Kohler, Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia
4.2.2 Reserve Bank of Australia (2005b), Survey on Housing Equity Withdrawal and Injection
4.2.3 La Cava and Simon (2003), A Tale of Two Surveys: Household Debt and Financial Constraints in Australia
4.2.4 Shin (2003), Financial System Liquidity, Asset Prices and Monetary Policy
5 WHY AFFORDABILITY MATTERS
REFERENCES
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