Research Discussion Paper – RDP 2001-08 City Sizes, Housing Costs, and Wealth Abstract

Australia's household sector appears to hold a greater proportion of its wealth in dwellings than do households in other countries. Average dwelling prices in Australia also appear to be high relative to household income, but dwellings in Australia are not noticeably higher in quality than those in comparable countries. This concentration of wealth in housing also does not seem attributable to government policies that encourage dwelling investment in Australia to a greater extent than is true overseas. A possible reconciliation of this pattern may be the unusual concentration of Australia's population in two large cities. Average housing prices tend to be higher in larger cities than smaller ones. Therefore, the expensive cities in Australia drag up the average level of dwelling prices more than in other countries, resulting in a higher share of wealth concentrated in housing. The increasing importance of dwelling wealth in Australia over recent years largely reflects the consequences of disinflation and financial deregulation. This is most likely a transitional effect, and the ratio of dwelling wealth to income should stabilise, or begin to grow more slowly, in the future.

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