RDP 2006-08: A Survey of Housing Equity Withdrawal and Injection in Australia 1. Introduction

Over recent years in Australia, housing-secured debt has increased by more than household spending on new housing, renovations and housing transfer costs. As a result, the household sector has extracted equity from the housing stock, in contrast to the experience of previous decades (Figure 1).[1] The move from a situation of net equity injection to one of net equity withdrawal has coincided with strong household consumption growth and a decline in the household saving rate. A similar phenomenon has been experienced in many other countries.

Figure 1: Housing Equity Withdrawal
Four-quarter moving average
Figure 1: Housing Equity Withdrawal

Sources: ABS; APM; Australian Treasury; RBA

The trend towards housing equity withdrawal in Australia over the past 15 years or so reflects fundamental changes to both the demand and supply side of housing finance. Lower nominal interest rates associated with lower inflation have allowed households to take on larger debts, and the relative stability of interest rates and the economy have given households greater confidence that they can service larger debt burdens. Competition among intermediaries has further driven down interest rates on housing loans and increased households' ability to access equity using more flexible mortgage products. These developments have been associated with strong growth in house prices, which has increased the amount of equity accessible by property owners.[2]

While we can identify macroeconomic factors conducive to housing equity withdrawal in Australia, little is known about the household behaviour underpinning it. Given this lack of information, the RBA commissioned a survey to better understand how households were withdrawing and injecting housing equity, the characteristics of households engaging in these activities, and how the withdrawn funds were used. The survey covered flows over 2004 associated with housing debt, housing transactions, and renovation spending. In addition to being the first of its kind in Australia, this comprehensive survey represents an important extension to the more narrowly focused international literature on this topic.

The rest of the paper is structured as follows. Section 2 discusses key concepts and reviews the international literature on housing equity withdrawal and injection. Section 3 provides details of the survey. Sections 4 through 6 present survey results on how equity was withdrawn and injected, the characteristics of the households that withdrew and injected, what the withdrawn funds were typically used for, and where the injected funds were sourced. Section 7 considers the implications of the survey results for aggregate housing equity flows and economic activity. Section 8 concludes.


Measuring aggregate housing equity withdrawal is not straightforward, particularly with regards to spending on new housing, as discussed in Appendix A. [1]

These fundamental changes have been discussed at length in many RBA publications and elsewhere. See, for example, RBA (2002a, 2002b). [2]