Australia's Growth in Households and House Prices

10 Pages Posted: 30 Nov 2018

See all articles by Creina Day

Creina Day

Australian National University

Multiple version iconThere are 2 versions of this paper

Date Written: December 2018

Abstract

Real house prices rise in Australia amid growing concern of an impending correction. This article explains why the household formation rate has risen with strong population growth due to higher net immigration and average household size levelling off due to population ageing. An intertemporal model is developed to analyse the effect of an increase in the household formation rate on the housing market. I find that real house prices rise over time if the rate of household formation outstrips the rate of housing supply. Under forward looking expectations, a rising household formation rate could explain rising real house prices relative to the present discounted value of future wages. The results explain why real house prices may exhibit an upward trend despite population ageing and how government planning could have an impact.

Suggested Citation

Day, Creina, Australia's Growth in Households and House Prices (December 2018). Australian Economic Review, Vol. 51, Issue 4, pp. 502-511, 2018. Available at SSRN: https://ssrn.com/abstract=3293178 or http://dx.doi.org/10.1111/1467-8462.12280

Creina Day (Contact Author)

Australian National University ( email )

7 Liversidge Street
Lennox Crossing
Canberra, ACT 0200
Australia

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