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Macro drivers of Australian housing affordability, 1985-2010: An autoregressive distributed lag approach

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Author Info

  • Andrew Worthington
  • Helen Higgs

Abstract

Purpose – Model the drivers of Australian housing affordability and forecast equilibrium affordability. The paper aims to discuss these issues. Design/methodology/approach – Uses autoregressive distributed lag (ARDL) approach to model housing affordability measured by the Housing Industry Association's Housing Affordability Index (HAI) and the housing price-earnings multiplier (HPE). Six sets of explanatory variables, including housing finance, housing construction activity and costs, economic growth, population, alternative investments and taxation. Findings – Primary long-run drivers are housing finance, dwelling approvals and financial assets. Economic and population growth only have a short-run influence, while housing taxation has limited impact in long run. Forecasts indicate long-run HAI equilibrium values of 109 (above the historical minimum of 107) and a HPE of seven (below the recent historical maximum of 8.2). Research limitations/implications – Reduced form model encompassing both demand and supply factors involves complicated interpretation given direct and indirect effects on affordability. Analysis at national level ignores regional impacts that may also affect housing affordability. Practical implications – The impact of the low rate of new dwelling approvals (public and private sector in the long run and public sector in the short run) points to a persistent structural gap between the demand and supply of housing. Strong economic and population growth often blamed for the worsening of housing affordability, at least in the 2000s, has no impact at the aggregate national level. Originality/value – Only known paper to provide quantitative estimates of macro drivers of Australian housing affordability over a long period using alternative measures of relative housing affordability.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Studies in Economics and Finance.

Volume (Year): 30 (2013)
Issue (Month): 4 (April)
Pages: 347 - 369

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Handle: RePEc:eme:sefpps:v:30:y:2013:i:4:p:139-158

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Web page: http://www.emeraldinsight.com

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Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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Web: http://www.emeraldinsight.com/sef.htm

Related research

Keywords: Affordability drivers; Housing affordability; Housing policy; Long-run equilibrium affordability;

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  1. Frimpong, Joseph Magnus & Oteng-Abayie, Eric Fosu, 2006. "Bounds testing approach: an examination of foreign direct investment, trade, and growth relationships," MPRA Paper 352, University Library of Munich, Germany, revised 09 Oct 2006.
  2. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
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