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City Sizes, Housing Costs, and Wealth

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  • Luci Ellis

    (Reserve Bank of Australia)

  • Dan Andrews

    (Reserve Bank of Australia)

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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Bibliographic Info

Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2001-08.

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Date of creation: Oct 2001
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Handle: RePEc:rba:rbardp:rdp2001-08

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Related research

Keywords: dwelling prices; rank-size rule; Zipf’s Law;

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References

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  1. Xavier Gabaix, 1999. "Zipf's Law and the Growth of Cities," American Economic Review, American Economic Association, vol. 89(2), pages 129-132, May.
  2. Smith, Lawrence B & Rosen, Kenneth T & Fallis, George, 1988. "Recent Developments in Economic Models of Housing Markets," Journal of Economic Literature, American Economic Association, vol. 26(1), pages 29-64, March.
  3. Alberto F. Ades & Edward L. Glaeser, 1994. "Trade and Circuses: Explaining Urban Giants," NBER Working Papers 4715, National Bureau of Economic Research, Inc.
  4. James M. Poterba, 1983. "Tax Subsidies to Owner-occupied Housing: An Asset Market Approach," Working papers 339, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
  6. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  7. Duca, John V. & Rosenthal, Stuart S., 1994. "Borrowing constraints and access to owner-occupied housing," Regional Science and Urban Economics, Elsevier, vol. 24(3), pages 301-322, June.
  8. J.Peter Neary, 2001. "Of Hype and Hyperbolas: Introducing the New Economic Geography," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 536-561, June.
  9. Muellbauer, John, 1992. "Anglo-German differences in housing market dynamics : The role of institutions and macro economic policy," European Economic Review, Elsevier, vol. 36(2-3), pages 539-548, April.
  10. J.V. Henderson, 1972. "The Sizes and Types of Cities," Working Papers 75, Queen's University, Department of Economics.
  11. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-42, April.
  12. Bourassa, S.C. & Hoelsi, M., 1999. "The Structure of Housing Submarkets in a Metropolitain Region," Papers 99.15, Ecole des Hautes Etudes Commerciales, Universite de Geneve-.
  13. N. Gregory Mankiw & David N. Weil, 1988. "The Baby Boom, The Baby Bust, and the Housing Market," NBER Working Papers 2794, National Bureau of Economic Research, Inc.
  14. Paul Mylonas & Sebastian Schich & Gert Wehinger, 2000. "A Changing Financial Environment and the Implications for Monetary Policy," OECD Economics Department Working Papers 243, OECD Publishing.
  15. Kamecke, Ulrich, 1990. "Testing the rank size rule hypothesis with an efficient estimator," Journal of Urban Economics, Elsevier, vol. 27(2), pages 222-231, March.
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Citations

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Cited by:
  1. Judith Yates, 2003. "'The more things change?' An overview of Australia's recent home ownership policies," International Journal of Housing Policy, Taylor & Francis Journals, vol. 3(1), pages 1-33.
  2. Olivia S. Mitchell & John Piggott, 2004. "Unlocking Housing Equity in Japan," NBER Working Papers 10340, National Bureau of Economic Research, Inc.
  3. Williams, David M, 2009. "House prices and financial liberalisation in Australia," MPRA Paper 15212, University Library of Munich, Germany.
  4. Luci Ellis, 2005. "Disinflation and the dynamics of mortgage debt," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 5-20 Bank for International Settlements.
  5. Chris Stewart & Benn Robertson & Alexandra Heath, 2013. "Trends in the Funding and Lending Behaviour of Australian Banks," RBA Research Discussion Papers rdp2013-15, Reserve Bank of Australia.
  6. Ellis Connolly & Marion Kohler, 2004. "The Impact of Superannuation on Household Saving," RBA Research Discussion Papers rdp2004-01, Reserve Bank of Australia.
  7. Laura Berger-Thomson & Luci Ellis, 2004. "Housing Construction Cycles and Interest Rates," RBA Research Discussion Papers rdp2004-08, Reserve Bank of Australia.
  8. repec:asg:wpaper:1011 is not listed on IDEAS
  9. Luci Ellis, 2006. "Housing and Housing Finance: The View from Australia and Beyond," RBA Research Discussion Papers rdp2006-12, Reserve Bank of Australia.
  10. Dan Andrews, 2010. "Real House Prices in OECD Countries: The Role of Demand Shocks and Structural and Policy Factors," OECD Economics Department Working Papers 831, OECD Publishing.
  11. Daniel ARRIBAS-BEL & Fernando SANZ GRACIA & Domingo P. XIMENEZ-DE-EMBUN, 2012. "Kangaroos, Cities And Space: A First Approach To The Australian Urban System," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 36, pages 165-187.
  12. Shengzu Wang & Patrizia Tumbarello, 2010. "What Drives House Prices in Australia? A+L4584 Cross-Country Approach," IMF Working Papers 10/291, International Monetary Fund.
  13. Marion Kohler & Kylie Smith, 2005. "Housing and the Household Wealth Portfolio: The Role of Location," RBA Research Discussion Papers rdp2005-10, Reserve Bank of Australia.

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