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Housing and the Household Wealth Portfolio: The Role of Location

Author

Listed:
  • Marion Kohler

    (Reserve Bank of Australia)

  • Kylie Smith

    (Reserve Bank of Australia)

Abstract

There is little doubt that cities can provide many benefits, such as greater employment and business opportunities, which tend to result in higher income and wealth for urban households. In addition, there may be a number of non-pecuniary benefits, including greater access to education, infrastructure and services. But these benefits are accompanied by an urban premium on house prices, thus possibly affecting the composition of the asset portfolios of households living in different locations. Using a recent cross-section of wealth data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey we test whether urbanisation, when controlling for other factors, has a significant effect on the share of assets that households hold in housing. For owner-occupiers, the effect is found to be significant and positive, suggesting that housing is more expensive in larger cities even once we allow for the higher incomes and asset holdings of these households. In fact, the effect is quite large with a 100 person per square kilometre increase in urbanisation increasing the share of assets held in the home by 0.4 percentage points, on average. Further, we find that this effect is not linear but declines at higher levels of urbanisation. Hence, for example, for an average owner-occupier household moving from Cairns to Brisbane city – an increase in urbanisation of around 2 000 persons per square kilometre – the increase in their housing share of total assets is estimated to be 5.6 percentage points.

Suggested Citation

  • 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.
  • Handle: RePEc:rba:rbardp:rdp2005-10
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    File URL: http://www.rba.gov.au/publications/rdp/2005/pdf/rdp2005-10.pdf
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    References listed on IDEAS

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    1. King, Mervyn A. & Leape, Jonathan I., 1998. "Wealth and portfolio composition: Theory and evidence," Journal of Public Economics, Elsevier, pages 155-193.
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    3. Marion Kohler & Anthony Rossiter, 2005. "Property Owners in Australia: A Snapshot," RBA Research Discussion Papers rdp2005-03, Reserve Bank of Australia.
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    6. Luci Ellis & Dan Andrews, 2001. "City Sizes, Housing Costs, and Wealth," RBA Research Discussion Papers rdp2001-08, Reserve Bank of Australia.
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    Cited by:

    1. Leung, Charles Ka Yui & Teo, Wing Leong, 2011. "Should the optimal portfolio be region-specific? A multi-region model with monetary policy and asset price co-movements," Regional Science and Urban Economics, Elsevier, vol. 41(3), pages 293-304, May.
    2. Windsor, Callan & La Cava, Gianni & Hansen, James, 2015. "Home price beliefs: Evidence from Australia," Journal of Housing Economics, Elsevier, vol. 29(C), pages 41-58.
    3. Luci Ellis, 2006. "Housing and Housing Finance: The View from Australia and Beyond," RBA Research Discussion Papers rdp2006-12, Reserve Bank of Australia.
    4. Finlay Richard & Price Fiona, 2015. "Household saving in Australia," The B.E. Journal of Macroeconomics, De Gruyter, pages 677-704.

    More about this item

    Keywords

    HILDA; owner-occupiers; household survey; households; wealth shares;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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