Australia’s housing market is worth an estimated $7.5 trillion last month. The RBA suggests that the value of the housing market account for 52.6 per cent of household wealth. ABS figures show that in 2017/18 the portion of Australians that own their home with or without a mortgage was 66 percent.
With over half of Australia’s wealth tied up in property, and two thirds of Australians who own property, what would happen if property values went down?
Essentially, people feel poorer as the value of their property decreases. On the flip side if property values increase, people feel wealthier. If people feel wealthier they would spend more. If people spend more, businesses increase profits, businesses create more jobs to meet the demand. This is a behavioural economic theory known as the wealth effect.
With the strong links between property ownership and wealth creation in Australia. The obvious impacts upon a persons’ perception of wealth fluctuating with the movement of property prices.
Would government fiscal policy and central bank monetary policy support house prices if it fed back into the economy? Would they want property prices to decrease?