Australian households have more mortgage debt than almost any advanced economy, a new OECD report finds. It blames one key factor.

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  • A new report from the OECD examines the rate of house price growth across the world’s advanced economies.
  • It found Australia recorded the fourth-highest price growth, behind only New Zealand, Canada and Sweden.
  • The data suggests restrictive regulations are an unexamined factor behind the failure of housing supply to keep pace with demand.
  • Visit Business Insider Australia’s homepage for more stories.

Australian households are the second-most indebted in the world, according to findings from a new Organisation for Economic Co-operation and Development (OECD) that compared how expensive homes have become in advanced economies over the past 20 years.

The report, which analysed property prices from around the world, placed Australia’s astronomical house prices within the context of other advanced economies and highlighted the rise in the cost of an Australian home over the past two decades.

In the 20 years to 2020, house prices rose 120% in real terms, after discounting inflation in Australia, the report says, with only house prices in New Zealand, Canada and Sweden rising faster.

Looking specifically at factors that have contributed to the current state of the Australian property market, the report suggested that restrictive state and local government regulations are exacerbating existing price pressures.

Luiz de Mello, director of policy studies in the economics department of the OECD, told the Australian Financial Review the organisation’s findings aligned with evidence showing low interest rates had contributed to rising house prices in Australia.

However de Mello also said restrictive regulations were also a leading reason behind the fact that the supply of new housing had failed to keep pace with demand from high population growth and strong pre-pandemic immigration levels.

“Australia has high housing costs relative to incomes and house prices have increased very quickly over the last 20 years,” de Mello said, with supply slowed by regulatory measures related to city planning like land use regulations and restrictive rezoning in major cities.

He said this under examined factor should be considered in Australian government efforts to better manage housing affordability into the future.

“Greater flexibility in land use regulations and zoning such as height caps in cities, and the speed of administrative processes for construction, would make supply more responsive to the increase in demand,” he said.

The Reserve Bank of Australia, Commonwealth Productivity Commission and NSW Productivity Commission have all called out the effect of onerous planning restrictions on the supply of new housing and prices, particularly in NSW, which has been found to be twice as slow as other states.

de Mello also highlighted the propensity for Australian cities to include “green belt” zones; bushland around urban centres, along with urban sprawl as opposed to medium- and high-density homes around its cities, as factors that had pushed up prices.

“The consequence is that housing has become unaffordable in many places, especially for the less affluent social groups where the share of income to pay mortgages or rents is very high,” he said.

The report also examined household debt, with its data placing Australian households as the second-most indebted out of the 28 countries analysed.

The report revealed it takes six years longer to afford a home in Australia compared to the other nations.

Additionally it found it requires 16.4 years of disposable income for a 100-square-metre home, compared with 10.4 years for the OECD average.

Mortgage debt as a share of the economy was more than 90% in Australia, the second-highest behind Switzerland, the OECD found.

“The ratio of outstanding household mortgage claims to GDP in Australia is relatively high by international comparison,” the OECD said in its report specifically examining Australia.

“An increasing household debt burden over the past decade has coincided with a decline in market interest rates,” the report reads

“Households with high loan-to-value ratios were also more likely to defer mortgage repayments relative to their outstanding balance during the COVID-19 crisis.”