CHART OF THE DAY: My Kids Will Be At Home Until They're 30

Australians by and large like to think of themselves as part of a wide brown land but increasingly more and more of us want to live in our big coastal cities, particularly the two biggest, Sydney and Melbourne.

It’s a fact shown starkly in a comparison undertaken by the CBA’s economics team in their research piece on housing yesterday.

Luci Ellis, the Head of the RBA’s Financial Stability Department, once told me that this is the special case that keeps Australian house prices elevated – some say defying gravity – because a comparison of Australian house prices against the globe might look elevated but against the large coastal population centres of the world, Australian house prices weren’t out of line at all.

Perhaps this fact, along with the Government stimulus and Chinese bounce in 2009, is why Australia didn’t follow Britain and the US into a housing market slump.

Perhaps it’s also why rumours of a crash in Australian house prices over many years have been, well, exaggerated.

Micahel Blythe CBA Chief Economist said in a note yesterday:

Australia is one of the most highly urbanised countries in the world. Most households reside in the capital cities. About 40% of the population live in the two largest cities (Sydney and Melbourne). This share compares with about 5% in the US and 17% in the UK.

This population concentration puts upward pressure on capital city dwelling prices. So house price:income ratios should vary with urban density. And equilibrium house price:income ratios should be higher in Australia than elsewhere.

Incomes are also higher in the capitals. So valuations based on capital city prices and Australia-wide incomes will have a natural upward bias.

Affordability is difficult for new entrants in the housing market but the urban population of Australia suggests that this is not going to ease any time soon.

Good news for homeowners – not so good news for buyers.

Looks like my kids will be living at home till they are 30.

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