Homes not costly but deposits are

The RBA pushes the cash rate down to 1.5%, lending rates reluctantly follow and house prices jump by another 7% in the last 12 months.

It’s great news for existing home owners, but not so much for those wanting to buy their first home.

As a result, according to the most recently released Hilda survey, barely half of all adults are classed as being home-owners in 2014 (51.7%) down from 57% in 2002.

Were this trend to continue in a straight line it would be a problem for the country.

Home ownership gives residents a long term interest in the country and their community. It is a store of wealth that has floated many a small business, and the greatest indicator of poverty in old age is being a renter.

It’s become trendy to blame investors and negative gearing for a lack of affordability, but our research shows affordability isn’t the issue.

House prices are rational.

Housing is subject to the laws of supply and demand, but it is also an investment. So its price is also affected by anticipated income and capital returns.

And as no one pays cash for a house, its value is determined largely by repayments.

There is an historical relationship between rent, mortgage repayments and home ownership. When rent is similar to repayments, and there is an expectation that house prices will be stable or rise, there is generally a movement of renters into ownership.

They trade the flexibility of renting for the security of tenure of home ownership and the benefits of investment returns over time, even if it costs them a little more in occupancy costs.

But even though rent and repayments in most parts of Australia are close together, renters aren’t becoming owners.