Are rising house prices good for the economy?

While rising house prices may be good for existing home owners, new AHURI research finds it has implications for a government agenda to increase growth in Australia’s economic productivity.

Rising house prices both challenge those wanting to buy their first home in an area close enough to employment opportunities and impact on government aims to encourage workers to remain in the labour force for longer periods—especially women. Indeed, the 2015 Intergenerational Report states that ‘to drive higher levels of prosperity through economic growth, we must increase productivity and participation. If we are to achieve these goals we need to encourage those currently not in the workforce, especially older Australians and women, to enter, re-enter and stay in work, where they choose to do so.’

For partnered women aged 55 and over who are home owners, a 10 per cent increase in house prices is associated with a 0.29 percentage point decline in labour force participation.

AHURI research shows that as house prices rise, older women have a greater likelihood of reducing their participation in the labour force (although not for men).

For partnered women aged 55 and over who are home owners, a 10 per cent increase in house prices is associated with a 0.29 percentage point decline in labour force participation.

The impact of rising house prices is even greater for single women home owners aged 55 and over. For these women, a 10 per cent increase in house prices is associated with a 0.54 percentage point decline in labour force participation.

The increased impact of rising home prices on older single women is consistent with the observation that housing wealth forms a larger share of their assets compared to partnered women home owners. As a result, the wealth effect of the house price growth is stronger for older single women and the resulting labour supply response is consequently greater.