Young Australian families frozen out of housing market

High prices are already freezing young Australian families out of the nation’s housing – and their plight is likely to become even worse next week.

That’s because the Reserve Bank is likely to increase interest rates, when its board meets next Tuesday to review the nation’s economy.

The bank’s deputy governor, Ric Battellino, spoke about the under 35s, when he addressed a housing industry conference in Melbourne yesterday.

He said there had been “a noticeable decline” in home ownership levels, in this age group over the past ten to fifteen years.

The  bank has admitted, many times, that it is worried by house price inflation, particularly in Australia’s capital cities.

And it has made no secret of the fact that house prices are one factor – among many – that it considers when its board meets to review rates.

Mr Battellino admitted that the bank is not yet sure why young Australian families are staying out of the nation’s housing market, in increasing numbers.

“It may be that this is being driven by demographic factors,” he said.

Young people, now, are staying in education longer.

And that could be delaying family formation.

“But it may also be financially driven,” Mr Battellino added.

Few economists would be surprised if the Reserve Bank, once again, increases its target interest rate by another 25 basis points next Tuesday, for the third successive month.

And an even bigger rise -  of perhaps 50 basis point – is also possible.

Mr Battellino also told his audience that bank margins – or profits – on housing loans had mostly narrowed, in the wake of the global economic crisis.

“To the extent that there has  been a widening in banks’ margins, it has been on their business lending,” he added.