Students drive up cost of inner-city living: RBA

by Julia Corderoy29 Oct 2014
The increase in university students are driving up the cost of inner-city living, however affordability is not “unusually high” at present, according to the head of the financial stability department at the Reserve Bank of Australia. 

Dr Luci Ellis, speaking to the Australian Housing and Urban Research Institute (AHURI) Panel Roundtable in Sydney said Australia’s strong population growth is behind the supply of housing not meeting the demand. 

“We’ve got very strong population growth. Population growth matters for the amount of housing supply you need. It’s not just the level, it’s the growth rate,” she said.

However, it is the composition of population growth which is important to note, Ellis suggested.

“But the composition of that population and its location matters enormously. There is an assumption here that we need more housing to accommodate the people that are arriving, but it’s little appreciated just how concentrated that population growth has become in students and former students,” she said.  

“Anyone in an Australian university could not fail to have noticed that there are a lot of foreign students. Its coal, iron ore and university education which is more or less the ordering of exports by volume in this country.”

Ellis said the number of foreign university students has picked up rapidly over the past two years – both in the flow of new students and recent graduates deciding to stay. As a result, the premium to live closer to the city has also risen rapidly. 

“Where do students want to live? And where are recent graduates likely to live? It’s not big family homes on the fringe, it’s apartments in the inner areas near the universities. It’s so important to understand that.”

But Ellis was quick to point out that Australia is in no way close to a housing bubble. 

“Australia is not one of the boomier places over the last ten years. Prices have risen faster than consumer prices, but they have not risen materially faster than household incomes in Australia,” she said.

“Mortgage repayments are lower than the average of the past 10 or 15 years, so again thinking about what it means to have affordability and unaffordability – the affordability of a current mortgage is not unusually high at present.”