Housing Affordability Options for First Home Owner-Occupiers in Australia: A Simulation Analysis

This paper presents a simulation analysis of several policies, or policy proposals, for improving housing affordability for first home owner-occupiers in Australia: the First Home Owner Grant, housing equity partnerships and deposit loans. The focus is on the impact of these measures for housing demand, the private saving rate and house prices. The simulations apply a housing tenure choice model in which a representative adult household makes a lifetime plan concerning when to buy and sell a house, and the amount of housing and non-housing consumption over its adult lifetime. An insight from the lifecycle framework is that policies to improve housing affordability can have two effects on housing demand and house prices: a life-cycle timing effect and a liquidity effect; and it is possible that these effects will work in opposite directions on housing demand and therefore house pric