AUSTRALIA'S recent house price boom is unlikely to have created real long-term wealth for the economy, a report shows.
Falling interest rates accounted for much of the house price appreciation in Sydney and other capital cities that began in the late 1990s and moved into top gear around the turn of the century.
Lower interest rates allowed borrowers to take on larger amounts of debt than would have been possible under a higher interest rate scenario.
In trying to contain the fallout from last week's interest rate rise, the Government continues to repeat the mantra that rates are well below the 17 per cent achieved under the Labor government.
However, we believe the effect on the household sector may not be much different now than in the early 1990s.
Debt was a fixed amount that needed to be serviced and repaid.
In tough times, property owners are less likely to sell and repay the debt because of the lack of a housing substitute.
Housing was a basic need and property owners would cut back on discretionary spending before sacrificing housing repayments.
The point of all this is that a housing boom in itself does not create real long-term wealth for the economy.
While certainly many people have done well from the boom, there are just as many others who are now looking at taking on massive debt to satisfy a basic need.
Failing that, many would continue to rent and lack the security of home ownership.
A housing boom only generates lasting wealth when deserved - that is, when population growth and rising average incomes push prices up.