Housing Interest Rate Deregulation and the Campbell Report*
*This paper draws on research undertaken with the financial support of the Reserve Bank of Australia and the Taxation Institute of Australia. We have benefited from discussion with a number of people, but would apecially like to thank Richard Comes, Daryl Dixon. George Fane, Ian Harper, Frank Milne, Jonathan Pincus, John Stroud, Peter Swan, Tom Valentine. Cliff Walsh, and Judy Yates for their prompt and thorough comments on an earlier version, entitled ‘Interest Rate Controls and Housing Loans: A Critique of chapter 37 of the Campbell Report’. We are grateful to Katrina Ball and Anne Parsons for their fine research assistance.
Abstract
It is argued that deregulation of housing interest rates would, under plausible assumptions, substantially increase the cost of housing finance in Australia, contrary to the impression created by the Final Report of the Australian Financial System Inquiry (the Campbell Report). Characteristics of the market for owner-occupier housing finance, on both the demand and supply sides, suggest that the deregulated market rate will be approximately equal to the uncontrolled rate under regulation. The weighted average interest rate for owner-occupier housing finance at December 1981 is more than three percentage points below the uncontrolled rate. The authors conclude that while this result does not of itself constitute an argument against deregulation, it does imply that deregulation would have a substantial distributional impact.
