Business School Topics
Australia’s housing affordability crisis has been likened to the board game Monopoly, with a researcher from The University of Western Australia demonstrating striking comparisons between current trends in house prices and disposable income with the game’s probable outcomes.
Professor Dirk Baur from UWA’s Business School completed the study using a simple model based on the classic board game to simulate the drivers of house prices and inequality.
He compared simulation results with house prices and disposable incomes of eight countries and found numerous parallels.
“Consistent with the board game, starting capital, income per round (wage), rental income, rental costs and the timing of home ownership all play a role in the evolution of house prices and affordability,” Professor Baur said.
“However, the simulations show inequality is a frequent phenomenon in most settings.”
The game encourages players to purchase property and players who are unable to do so from the start (or who come in at a later stage) are unlikely to overcome their economic disadvantage, echoing real-life circumstances.
Professor Baur said that while inequality, or rising inequality, was not only an Australian issue, there were conflicting views on its causes and remedies.
“It is difficult to say whether the causes are natural due to the fact that the supply of land is fixed as the government regulates the release of land or the result of economic and monetary policy such as low interest rates,” Professor Baur said.
“Low interest rates put players with minimal savings at a disadvantage since they cannot grow their deposits to be eligible for a mortgage. In contrast, players with high savings (or debt) are not disadvantaged as they often invest in higher yielding assets.”
Professor Baur said the model suggested that restricting house price growth was the key to improving equality.
“A new start to the game can eliminate any inequality but it’s not a feasible scenario in real life,” he said.
“Tax policies that ensure an equal wealth distribution across generations may be the closest analogy to a game restart.”