Property prices have grown at a record pace over the past decade. According to CoreLogic RP Data, house prices in Sydney’s inner west have risen by almost $1 million over the past 20 years.

There are a number of key drivers for this growth, but by far the biggest influence is the record low interest rate.  The Reserve Bank has kept the official cash rate under 2.5 per cent since last year. Low interest rates have been used to fuel the construction boom to pick up the slack from the mining boom, hence resulting in ridiculously high property prices.

While this is great news for property owners and investors, first home buyers are left hanging, as the amount they need to get onto the property ladder has risen significantly. But they were the price to pay in preventing the Australian economy from sinking into recession. Now, first home buyers do not stand a chance of buying the kind of home that could have been within their reach 10 years ago. On the other hand, those who have already paid off their mortgage or have lived in their homes for a decade or so have a huge capital gain to exploit.

Together with low interest rates, the relatively low dollar the government’s triple-A credit rating, reasonable jobs growth, and relatively high savings rates can help keep the Australian economy afloat for the next few years—with first home buyers serving as collateral damage.

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