, almost all the increase has come from the higher value of the land upon which our dwellings are built in the towns and cities across australia ( graph 7 ). so, how do we explain this increase in the value of our residential land over recent decades? there are two main structural factors. while the physical land area of australia has not changed, the abs volume estimates for land have increased over time, reflecting improvements in land quality. the abs assumes that the volume of urban land increases at half the rate of growth in the volume of overlying non - dwelling construction and one - third the rate of growth in the volume of overlying dwelling construction. there is no change in rural land volume over time, with rezoning of rural land to urban use assumed to be offset by rural land improvements. currently, rural land accounts for just 6 per cent of the value of land in australia. in contrast, scott estimates that in 1930 rural land accounted for 57 per cent of the total value of private land on an unimproved basis and 43 per cent on an improved basis. bis central bankers ’ speeches the first is the combination of financial liberalisation and low inflation. in the 1970s and 1980s, regulation of the financial system and high inflation served to hold down land prices artificially. they did this by limiting the amount that people could borrow. when the financial system was liberalised and low inflation became the norm, people ’ s borrowing capacity increased. many australians took advantage of this and borrowed more in an effort to buy a better property than they previously could have done. but, of course, collectively we can ’ t all move to better properties. and so the main effect of increased borrowing capacity was to push up housing prices, and that means land prices. the second factor is the combination of strong population growth and the structural difficulties of increasing the effective supply of residential land. since 1989, the australian population has increased by more than 40 per cent, or around 7 million people, one of the fastest rates of increase among the advanced economies. the difficulties of responding to this on the supply side of the housing market have been well documented. 9 they include the challenges of developing land on the urban fringe and of rezoning land close to city centres for urban infill. they also include, in some areas, underinvestment in transportation infrastructure. this underinvestment has effectively constrained the growth in the supply of “ well - located ” land at a time when demand for this type of land

does change. this means that financial transactions with the rest of the world are included in the national balance sheet. so, to the data. there are four broad observations to which i would like to draw your attention. the first is that according to the abs ’ latest estimates, the total value of australia ’ s assets as at end june 2014 was around $ 12½ trillion, or around $ 500, 000 for each person living in australia. after an adjustment is made for net foreign liabilities, the net asset position, or net wealth, was around $ 10 trillion, which is the equivalent to around six times australia ’ s annual gdp. the second observation is that, over recent decades, net wealth has increased at a faster rate than has gdp ( graph 1 ). between 1989 and 2014, the nominal value of net wealth increased at an average pace of around 7 per cent per year, compared with an average increase in nominal gdp of around 6 per cent. while net wealth grew more slowly than gdp in the first half of the 1990s, for most of the time since it has grown more quickly than gdp. the third observation relates to the composition of our national assets ( graph 2 ). land is the asset class with the highest value. as at june 2014, it accounted for 34 per cent of the value of our national assets. this is followed by non - dwelling construction – offices, factories, infrastructure, etc. – which accounts for a further 18 per cent of total assets. and then overseas financial assets and the value of our dwellings each account for a little under 15 per cent of the national balance sheet. intellectual property assets account for only around 2 per cent of the total. the final and perhaps most interesting set of observations relate to how the structure of the balance sheet has changed through time. one very clear trend has been a substantial increase in the value of our foreign financial assets and liabilities ; both have increased much faster than net wealth ( graph 3 ). in effect, as we have become more globally integrated as a nation, there has been a grossing - up of our balance sheet with the rest of the world. australians now hold many more overseas assets than they once did. and, conversely, overseas residents now hold many more australian assets than they once did. in net terms, australia still has a net liability position with the rest of the world, having been a drawer on overseas savings for more than 200 years. interestingly though, while our net liability position, relative to our national