service housing loans. second, the level of gearing in the united states housing market is noticeably higher than in australia. this may reflect the fact that australian households are more active in paying down their loans after buying a home, possibly because owner - occupied mortgage interest rates are not tax deductible here as they are in the united states. the faster pay - down of mortgage debt in australia reduces the risk of borrowers subsequently getting into financial difficulty. overall, the experience of the last few years suggests that the australian household sector as a whole appears to have the financial capacity to sustain a relatively high ratio of housing prices to income. that capacity may not, however, be evenly distributed through the population. many 50 – 60 year olds, having benefited from the prolonged economic expansion over almost 20 years and the accumulation of superannuation savings, are in a strong financial position. this has encouraged a change in financial behaviour, with many households in this group being more inclined to stay geared up later in life, using the funds to upgrade or expand dwelling investments. it is likely that this changed behaviour has been a significant factor in the housing developments we have seen over the past 10 – 15 years. in contrast, the typical first - home owner cohort – those under 35 years of age – has experienced a noticeable decline in home ownership over the past 10 – 15 years ( graph 9 ). it may be that this is being driven by demographic factors – such as the fact that young people are staying in education longer and delaying the formation of new households – but it may also be financially driven. graph 9 home ownership rates in australia % % total under 35 years source : abs survey of income and housing ( sih ) a particular problem for first - home owners is that the rise in the ratio of house prices to income has substantially increased the deposit needed to get into the market. on plausible assumptions, the deposit needed by first - home owners may now be around one and a quarter years ’ income, almost twice what it was 15 years ago. at one stage, lenders were responding to this by lowering the deposit requirement, but this carried the risk of buyers subsequently getting into difficulty. also, various governments have sought to provide concessions to first - home owners through grants or tax relief. however, while these measures assist the first wave of buyers who are able to take advantage of them, the benefits diminish over time to the extent that these concessions become capitalised into higher house prices. conclusion i am conscious

philip lowe : low inflation in a world of monetary stimulus speech by mr philip lowe, deputy governor of the reserve bank of australia, to the goldman sachs annual global macro economic conference, sydney, 5 march 2015. * * * i would like to thank marion kohler for excellent assistance in the preparation of these remarks. accompanying charts can be found at the end of the speech. i would like to thank goldman sachs for the invitation to speak today. it is a pleasure to be here and be part of your annual macro economic conference. it is perhaps stating the obvious to say that an important part of the macroeconomic environment is monetary policy. the actions of central banks have material effects on financial markets and can shape macroeconomic outcomes. indeed, over recent decades it became widely accepted that monetary policy was the primary macroeconomic stabilisation tool and that monetary policy could effectively manage the business cycle. from today ’ s perspective, the picture looks a little different. in many ways, the current global monetary environment is quite extraordinary. there has been unprecedented money creation by the world ’ s major central banks. policy interest rates are negative across much of europe. long - term government bonds yields in most advanced economies are the lowest in recorded history. lending rates for many private sector borrowers are the lowest ever. and some banks in europe are now charging customers to accept deposits. in earlier eras, one could have predicted with some confidence that this type of monetary stimulus would have created a boom in economic activity and subsequently a substantial lift in inflation. yet, today, many parts of the world continue to operate with considerable spare capacity, inflation rates are low almost everywhere and inflation expectations have generally declined, not increased. so this afternoon, i would like to talk a little about these very unusual times. i will begin by showing a few graphs that summarise the current global monetary environment. i would then like to explore some of the possible reasons why we are in this environment before addressing some of the implications of all this for australia. the current global monetary environment so first, to the facts. since the global financial crisis, we have seen an extraordinary increase in the size of central bank balance sheets. this first graph shows the size of the combined balance sheet of the us federal reserve, the bank of japan and the european central bank ( graph 1 ). this combined balance sheet has increased from the equivalent of us $ 3½ trillion in early 2007 to almost us $ 10 trillion today, and a further substantial rise is in prospect.