Residential Property Prices in Australia and Their Impacts - Essay Example

Residential Property Prices in Australia and their impacts Name Instructor Course Institution, State Executive summary This paper will investigate the residential property prices in Australia and their microeconomic impacts on households, business and government. The paper will also investigate the main reasons that have facilitated to the inflated residential property prices in the country and how business, individuals, households and the government have been impacted. Connectively, it will also investigate how these bodies have responded to the condition in the housing market. Table of Contents Executive summary 2 Introduction 3 Reasons for having housing problems in Australia 4 Effects of demand and supply 5 Effects of labour shortage to housing problems 5 Market consideration before buying a house 7 Business or consumer response to high priced housing 8 Conclusion 9 References 11 Introduction Majority of Australian citizens aspire to be homeowners. This should be an ambition that through careful running of domestic funds one should realize it. In Australia, there is an enormous problem with housing affordability where in most regions; the problem has advanced to an acute level. Fluctuations in goods prices tend to affect economies much more in real estate and property investment (Byrne 2005). Due to fluctuations in these assets, the direct effect is felt in the balance sheets of households and firms and therefore, affecting the spending and other investment decisions made. To ensure efficient decisions that remove future mistakes, a better understanding of interactions between various policies and assets price developments should be made. This paper will investigate the inflated residential property prices in Australia and the effects it has on households, government, business and buyers. The market forces of supply and demand also play a vital role in creating a problem of affordability in Australian housing sector (Chapman 2006). Reasons for having housing problems in Australia Housing affordability problems occur when a house’s returns are scarce to meet the different non-housing costs of living after paying for a home of an appropriate size, reasonable basic standard and structure of the family (Yates 2008). Due to a healthy function of demand and limited supply of housing in Australia, the affordability problem has been elevated. High demand for housing has been influenced by a significant decline in the amount of a regular household owing to a later marriage, less number of children and a relative increase in separation and divorce cases making people seek their own housing instead of living together as a married couple (Henman 2008). Housing problems has also been affected and influenced by a relatively stable population growth that is underpinned by a higher immigration rates (Saunders 2011). Effects of demand and supply From mid 1990s to early 2002, Australia has experienced a decline in standard home loan interest rates that reflect a low inflation environment. People can easily access credit facilities which are easily available from non-bank lenders and other money lending institution which makes them have money to seek more housing. This creates a high demand in the housing market. The Australian levy structure incentives have also supported investments in both second and third properties where they have benefited owners-occupiers greater than the renters using a resources gain and land income tax exclusion on owner-occupied accommodation (Reserve Bank of Australia 2002). On the other hand, the availability of housing in Australia has also been a major problem that influences housing affordability. The Australian state and major local government planning procedures are too composite and frequently entails long delays and elevated expenses. Developers also argue that the infrastructure costs are too much and have a controlled supply compared to previous state where infrastructure was remunerated for by state and local government eliminates tax and levy revenue, which was frequently and only installed behind residents, had started to stay in. Today, the structure is established while area is getting developed and also more and more being funded by particular charges on developers especially in New South Wales where the costs are higher in the country (Byrne 2005). Effects of labour shortage to housing problems There is an adverse scarcity of employment in the construction industry. This is mainly due to prevalent concerns that proficiency scarcity will adversely avoid the industry from achieving the future expectations. Housing demands when the designed investment in countrywide infrastructure ventures commences. Based on the outgrowing demand for housing, the national housing supply council in partnership with the construction industry sees the prevailing and future expertise labour requirements and propose to make 457 skilful worker’s visas more flexible and rationalized to allow them have ease of movement (Juster et al.. 2005). Alternatively, housing supply must be well positioned and well examined with public transport, supporting jobs and social and society infrastructure with the aim of improving housing affordability. Such a move will help build cheap residences on the suburbs far from most employment services and other public transport associates. However, the plan must be to build better and reasonable housing in regions where the infrastructure can offer and draw new inhabitants that will feel comfortable in the area through provision of long term changes and a sustainable environment (Chapman 2006). Private housing and finance markets have revealed that there is a propensity to under-supply homes at the achievable end. During the neo-liberal era, monetary deregulation restrictions on government expenditure, universal trade liberalisation and more flexible employment markets, which are linked with growing inequalities in the allocation of returns and wealth (Byrne 2005). Housing is considerably determined by the prevailing allocation of proceeds that in turn reinforces the relative capacity of households to accumulate further wealth. The resulting factors have been the growing prosperity inequalities in homes and all other resources with exception of the superannuation investments (Henman 2008). The housing predicament ought not to be perceived as a single hitch but rather a series of interconnected setbacks that influence both rental and residence ownership markets. Such problems are the demographic changes that include ageing; such problems lead to an increase in the amount of small households with little incomes. Due to the dynamic change in home preferences that are shaped by choice and constraints factors, there is a high likelihood of placing demand stress on the personal rental sector. Connectively, there is a prominent house price increase, which is influenced by plateau effects mainly due to ostensible interest rates, assistance to residence purchasers and firm investment activities (Juster et al. 2005). Market consideration before buying a house During the purchase time, the quality of the household, have a tendency to be a lasting within the effective budget. A decreasing impact on house prices is in the periphery locations where transport consists of a big potion of the budget. The prevailing needs for family to increase saving rate and pay down arrears seems like capping bid prices for residence houses. Owing to the reserve bank’s tightening of its interest rates throughout 2010, an enlarged government fee and charges, elevated taxes and universal inflation in the household goods were also said to lower household residuals accessible for all residents purchase (Hills et al. 2006). Another significant condition of property markets is identified as the heterogeneity of both stock and also the flow of properties and the residential prices. Housing spaces occasionally cover up significant integral exchange of possibilities; expected housing needs that are premeditated by developers or planners may not emerge (Juster et al. 2005). Parents also can stay with their children and then generate a multi-generational household. The aged in the family can downplay their housing needs thereby liberating room for younger household members while they create new lifestyles and the ways to benefit from them (Reserve Bank of Australia 2002). Economists recognize that costs greater than the cost-plus standard proceeds formulation are extreme and also point out a sub-optional market (Yates 2008). The oligopolistic and monopolistic markets classically allow producers to impose charges on higher consumer costs and then receive supernormal profits. Housing markets are inevitably cyclical since, in the short run, the economic supply remains inelastic or complex to rise up (Bradshaw et al. 2008). House costs will then rise as more demand is out until adequate fresh supply can come onto the market. Prices and new constructions will then fall back to previous levels. However, any rise in population, for example 1% increase, would double the demand for fresh housing. Supply blockages will make the price go up. In housing bubbles, one should be able to establish whether the increasing prices are as a consequence of economic essentials or other related rational factors (Saiz 2008). Business or consumer response to high priced housing Australia has the most high-priced housing in the world; this implies that Australians have to work almost three times harder than they did 50 years ago to pay off an average home (Yates 2008). Owing to the eight-hour day and a five-day working week, which is approximately about ten years of work, it takes much longer for a person to own a home since the wages must pay for all living costs in addition to housing. In the recent past, research has been carried out to establish the most appropriate way of dealing with the ever-increasing housing prices in Australia. The budget standard does not measure what a household actually can achieve but rather defines what is possible with a given income level, therefore, representing a shift towards measurement of outcomes (Saunders 2011). In every household, there is a variety of inputs that provide services to the occupiers. People tend to look for alternative sources of such inputs to reduce the cost involved. Solar power helps to cut down electricity cost. Another method used by individuals and businesses is the deprivation standards. In this way, a business creates a list of generally supposed needs that are acknowledged by professionals through community input and discovering households that do not have such requirements due to lack or low income. Based on the fact that increase in housing prices does not match increase in income, one needs to have alternative measures of accessing more income and therefore, manage their living standard (Abelson 2009). Mortgage facilities are also used to help individuals and businesses to purchase their own homes and housing. People prefer to buy their homes since rental fee is high which makes it uneconomical considering that there are other expenses to cater for. To cut down expenses that come along with housing such as transport, people tend to buy or rent houses that are near to their work places. This venture helps in eliminating enormous cost that is involved in transport to and from the workplace therefore, saving more from their income. Individuals should ensure that they seek alternative sources of income. Having an affordable house, while in turn securing a given standard of housing that does not oblige an irrational weight on the income is perceived as an appropriate step towards buying a suitable home (Aunders 2011). After the government reduced mortgage rate to seven percent between 2001 to 2006, purchasers especially first time buyers crowded the housing market (Bradshaw et al. 2008). The increased demand for housing and limited supply led to increase in house prices. Larger mortgages with longer repayment periods were thus reducing personal income for a longer period. This implied that the living standards for such people were lowered as their income was cut down (Yang & Shen 2008). Nevertheless, individuals and business are still struggling with the aim of trying to have their own homes. The government, on the other hand, is also considering other strategies that will help to cut down housing prices and making them affordable to every Australian while maintaining housing quality (Yates 2008). Conclusion The extent of financial liberalization and the elasticity of residential supply across the state over the period have intensified the housing problem in many countries. It is apparent that countries with flexible home supply are more constant in the face of significant change in housing demand. Housing in Australia continues to be less reasonable in latest years, and the amount of residence experiencing credit pressure has also been on the rise. The Australian planning framework should establish a target for attainable home, therefore, controlling the prices of housing in the country. Such targets must be effectively incorporated within state and local government planning and housing plan (Bradshaw et al. 2008). References Abelson, P 2009 ‘Affordable housing: concepts and policies’ Economic Record, 28(1): 27-38. Bradshaw, J., Chzhen, Y, & Stephens, M 2008, ‘Housing; the saving grace in the British welfare state?’ The future of social housing, Shelter, London, pp.7–25. Byrne, D 2005, Social Exclusion, Open University Press, Maidenhead. Chapman, P 2006, Housing affordability in Australia, AHURI Research and Policy Bulletin, Issue 68, Melbourne Henman, P 2008, ‘Equivalent Salaries in Five Australian Capital Cities’ Australian Journal of Social Issues, 43(4): 615–630 Hills, J., Le Grand, J. & Piachaud, D 2006, Understanding Social Exclusion, Oxford University Press, Oxford. Juster, F.T., Lupton, J.P., Smith, J.P., & Stafford, F 2005, The decline in household saving and the wealth effect, Review of Economics and Statistics 87 (4), 20–27. Muellbauer, J., &Williams, D 2010, the elephant in the room: The impact of credit conditions on Australian house prices, mortgage lending, equity withdrawal and Consumption, mimeo, Oxford University. Reserve Bank of Australia, 2002, ‘Recent developments in housing: prices, finance and investor attitudes’, Reserve Bank Bulletin, July, pp 1–6. Saiz, A 2008, on local housing supply elasticity, Wharton School, University of Pennsylvania, mimeo. Saunders, P 2011, Down and out: Poverty and exclusion in Australia, Policy Press, Bristol. Yang, Z., & Shen, Y 2008, ‘The affordability of owner-occupied housing in Beijing’ Journal of and the Built Environment, 23: 317–335. Yates, J 2008, Australia’s housing affordability crisis, The Australian Economic Review, 41(2): 200–214. Read More