The Effects of Falling Australian House Prices on the Australian Economy

This article discusses the effects of falling house prices in Australia on the economy. It explores the reasons behind the decline and why economists should be concerned. The article also provides potential solutions to address the issue.

Running head: ASSESSMENT TASK 2 ASSIGNMENT 1
ASSESSMENT TASK 2 ASSIGNMENT
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ASSESSMENT TASK 2: ASSIGNMENT 2
“The effects of falling Australian house prices on Australian economy, discuss how decline in
house prices happened in Australia and explain why economists should concern about it.”
Introduction
Australian housing and home pricing is a good case of study and it has been focused by
many urban planners over the previous years. The major Australian cities Sydney and Melbourne
are the main focus due tothe drastic fall of the prices by a larger percentage. The other cities in
this category include Canberra, Darwin, Perth, and Brisbane. It is evident that the economy of
Australia is highly impacted by this hence immediate actions need to be taken and better plans
put in place. The rise of concern about the home pricing to the economists is literally because a
few discussed factors like the investment policiesand the marketing strategy among others about
the occupancy of the homes and the procedures lied to collect taxes as discussed.
Falling House Prices Effects on Australian Economy
Falling residence pricing motivates many citizens to be in terrible fairness. This is the
scenario whereby own property has well more value than a high-quality home loan. When there's
a fall in residence expenses, there has a tendency of bad economic downfall and terrible loss of
monetary value.
After residents observe the falling in residence fees, the important wealth form reduces
hence reduction of self-belief on expenditure. The decline in residence costs also has a reverse
effect on the building of the latest households.

ASSESSMENT TASK 2: ASSIGNMENT 3
The price growth curve showing percentage of the house fall in Australia monthly and yearly.
How it happened
During the year 2011, Australian belongings valued at $133.1 billion fell one quarter that
is the December quarter whereby the urban house cost declined at a rate of 2.4 percent across the
nation (Malouf, 2011). It is evident from the Statistics Bureau that Sydney followed by
Melbourne are leadingdrops with 3.7 percent and2.4 percent respectively(Nguyen & Wang,
2019). There has been a smaller quarterly decline in Brisbane, Perth, Darwin, and Canberra.
Adelaide followed by Hobart have been the handiest capital cities in which costs rose inside the
final 3 months of the previous year(Guest & Swift, 2010).

ASSESSMENT TASK 2: ASSIGNMENT 4
An example of house falls in Sidney which is a capital in Australia since 2011
Reasons Behind the Decline
Export boom economy: When the sector financial system was suffering from the Great
Recession, the Australian economic system was growing at a fast pace. The financial system in
China changed into exploiting raw material such as coal and iron ore from Australia in huge
amounts(Martin, R. 2011). Afterward, after China began building their own economy without
reliance on Australia the downfall began.
Interest-only loans everywhere: Currently, 40% of Australian mortgages are based on
interest-only agreement (Whitehead & Yates, 2010). Interest-best will is the limited credit
history in Australia.The equal month-to-month charge, interest-handiest loans permit investors to

ASSESSMENT TASK 2: ASSIGNMENT 5
borrow extra cash and make investments extra in actual property. The investors are maximizing
their debt interest by maximizing the house price admirations.
Interest-best loans on the other hand additionally imply while domestic values fall,
homeowners won’t have as an awful lot fairness and that they will move quicker and deeper
underwater. This is due to the fact that investors are not long-term.
The buy a house as you get paid policy: During the year 2008 when the real-estate
scheming was on its rise, inside Spain, Ireland, U.S.A, and a few international nations’
authorities in Australia came in and took a decision to stop the house price from falling which
was a success (Aizenman&Jinjarak, 2014). The scheme was $7,000 for new residence buyers
which were elevated later to $14,000 for the existing residences and $21,000 for brand new
residences.The plan was a success as the government paid all the first time home buyers $14,000
and $21,000 and in contrary, the home prices in the U.S dropped drastically in a row. Hence, the
same happened in Australia.
Chinese investors: While Australia is on restrictions about foreign buyers, it is evident for
the past few years Chinese investors have poured money in about 10% of the new homes and 5%
of the resale homes (Yates & Berry, 2011). This brings about the effect on Australian house
pricing like in Sidney whereby now the investors have stopped buying hence the drastic fall over
the past few months.
The high tax breaks on real-estate investment: Investors have learned that if an
investment home bought gets cash losses then there is the tax reduction on the taxation of the
basic earnings (Sikka& Willmott, 2010).So, if you are having an interest-most effective loan on a
condominium residence it is easy to reduce all loan bills by fakingdepreciative deduct as
enterprise costs. By this, you evade high taxation even though you are having tons of profits

ASSESSMENT TASK 2: ASSIGNMENT 6
every year.Because of the tax breaks, many more people want to put money in for investment
houses by even paying more for those houses. These elements pressure rise in expenses hence
making investors become even overzealous to buy the rental property.
Reasons why Economists should be concerned
Australia is at risk of a housing downturn. This is because the indebted mortgage holders
are likely to reduce spending once they see the value in their most valuable asset fall. They may
wait forthe housing production activity to improve in the future and hence reduce their current
spending and this may reduce returns (Hunt, 2015).
The Australian financial system slowed immensely in the 3 months to the end of
September to 0.3% increase over the preceding quarter, which becomes 1/2 the fee forecast via
economists. This is due to a slowdown in purchaser spending. This dragged down an annual
increase from 3.4% to 2.8% and hence economists should be concerned on how to rectify the
declining house prices to save the financial system.
Supply of dwellings has no longer kept tempo with population-pushed demand. Average
city’s vacancy rates are at or underneath their long-term averages, drastically in Sydney.
Debt serviceability stays exceedingly robust, with APRA’s rule tightening about to a drop in
interest-only effective lending, and loan stress seems to be low, for now (Cassells, R., Duncan,
Kelly & Ong, 2015).
The royal commission is “more material” than UBS economists expected, with regulators
possibly to respond with a tightening of responsible lending laws – a move that might purpose
mortgage finance to turn out to be harder to comfortable.

ASSESSMENT TASK 2: ASSIGNMENT 7
Mortgage borrowing limits ought to fall through 35 percent on this state of affairs, as
higher residing costs end up absolutely factored into loan calculations.The banks have already
moved to undertake more due diligence on borrowers’ dwelling expenses. However, the Royal
Commission shows this will need to head extensively further.
Conclusion
The decline in house prices has highly impacted the Australian economy negatively and
hence various measures should be adopted to counter the decline.New loans with dire regulations
and guidelines should be brought by to help out the house prices.Home responsibility call should
be progressed in many international nations, hence much handling care of the investment
policies.Residence facility management via well-laid guidelines with good fit workers to aid in
labor marketing to elevate the recent downfall should also be adopted. In a nutshell, the decline
in house prices should be intervened to foster Australian economic growth.

ASSESSMENT TASK 2: ASSIGNMENT 8
References
Aizenman, J., &Jinjarak, Y. (2014). Real estate valuation, current account and credit growth
patterns, before and after the 2008–9 crisis. Journal of International Money and
Finance, 48, 249-270.
Cassells, R., Duncan, A., Kelly, S., & Ong, R. (2015). Beyond our means? Household savings
and debt in Australia.
Guest, R., & Swift, R. (2010). Population ageing and house prices in Australia. Australian
Economic Review, 43(3), 240-253.
Hunt, C. (2015). Economic implications of high and rising household indebtedness. Reserve
Bank of New Zealand Bulletin, 78(1), 1-11.
Malouf, D. (2011). Quarterly Essay 41 The Happy Life: The Search for Contentment in the
Modern World (Vol. 41). Black Inc.
Martin, R. (2011). The local geographies of the financial crisis: from the housing bubble to
economic recession and beyond. Journal of Economic Geography, 11(4), 587-618.
Nguyen, V. H., & Wang, J. (2019). The Australian Economy in 2018–2019: Convergence in
Economic Activity across Australia. Australian Economic Review, 52(1), 5-18.
Sikka, P., & Willmott, H. (2010). The dark side of transfer pricing: Its role in tax avoidance and
wealth retentiveness. Critical Perspectives on Accounting, 21(4), 342-356.
Whitehead, C., & Yates, J. (2010). Is there a role for shared equity products in twenty first
century housing? Experience in Australia and the UK. The Blackwell companion to the
economics of housing: The housing wealth of nations, 481-498.
Yates, J., & Berry, M. (2011). Housing and mortgage markets in turbulent times: is Australia
different? Housing Studies, 26(7-8), 1133-1156.