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Report on Australian Housing Market

   

Added on  2020-05-04

12 Pages2622 Words184 Views
AUSTRALIAN HOUSING MARKET1AUSTRALIAN HOUSING MARKETBy (Name)Name of the class (course)The Course instructor (Professor)The InstitutionThe City and State locationThe Date

AUSTRALIAN HOUSING MARKET2IntroductionThe article “Put the house price myths out of pasture” by Allan Moran on July 23rd, 2007 articulates the reasons behind high prices of houses in major Australian cities like Melbourne andSydney. According to this article, the rise in home prices is caused by supply-side factors. There exist numerous factors in state and local governments that are hindering the delivery of new dwelling units in Australia. The shortage of land resulting from government actions is one of the factors impeding the construction of additional houses. For example, in New South Wales, scarcity of land has reduced the building of new homes by 40 percent. Other supply constraints in Australian housing market include taxes by local and state governments as well as insufficient infrastructure or high land development costs. Allan Moran is confident that if these factors are addressed, then the price of homes in Australia will be normalized and help to solve the housing affordability crisis. I agree with the arguments presented in this article regarding the conditions in Australian housing industry. Economic AnalysisSupply of HomesSupply is an essential component of the market forces. Therefore, changes in supply will have an impact on the market prices. In Australian housing market, the delivery of homes has been curtailed by several factors. Foremost, land use restriction policies imposed by the government have reduced the land available for construction of dwellings[ CITATION McL16 \p 42 \l 1033 ]. The compliance costs of such plans also increase the cost of the building. The development contributions imposed on houses by the state and local governments also increase the expenditure involved in the delivery of homes in Australian housing industry. Additionally,

AUSTRALIAN HOUSING MARKET3poor and inefficient infrastructure impedes activities in the housing market. Vital infrastructures like water, drainage, roads, and sewerage are either insufficient or missing[ CITATION Rah10 \p 582\l 1033 ]. Such scenario discourages potential property developers from entering the market. In case these infrastructures are incurred by the property developers, then the cost is passed to first home buyers through higher prices. As a result, these factors have scaled back the supply of homes in Australian housing industry. Figure 1: Decline in Supply of HousesPriceNumber of homesThe drop in the provision of houses in Australian housing industry is exhibited by the change in supply curve from S2 to S1. The shift causes the number of homes supplied to reduce from Qe to Q1. Insufficient dwellings will cause the price to shoot up. On the figure one above, this scenario is illustrated by the increase in price from Pe to P1.Market EfficiencyThe functioning of the market often results in benefits to both consumers and the producers. The consumers benefit from consumer surplus whereas the producers gain from the P1PeS2DQeQ1HTS1

AUSTRALIAN HOUSING MARKET4producer surplus. Consumer surplus denotes the variation between the price the client is preparedto pay for a commodity and the actual price incurred. On the contrary, producer surplus is the marginal price of generating a product less the price received[ CITATION Rob154 \p 81 \l 1033 ]. Figure 2: Producer and Consumer SurplusPriceQuantity When there is no shortage in Australian housing market, the equilibrium takes place at point W where the equilibrium price is denoted by Pe while Qe represents the equilibrium quantity. Producer surplus is represented by the area under the equilibrium price and above the supply curve, that is, the area marked PeWN. On the other hand, consumer surplus is exhibited by the area above the equilibrium price and under the demand curve, that is, PeKW. Consumer and producer welfare in Australian housing industrySupplyDemandKPeNWQe

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