Australia’s Property Market (and the recent correction starting in 2017)

This report discusses the property market in Australia, its oligopoly structure, issues of continuously increasing prices and negative gearing, and their impacts on the industry and economy. It also covers the corrective measures taken by the Australian government.

Australia’s Property Market
(and the recent correction
starting in 2017)
NAME OF THE STUDENT:
NAME OF THE UNIVERSITY:

Introduction
 Property market in Australia is one of the major industries
 It is characterized by rapidly rising prices, which created
inflation and a housing bubble in the Australian economy
 Lack of adequate land to increase housing supply, lower
wage growth, negative gearing, tax concessions and
incentives for the investors are major reasons for increase in
hike in prices in this industry (Wood 2019)
 The industry and market structure of real estate has been
discussed in this report

Industry background
 The industry is non-uniform with high variation in prices between cities and regional
areas
 Positive growth in Australian economy resulted in wage growth, high employment and
inflation rates and demand for properties increased.
 Level of immigration in Australia is very high due to inflow of international students and
skilled workers and that increased the demand for housing, especially rental houses
 Limited supply of land restricted the supply of housing creating excess demand in the
market
 Unrestricted foreign investment and Negative gearing have also contributed in soaring
price
 Capital cities, Sydney, Melbourne, Brisbane and their suburban areas have witnessed
maximum rise in prices (Phillips and Joseph 2017).
 2017 onwards, the housing prices fell sharply and saw the biggest fall in 40 years (Scutt

Trend in Prices in Property Market
(Source: Verrender 2018)

Market structure
 Property market of Australia follows oligopoly
structure
 Few large firms dominate the total market
 The firms are price maker
 Number of buyers are large and global
 The large firms act like a group and engage in high
level of non-price competition
 Products and services are not identical but close
substitutes

Industry’s associated issue
 Two major issues of property market are:
 Continuously increasing prices for property and housing
 Negative gearing
 Housing bubble was created due to extreme high prices originating from:
 lack of adequate supply of housing units for purchase and rentals,
 lack of credit affordability,
 increasing immigration (Wang et al. 2018)
 Negative gearing allows investors to reduce their tax bill if they earn less rent
than their amount of investment in the properties
 It helps wealthy investors but reduces housing affordability for the common
people (Blunden 2016)

Impacts of the issue on the
industry and on the Australia
economy
 Sky high housing prices discourages first time homebuyers
 Extremely high housing rental prices in the capital cities hits the pocket hard for the students
and workers from other countries
 Increased foreign investment in Australian property market also pushed the prices (Wang et
al. 2018).
 Negative gearing encourages risky investment
 It reduces housing supply and affordability to individuals with moderate income
 Negative gearing also increases investment in the property market and encourages more
construction, however, it creates more wealth for the richer (Cho, Li and Uren 2017)
 Around 1.3million Australians are owners of at least one negatively geared investment
property and among them, almost half of them earn less than $80,000 (Thompson and
McDonald 2018)


Government policy
Corrective measures taken by the Australian
government are:
 Lowering interest rates
 Increasing credit affordability
 Limiting foreign investments
 Controlling negative gearing
 Reducing corporate tax rates (Janda 2018)

Conclusion
 Housing bubble in the property market has been
increasing the housing crisis for the citizens and also
for the migrated students and workers
 The most controversial issue of negative gearing will
be restricted to increase housing affordability to the
first time homebuyers and control the unfair tax
reductions

References
 Blunden, H., 2016. Discourses around negative gearing of investment properties in
Australia. Housing Studies, 31(3), pp.340-357.
 Cho, Y., Li, S.M. and Uren, L., 2017, November. Negative Gearing and Welfare: A Quantitative
Study for the Australian Housing Market. Reserve Bank of Australia Quantitative
Macroeconomics Research Workshop (13-15 December 2017), https://www. rba. gov.
au/publications/workshops/research/2017/pdf/rbaworkshop-2017-simon-cho-may-li. pdf.
 Clarke, C., 2019. Labor's negative gearing changes will force property prices down and rent up,
study says. [online] ABC News. Available at: https://www.abc.net.au/news/2019-03-21/property-
prices-to-fall-under-labor-proposed-plans-study-says/10924650 [Accessed 12 Sep. 2019].
 Janda, M., 2018. House prices in sharpest drop since GFC and 'will continue to trend lower'.
[online] ABC News. Available at: https://www.abc.net.au/news/2018-12-03/home-prices-record-
fastest-falls-since-gfc/10576452 [Accessed 12 Sep. 2019].
 Phillips, B., and Joseph, C., 2017. Regional housing supply and demand in Australia. Centre for
Social Research & Methods. Canberra: Australian National University.

References (continued)
 Scutt, D., 2019. Australia's house price downturn is now the largest on record. [online]
Business Insider Australia. Available at: https://www.businessinsider.com.au/australia-house-
price-falls-record-downturn-2019-6 [Accessed 12 Sep. 2019].
 Verrender, I., 2018. House price falls could turn out to be good, bad or downright ugly.
[online] ABC News. Available at: https://www.abc.net.au/news/2018-10-08/australian-housing-
market-good-bad-and-ugly/10348856 [Accessed 12 Sep. 2019].
 Wang, J., Koblyakova, A., Tiwari, P. and Croucher, J.S., 2018. Is the Australian housing market
in a bubble?. International Journal of Housing Markets and Analysis.
 Wood, D., 2019. Negative gearing changes will affect us all, mostly for the better. [online] The
Sydney Morning Herald. Available at: https://www.smh.com.au/politics/federal/negative-
gearing-changes-will-affect-us-all-mostly-for-the-better-20190208-p50wjn.html [Accessed 12
Sep. 2019].

Thank you!