Rising Land Price in Metropolitan Cities of Australia

Running head: BUSINESS ECONOMICS
Business Economics
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BUSINESS ECONOMICS1
Table of Contents
Answer a..........................................................................................................................................2
Rising land price in metropolitan cities of Australia...................................................................2
Drivers of housing price in metropolitan cities...........................................................................3
Answer b..........................................................................................................................................4
Demand-Supply analysis of increasing land price.......................................................................4
Answer c..........................................................................................................................................6
Elasticity of land..........................................................................................................................6
References........................................................................................................................................9

BUSINESS ECONOMICS2
Answer a
Rising land price in metropolitan cities of Australia
The property market in Australia has experienced a dramatic turmoil in recent years. The
fluctuation in housing price is related to price movement of residential land. Land prices in
metropolitan cities of Australia have increased at a faster pace since the last decade. Soaring land
price is one of the main reasons behind housing affordability crisis in Australia.
The main factor pushing up land prices is the growing demand from farmers, investors
and builders. In Australia, the median land price raised to AUD 2278 as recorded in the last
quarter of 2017. With this land price accounted an annual rate of growth of 2.5%, highest since
the last 10 year. Land price in capital cities increased significantly in the last few years. The
price increase is associated with a decline in sales of lots overtime (Larder, Sippel and Lawrence
2015). Increasing demand for houses has pulled up the demand for lands raising land prices.
Strong population growth is another factor responsible for increasing land demand. Low interest
rate reduces the cost of investment encouraging people to invest more in property market raising
the demand for land. Two of the capital cities Melbourne and Sydney experienced largest
increase in average price of lands. Residential land was the most expensive in 2017 with median
price being $450000. The second largest expensive land market was Melbourne having a median
price of $330,000. This was followed by median land prices in Perth and Brisbane (Scutt 2019).
The figure below shows comparison of median land price in capital cities between December
2007 and December 2017.

BUSINESS ECONOMICS3
Figure 1: Median lot price in major capital cities of Australia
(Source: Scutt 2019)
Drivers of housing price in metropolitan cities
Soaring demand for houses associated with a relatively small supply of houses explains
the higher housing price in metropolitan cities in Australia. The first important factor of rising
house price is rapid growth of population in Australia especially in metropolitan cities. The
population growth in Melbourne exceeds the growth in other cities. Population growth in
metropolitan cities exceeds the rate of national average. The capital cities are more developed
relative to other parts of the country (Sisson, Rogers and Gibson 2019). These cities by providing
a higher standard of living and better job opportunities attract more people to live in capital
cities. Faster increase in population means a higher demand for houses causing housing price to
increase. It is not only domestic population that creates pressure on house price but also people
coming from other region increases pressure on housing demand. Capital cities in Australia are
regarded as most favorable areas offering a high living standard in world. Only two capital cities