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HI5003 - Demand and Supply in the Australian Property Market

Choose a topic from Microeconomics and analyze a recent news article covering that topic using economic concepts.

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Holmes Institute Sydney

   

HI5003 Economics for Business (HI5003)

   

Added on  2020-03-03

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HI5003 - This article refers to a Commonwealth Bank of Australia (CBA). This report notes that there is a high demand for property in Australia but the supply of the same is low and this leads to price hikes. When referring to the Australian Bureau of Statistics (ABS) website, it is notable that residential property price index for all capital cities rose by an average of 2.2% in the first quarter of 2017.

HI5003 - Demand and Supply in the Australian Property Market

Choose a topic from Microeconomics and analyze a recent news article covering that topic using economic concepts.

   

Holmes Institute Sydney

   

HI5003 Economics for Business (HI5003)

   Added on 2020-03-03

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Running Head: Australia Property MarketDemand and Supply in the Australian Property MarketBy (Name)(Tutor)(University)(Date)
HI5003 - Demand and Supply in the Australian Property Market_1
Australia Property Market2Demand and Supply in the Australian Property MarketIntroductionThe First Street Home Loans’ founder and an awarded broker in Australia Jeremy Fisher(2017), published an article in Your Mortgage magazine titled: “Strong Demand and LimitedSupply Boosting Property Prices.” In this article, Fisher refers to a Commonwealth Bank ofAustralia (CBA) report prepared by Michael Blythe, CBA’s Chief Economist. This report notesthat whereas there is a high demand for property in Australia, the supply of the same is low andthis leads to price hikes. When referring to the Australian Bureau of Statistics (ABS) website, itis notable that residential property price index for all capital cities rose by an average of 2.2% inthe first quarter of 2017. Fisher’s magazine article notes that according to the CBA report, the high propertydemand is attributed to a number of factors. Wade and Irvine (2017) take note that Australia’shousing market has recently attracted foreign investors, more so from China. First, it is arguedthat Australia is experiencing high population growth rates which then translate to an increasednumber of persons who need houses. These population increases are as a result of increased birthrates and increased immigration rates. Blythe argues that most immigrants are skilled andfinancially capable of purchasing properties which further increases the demand. Policy makerswill benefit from the research results as they will gain insights of the best means to curb theproblem. Analysis Various other analysts take cognizance of the state of the current property price index inAustralia. Delmendo (2016) notes according to the UBS Global Real Estate Bubble Index,Sydney’s housing market is ranked to be among those in the bubble risk. This view is shared bythe International Monetary Fund and The Economist who have noted that the Australian housingmarket risk exist because prices remain overvalued. The question arises therefore whether thebubble in the current Australian housing market will bust. Burnsidey, Eichenbaumz and Rebelox(2015) argue that whereas some booms in prices in the housing market are likely to bust, otherdo not and generally, it is difficult to find fundamentals to be used in predicting the likelihood of
HI5003 - Demand and Supply in the Australian Property Market_2
Australia Property Market3a bust occurring. The image of the graph below shows the percentage increases in the residentialproperty price index for all eight capital cities of the states in the March quarter:Fig: Residential property price index (% change)Source: Abs.gov.au (2017)The graph shows that most of the Australian cities are experiencing a rapid hike in prices. The United States real estate bubble that caused a recession around 2008 was as a resultof credit facilities that were made easily available which culminated into a boom and asubsequent bust. The low interest rates as noted by Fisher’s magazine article therefore brings tothe fore the question whether the attendant high demand will cause a boom and a subsequentburst as has been cautioned by the IMF and UBS. Delmendo (2016) further acknowledges that the price surge is as a result of increasedimmigration, rapid population growth rates and increased foreign investors who purchase over20% of property annually. Fletcher and Kunzel (2015) noted that some territories recentlyintroduced taxes and adopted strict lending standards to diminish the foreign demand in thefuture, Australia was able to sail through the 2007-2009 recession due to its lending standardsthat were strict compared to those of the United States and by a stimulus package for first home
HI5003 - Demand and Supply in the Australian Property Market_3

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