Why is the land cost increasing in cities and what are the major drivers for the increasing house cost in these cities?

Running Head: ECONOMICS.
BUSINESS ECONOMICS.
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ECONOMICS.
Business Economics.
QUESTION 2.
a. Why is the land cost increasing in cities and what are the major drivers for the increasing
house cost in these cities?
A general justification would be that Sydney house supply is below its demand
level as the population grows and absence of land all together contribute to skyrocketing
of house prices. Studies reveals that Sydney has neither a scarcity nor an excess of
housing facilities. The most cities which had surplus housing include innermost
metropolitan city of Darwin, Melbourne and Sydney, numerous excavating mineral
company’s regions including the city of Canberra. In Sydney most the areas which had
surplus housing include Inner Sydney with an excess of nearly 5000 houses accounting
for 5% of the total houses in the town. The contributors of surplus is the fresh part of
growths (Rajapaksa, et al.). A considerable figure of these houses are unoccupied. These
might be for trade, unoccupied leasing or abandoned deliberately unoccupied by
shareholders. Most of the houses are ultimately unavailable. The studies did not discover
a durable association among the dwelling scarcity or excess and the migration in dwelling
cost at local level. The existence of sufficient number of areas across the Australia with
an excess of housing units which have since appreciated the robust dwelling cost
progression and a sufficient number has not contributed to increasing the dwelling cost. It
may shock to discover the present dwelling cost price abnormal rise in Sydney is not
extraordinary. For the last 5 years’ house prices has grown by over 80%. Preceding
studies in Australia, like for instance, the Council dealing with National housing supply,
focused on the countries estimations of the dwelling scarcity nonetheless this study
acknowledges the housing markets trend and that dwelling cost schedules and
affordability are expected to be as caused by resident demand and supply situations as by
extensive national circumstances. The analysis entirely covers the concept of basic
demand and it acknowledges that this may not be demonstrative of the demand for
dwelling in an old money matters sense. The study also does not consider Australia's
destitute population which do not own homes (Findlay & Garnaut, 2017). The shortage of
housing may have major consequences for housing policy in Australia. Strategist also
require to put much importance on further possible contributors of dwelling cost

ECONOMICS.
progression and dwelling reasonably priced, such as a variety of demand impacts
including interest rates and dwelling levy.
House cost increases at a speed rate than revenues due to forces of supply and demand
(Rajapaksa, et al.). In many advanced countries, basic economic transformation has
caused a rise cities growth. In extremely developed countries, including Australia, has
resulted to city and town land to become limited (Lim & Tsiaplias, 2018). As residents
increase in numbers, this shortage continue to rise. Our deliberate move to agree smaller,
deeper systems of growth has had a similar effect (Paris, 2017). The undeserved rise in
land cost that accumulate to current property-owners due to of urban growth have
changed city and town houses into a speculative asset (Findlay & Garnaut, 2017). An
increasing standard of living has made it likely for most of us to put a rising share on
their increasing revenues into housing (Del Giudice, De Paola, Manganelli, & Forte,
2017). A tax structure that let them to maintain some or all of the undeserved rise in
property and land prices and a monetary system that boosts them to borrow against this
enlarged price (Disney & Gathergood, 2018).
An understanding in the current real estate market condition of Australia shows
unceasing rise in land cost where Sydney, Darwin and Melbourne encountered the major
rise with the cost of housing components rising by over 16 per cent in the year 2015
(Balchin & Rhoden, 2019). The information that the Reserve Bank of Australia has kept
its cash rate at a record low of 2 per cent after reducing it by 25 base points each in 2015
is reflected to be the main possible factors associated with the progressive rising cost of
real estate (Rees, Smith, & Hall, 2016).

ECONOMICS.
Rent price in selected cities of Australia.
Table 1: Rent prices in selected cities of Australia.
From the table above, Considering the few selected cities in Australia Sydney, Melbourne
and Darwin we find that the median rent prices across the city Sydney is leading with
$582 followed by Darwin city which had $474 and lastly the Melbourne city follow
closely with $442. The changes in rent across the cities Melbourne city is leading as the
city where changes in rent is rampant at 3.5% annually followed by Sydney which
recorded 1.7% annually and lastly the Darwin city has -1.6% in changes in rent which
means the city does not exhibit rampant changes in rent (Mankiw, Taylor, & Andrew,
2016). The three cities have different level of yields where Darwin city leads with 5.83%
followed by Sydney which has a 3.20% yields and lastly the Melbourne city had 2.93%.
The drivers of the rising house prices in the city include, interest rates which
suggest that lower mortgage repayments allow mortgagors to use extra at any an agreed
reimbursement to revenue ratio (Gurran & Phibbs, 2015). This results to a rise in
dwelling demand and dwelling costs other factors remaining constant. Alternatively, once
interest rates increases, the house demand reduces and the cost of house continue to be