Factors Influencing Housing Prices in Australia: A Focus on Sydney and Melbourne

Business Economics

Essay
The prices of the houses are dependent both upon the demand and supply with that it also
depends upon the immigrants who are coming from other countries to Australia and Melbourne
and purchasing the houses. The model which is explained laid the emphasis on the growth rate of
the prices of houses in the Australian states. Various models have been estimated from each of
the cities by the economists so that the objective of identifying the major drivers of the price
growth rates can be identified.
Reasons for high prices
The reason for the high prices in Australia has been explained through the econometric model.
Many economists believe that there are various factors which influence the price of the houses.
These factors are the real interest rates, property tax rates, cost of maintenance, subsidiaries, and
expected capital gains (Hulse, et. al., 2012). For the analysis, the test has been conducted by the
economists to compare the demand for housing in each region from the point of view of
demographic change and population growth. According to the comparison it was found that
Australia has built more houses to accommodate as compared with that of the growth. The
Sydney is one of the more supplied regions with over 5 percent of the stock is surplus (Hulse, et.
al., 2012). But there are two main factors such as the real interest rates and the expected capital
gains to housing. This can be seen that the economic fundamental plays an important in
determining the growth rate of the housing prices (Putra and Susanto, 2017). The mortgage rate
is the most important which influences the Australian house prices in the long run. The most
important cause of the change is the higher use of the variable mortgage rates rather than that of
the fixed mortgage rate which in turn also increases the size of the home loans (Hulse, et. al.,
2012).
There is another reason behind the mortgage rate is that the marginal effect size is not same
across all the cities in Australia. With the change in the mortgage rate, there is the higher
marginal effect which leads to the increase in the housing prices in Sydney and Melbourne
(Hulse, et. al., 2012). The movements in the variable mortgage rates are related closely to the
change in the cash rate target. With this, it can also be seen that the monetary policy also impacts

quantitatively in the real return of the housing. As the change in the monetary policy bring
changes in the household consumption decisions (Rowley and Ong, 2012). So the inflation is one
of the main factors that impact the prices of the housing in the capital cities (Valadkhani and
Smyth, 2017). The shortage of the houses may also impact the housing policy in Sydney and
Melbourne (Rowley and Ong, 2012). The policymakers need to make the greater focus on the
potential drivers of the house price growth and the affordability of housing such as the range of
the interest rates, influences of demand and taxes of the housing (Rowley and Ong, 2012).
Ways through which the housing prices can be reduced
As Sydney and Melbourne are both the highest capital cities in terms of the house prices. But the
high prices will impact both the demand and the supply of the houses in the particular cities so
for this it is necessary to cool down the prices so that there can be an equilibrium between the
demand as well as the supply of both the cities (Jiang, 2012). There are various ways through
which the prices of the houses can be reduced and the density or the affordability can be
increased. The increase in the density will reduce the prices of the houses. The ways through
which prices can be reduced are:
1. Reduce municipal parking requirements: Most of the parking in the houses are outdated
and are expensive than the required. The cost of the housing can be lowered by reducing
the resident parking requirements and increasing the car shape spaces (Jiang, 2012). By
reducing the parking standards the development of the underutilized parking slots can be
facilitated (Turnbull and van der Vlist, 2015).
2. Change municipal regulations to encourage smaller loans on smaller lots: Most of the
rooms which are built in less than the 900 square feet include two bedrooms or three
bedrooms but these homes are built rarely because of the subdivision regulations and the
high municipal charges (Jiang, 2012). So to bring down the cost of the housing it is
necessary to allow the larger lots to the subdivided and the establishing of the municipal
fees related to housing size.
3. Allow housing on Industrial lands: In the today’s world, the industrial is less used. There
are thousands of acres of one and two storey light industrial buildings with the parking
areas which are extensive (Jiang, 2012). The houses should be built on many of this