Housing Affordability Crisis in Sydney and Melbourne

Running Head: BUSINESS ECONOMICS
Business Economics
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1BUSINESS ECONOMICS
Shelter is one fundamental need for people. The home ownership is regarded as one key
elements indicating standard of living for people. Housing plays an very important role for
economic and social well-being of Australian. The two major capital cities Sydney and
Melbourne are facing serious housing crisis, which is beyond disputes. Existence shortage of
affordable house indicates that most of the renters and first home-buyers are unable to find
homes near location of their choice. Sydney and Melbourne are the two most developed cities of
Australia. The increased housing demand not only contributed from a surge in demand in part of
domestic population but also derived from immigrants’ population (Birrell and McCloskey
2015). There are different views regarding factors responsible for surging hosing price. Those
who view the problem from financial perspective held low interest rate responsible for sky
reaching prices of houses. The housing crisis however has a much deeper root. The dynamic
changes in number and age distribution has a long standing implication in determining housing
price.
The condition of housing market is nor uniform across different states and territories of
Australia. Heterogeneity even observed in property market within states or territories. The
dynamics of housing market differs particularly in capital cities like such as Sydney and
Melbourne (Chappell and Campbell 2018). Figure 1 shows dwelling prices in Sydney along with
changes in interest rate home loans as cost variable and construction of new dwellings as the
supply variable and population as the demand variable.

2BUSINESS ECONOMICS
Figure 1: Dwelling prices in Sydney
(Source: Pettit, Tice and Randolph 2017)
As shown above the housing price in Sydney has driven up particularly after the global
financial crisis. The housing market data suggest that in times of stable money market and labor
market condition, investment in housing seems more attractive following a lower market risk.
Figure 2: Trend in Housing prices in Sydney and Melbourne
(Source: Rogers, Wong and Nelson 2017)