Analysis of Housing Market in Australia: Demand-Supply Dynamics

This report analyses the housing market in Australia in the light of demand-supply theory in economics. It discusses the excess supply of housing resources in the country and suggests recommendations to reduce the gap.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................2
Essence of the story....................................................................................................................2
Economic Interpretation.............................................................................................................3
Housing as a resource.............................................................................................................3
Housing Market in Australia..................................................................................................4
Recommendations and conclusion.............................................................................................6
References..................................................................................................................................7

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Introduction
The term “market”, in the conceptual framework of economics, as a separate
discipline itself, refers to the platform where the buyers and the sellers of different
commodities or service come to interaction with one another in order to take mutually
accepted decisions regarding the quantity as well as price of the products dealt with in the
concerned market. Thus, the price of commodities and services highly depend on the
dynamics and inter-relation of the demand and the supply forces existing in the market for the
same (Rios, McConnell and Brue 2013). A market reaches an equilibrium situation when the
demand and supply forces mutually interact and reach to a mutually agreed situation, where
the demand equates the supply of the same. Any deviation from that, causes distortions in the
market in terms of mismatches between demand and supply.
Keeping the importance of demand and supply conceptual framework in economics,
the concerned report tries to analyse the situations arising in the market for one of the capital
resources, that is the housing market, in the economy of Australia in the contemporary
period, thereby analysing and interpreting the issues cropping up in the housing market in the
light of the demand-supply theory in economics. To study the issues in the concerned market,
the report refers to the article named, “Housing supply and demand in balance: Fitch”
(Abc.net.au 2018).
Essence of the story
As can be seen from the assertions of the article, in the contemporary period,
Australia has been experiencing a consistent increase in the supply of new housing assets,
with more numbers of homes being built, compared to that of the extent of demand for the
same. However, the article taken into consideration also asserts that the supply increase in the
housing market of Australia is much low compared to that of the increase in the housings in

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Ireland and also Spain, which existed before the busts in the housing market occurred in these
two economies (Becker 2017).
The immense increase in the supply of housing resources in the economies of Ireland
and Spain, was followed by the Global Financial Crisis, which led to the occurrence of severe
bust in the housing markets of these economies with immense fall in the demand for the
same, which in turn, reduced the price of the housings immensely, which led to immense
economic repercussion in the housing markets of these economies (Farmer 2012).
However, the article taking the conditions of the housing markets of Ireland and
Spain, post Global Financial Crisis into consideration, suggests that the current situation in
the housing market of Australia, though showing a little over supply over demand (with 0.57
homes being completed per additional person in the country) does not come near the extent of
excess supply of housing which occurred in the markets of Ireland and Spain (Tomlinson
2012). However, the article ends with the indication of a considerable excess supply of
housing in the country in near future, if the existing rates of production and supply of new
housings continue in the country.
Economic Interpretation
Housing as a resource
Housing, in the contemporary period, has developed as one of the most lucrative
fields for investment, much of which can be attributed to the robust growth in the housing
sector in the global scenario in the contemporary period. The sector having direct linkages
with investment, banking as well as financial institutions of an economy, can be considered
as one of the significantly important sectors of the economies. Housing being one of the vital
economic resources, the growth and price of the same in the markets of a country plays as a
crucial indicator of economic growth of the country and is usually measured by the concept

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of “Housing Start”, which is calculated by the number of new housing projects which are
initiated in a country within a specific period (a month in general).
Housing Market in Australia
As is evident from the above discussion of the assertions of the concerned article, the
housing sector of Australia, in the contemporary period, is seen to experience considerable
dynamics, especially in the supply side of the market. The number of new homes supplied in
the country, is seen to be a little higher than what is required to satisfy the demand for
housing in the country (Titman, Wang and Yang 2014). This in turn leaves the threat of
creation of excess supply in the housing market of the country in near future, which can be
explained with the help of the following figure:
Figure 1: Equilibrium and non-equilibrium situations in a market
(Source: As created by the author)

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The above figure shows that the equilibrium in a market occurs at the point where the
demand equates the supply for the commodity or service dealt with in the concerned market.
When the supply is greater (usually due to higher prices) than demand, there occurs an excess
supply in the market, which in turn drives down the price for the product or service and vice
versa. Keeping this into consideration, the threat of excess supply of housing assets and a
consequent decrease in the price of the same in the country in future seems credible (Hall and
Lieberman 2012).
However, the excess supply of housing in Australia, as shown in the concerned
article, does not seem to be as high as that of excess supply which occurred in the economies
of Spain, Great Britain and Ireland at the time of Global Financial Crisis, which can be shown
as follows:
Figure 2: Comparison of housing markets of Australia with that of others
(Source: As created by the author)

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As is evident from the above figure, the supply of housings in the other economies,
prior to the occurrence of the Financial Crisis being significantly high, led to a huge excess
supply at the time of economic crisis with demand hitting low, which resulted in decrease in
the price of the housing resources substantially. Compared to that, the excess supply in
Australia is seen to be much small and can also be compensated if the demand for the same
increases steadily in the country (Nicholson and Snyder 2014).
Recommendations and conclusion
The excess supply of the housing resources of the country being mainly in the form of
luxury residential facilities, the demand for the same is not expected to increase over a certain
level. Thus, the gap can be reduced by concentrating on building of budget houses, which can
be afforded by the majority of the population of Australia which in turn is expected to reduce
the distortions in the market which have been existing in the current period in terms of the
demand and supply imbalances.

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References
Abc.net.au (2018). Housing supply and demand in balance: Fitch. [online] ABC News.
Available at: http://www.abc.net.au/news/2016-11-30/housing-supply-and-demand-in-
balance-fitch/8080218 [Accessed 23 Apr. 2018].
Becker, G.S., 2017. Economic theory. Routledge.
Farmer, R.E., 2012. The stock market crash of 2008 caused the Great Recession: Theory and
evidence. Journal of Economic Dynamics and Control, 36(5), pp.693-707.
Hall, R.E. and Lieberman, M., 2012. Microeconomics: Principles and applications. Cengage
Learning.
Nicholson, W. and Snyder, C.M., 2014. Intermediate microeconomics and its application.
Cengage Learning.
Rios, M.C., McConnell, C.R. and Brue, S.L., 2013. Economics: Principles, problems, and
policies. McGraw-Hill.
Titman, S., Wang, K. and Yang, J., 2014. The dynamics of housing prices. Journal of Real
Estate Research, 36(3), pp.283-317.
Tomlinson, R. ed., 2012. Australia's unintended cities: The impact of housing on urban
development. Csiro Publishing.