Effects of Housing Prices on the Australian Economy

Running Head: HOUSING PRICES
HOUSING PRICES
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HOUSING PRICES 2
Introduction
Since 2012 to 2017, the housing prices in Australia had been rising to almost 50 percent.
Since then, the prices fell by 9 percent. Such declines are not usual. Back in 2010, the country
also experienced a similar fall in the housing prices and the same had been witnessed in 1980s
(Paris, 2017). The increase in the prices was witnessed in Sydney and Melbourne. The housing
prices have been weak for some time, and this has been caused by the swings in the population
and the income that is associated with the mining boom. In other areas like Hobart, the housing
prices have been strong, and this has also been witnessed in several other cities (Paris, 2017) .
Considering these imperfectness, we can, therefore, consider the fact that there is a series of
interconnected markets in the housing sector. The graph shown below indicates various housing
prices in different cities in Australia.
(Paris, 2017).

HOUSING PRICES 3
The effects of housing prices affect the Australians directly. When the prices fall, people
are not attracted in the market, and they do not expect any capital gains. Prospects of capital loss
make the buyers stay away or hold on purchases (Knoll, Schularick, & Steger, 2015). The
lower prices draw the buyers in the market; the homeowners will find it easier to purchase homes
while the investors will be attracted back in the market. The purchasers will utilize that
opportunity to upgrade to the homes that they have been yearning for.
The house prices affect the economy in several ways. When the prices fall, they lead to a
great splash, and the ripples go outwards. The fall in prices make the houses more affordable.
The latter will be good for the home buyers (Connolly , La Cava , & Read, 2015). However,
the housing sector does not operate in isolation. The consumer expenditure, borrowing, property
advancement, construction, and bank profits are affected in one way or another. The decrease in
the housing prices will cause the reserve bank of Australia to cut down the rates of interests.
Labor Force
The construction industry is one that analysts need to consider. The number of labor force
in the construction sector has been hitting records for several years. In a case whereby lower
prices mean less property advancement, most people who work in the construction sites could
find themselves jobless in the long run (Kohler & Van Der , 2015).
Government Pop-Ups
In a case where there is less employment, the citizens rely on the government to pop up
employment. The economic hardships come up when we want big projects to be initiated. It is
sensible for the government to build houses when the private sector is slack since construction
materials are relatively cheaper, but this does not mean that the state is pushing the private sector
out of the market (Saberi , Wu, & Amoh-Gyimah, 2017). The government expenditure is