Microeconomics and Australian Housing Market

Microeconomics1
Microeconomics
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Microeconomics2
INTRODUCTION
According to Scrutt ‘s article on the Business insider the Australian housing prices for
Sydney and Melbourne are coming down following the recent high prices. The reduction in
prices is attributed to the increased supply, government regulation of interest rates and reduced
financial credit facilities. However, following the recent surge in supply, there is the possibility
of surplus production which could alter the current house pricing. The housing industry faces
various factors such as population growth which could lead to the increased demand for housing
facilities and put pressure on the supply thus affecting future house pricing. This article relates to
microeconomics due to the fact that it explores the demand and supply factors that affect the
housing pricing in the cities of Sydney and Melbourne. In addition, the article explores the price
elasticity of housing prices in the two cities. Lastly, the author of the article explores the
production costs of housing facilities in the two Australian cities.
Majorly, microeconomics deals with the supply theory, demand theory and production
theory, all of which are key microeconomic concepts thus making the article relatable. The
Author attributes the fluctuating prices for housing facilities in the cities to price elasticity .Prior
to the reduction in housing prices, the two cities housing prices were way higher. However,
through government regulation of the credit lending facilities and the reduced level of
affordability, alongside population reduction have contributed to the price decline of the housing
facilities in Sydney and Melbourne cities. However, in the event of a population increase the
pricing for housing facilities will go up according to economists due to the increase in the
demand for housing facilities in the two Australian cities. The article also explores the
production cost factors such as interest rates and lending constraints which are concepts in

Microeconomics3
microeconomics .Collectively, factors affecting demand, supply and production costs of goods
and services are microeconomic in nature.
MICROECONOMIC CONCEPTS
DEMAND AND SUPPLY
Primarily, the demand theory implies that in the event that the price of a commodity
increases, there will be less consumption of that particular good or service (Amadeo 2018).The
same applies to the housing prices in Sydney as stipulated in the Article. Due to the slow rise in
the housing prices, there is more supply of housing facilities in the city. Similarly, price affects
the quantity of goods supplied (The effects of changes in demand...N.d).Owing to the fact that
that the Supply of housing facilities in Australia is dictated by the changes in prices, makes the
Australian housing markets in the two cities is perfectly inelastic. This is due to the fact that the
supply of housing facilities in the two cities is less than one. The supply of houses in the two
cities is price inelastic. In the event of higher prices, the supply of housing facilities went down,
however with the reduction in prices there is more supply of the housing facilities (Karp 2018).
According to the laws of supply, changes in production cost can affect the supply of any given
commodity or service (Economics Online 2018).
In addition, as per the circumstances of the article, the production cost of housing
facilities in the two cities is affected by interest rates and strict lending terms thus affecting
construction investment in the housing sector in Sydney. This restrictive lending terms are likely
to reduce the investment capital for the housing sector due to limited borrowing capacities and
terms. The fact that there is little affordability of housing rates in Sydney imply that the current
supply of houses if limited and there is no chance of overproduction. Usually, low production