Socio Economic Aspect Of Rising House Prices In Australia

Socio Economic Aspect Of Rising House Prices In Australia 1
SOCIO ECONOMIC ASPECT OF RISING HOUSE PRICES IN AUSTRALIA
Student by (Name)
Professor’s (Name)
College
Course
Date
1. Introduction

Socio Economic Aspect Of Rising House Prices In Australia 2
Housing is one of the basic needs of for every human being. Being a basic need, housing
forms the basis for better living standards. Throughout the globe, homeownership provides
independence and privacy. In fact for most households regards house as the greatest asset.
Traditionally, Australians assigned homeownership high degree importance since it was
important for family stability and wealth creation. The Australian government plays an important
role by encouraging home ownership through direct grants to the first time buyers. Most of
Australian citizens live in owner-occupied dwelling. Half of this residents live in a mortgage-free
house while the rest half have mortgage loans. However, the number of mortgage-free house
owners has been decreasing. The increased rate of mortgage loans is a clear indication of huge
house indebtedness in Australia. Increased number of mortgaged houses clearly implies that not
most citizens will afford to buy houses with the current prices. The number of people living in
rent houses is also increasing (Attanasio et al. 2009).
Housing has been a major player in social and economic wellbeing of many Australians.
With house need in Australia being balanced, an economic development environment has been
created which has seen Australia increase its GDP over the years. This in-house balance need has
greatly cultivated the political and social stability. Government is able to manage its expenditure
whereby elderly care expenditure has been eased by the well addressed house need. Most house
owners used them for running small business which on the other hand adds value to the living
standards of Australians (Beer, Kearins and Pieters 2007). However, housing is gradually
becoming unaffordable in major cities of Australia. From the year 2000 to year 2005, Australia
witnessed over 110% increase in house prices. Between 2007n and 2008 there was a further
increase of house price by a 33% margin. This is a huge cause of alarm among Australian
political, academic leaders among other stakeholders.

Socio Economic Aspect Of Rising House Prices In Australia 3
2. Project Objectives
This study aims to answer the following objectives:
To establish the socioeconomic factors responsible for rising housing prices in Australia
To determine how best rising housing prices can be curtailed
3. Project Scope:
The project uses the Australian housing sector to understand the socioeconomic factors
responsible for rising housing prices.
4. Literature Review
Factors contributing to increased house price in Australia
Just like other commodities in every market, house prices are affected by the demand and
supply. When the demand exceeds the supply, the prices are expected to rise.
The factors affecting house prices can be divided into short-term, long-term and
institutional factors. This factors includes
Interest rates
The rate at which loans are charged greatly determines the decision to take a mortgage.
When the interest rates are low, the demand for mortgages will increase, this implies direct
increase in demand for the houses. With high demand for houses, it is hard for house builders
and seller to satisfy this demand. This will on the other hand increase the prices of houses
keeping all other factors constant. High interest rates on the other hand imply less demand for
mortgages. Therefore, the citizens will be willing to buy houses but their ability is greatly injured
by high mortgage interest rates (Burke, Hancock and Newton 2009). The supplier will be forced
to lower the house prices or slow down the rate at which the prices rises.

Socio Economic Aspect Of Rising House Prices In Australia 4
Australian economy suffered great recession in late 1980s period. This led to fall in the
interest rates in the region. Although the rates rose in late 90s, they later fell towards year 2003.
During this periods when interest rates were low, the house prices rose tremendously. These low
interest rates in mortgages saw the prices of houses rise up beyond control. When the prices of
houses increase, it is very rare for them to go down unless with government intervention in terms
of subsidies. The effect of interest rate on house prices is both short-term and long-term effects.
(Yong 2008)
Investment demand
Investment in housing has increased since 1995 to date. Over this period, the housing
and real estate’s industry has been growing steadily. This implies that landlords and house
owners are the main price drivers in the industry. Australian tax laws allow generous tax benefits
which is a major boost to the house investors (Caldera and Johansson 2013.). The year 2002
saws increased demand for house investment following the loan approvals for house investors.
These loan approvals saw investors injecting approximately 2.4 us dollar in the housing industry.
Other factors that has led to increased investment demand in the housing industry and
real estate’s sector include tax benefits, underlying socio-demographic factors, institutional
reforms, increasing rental income, broader development in the economy and capital markets.
Sharp downward correction was observed in equity market around the world in mid-2000. As a
result, there was a huge capital switch from shares to bonds and real estates (Goodhart and
Hofmann 2008). This increased demand for investment in the housing sector has been the cause
of for high levels of debt-financed investment in the housing sector. These investors were forced
to further increase the prices of houses and rent so as to service these debts. Even after servicing
the demand, the prices remain high since the demand keeps on increasing.