The Australian Economy: Analyzing Falling Housing Prices

This essay provides a comprehensive analysis of the effects of declining housing prices in Australia. It begins by highlighting the historical context of housing price fluctuations and their impact on the Australian economy. The essay delves into the various sectors affected, including the labor force, construction industry, and the government's stamp duty revenue. It explores how falling prices influence consumer expenditure, borrowing, and bank lending practices. The role of economists in the housing sector is emphasized, along with the importance of government intervention to mitigate negative consequences. The essay also examines the potential impacts on the construction and banking sectors. It concludes by summarizing the key findings and emphasizing the importance of managing housing prices for sustained economic growth.

Running Head: HOUSING PRICES
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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).

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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

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partially funded by the state governments and partly by the federal governments. When the
housing problems kick in, then the state government need help to fund its infrastructure
spending, and this could be badly affected by the falling house prices.
Stamp Duty
The stamp duty is the tax that the government gets from selling houses. When a house is
sold, the government gets stamp duty. The latter means that in good times, the stamp duty can
collect high amount revenues. The stamp duty is at risk since it both depends on the housing
prices and also the volume of the houses sold. When the housing prices go down, the stamp duty
also goes down.When the prices are down, the number of houses traded is even more (Paris,
2017). In most occasions, people will not want to sell their houses in a market that has falling
prices. The buyers will also get cold feet, and the market appears to be at a standstill. This is bad
for stamp duty revenue which is one of the most reliable sources of revenue for the Australian
government.
Importance of Involving Economists in the Housing Sector
The economists should be involved in the housing price sector because the housing
market changes the consumer expenditure and this would affect the whole economy. Increase in
the housing prices in Australia leads to increased consumer expenditure and also increased
economic growth while a sharp drop will adversely affect the confidence of consumers (Knoll,
Schularick, & Steger, 2015). A drop in the house prices can easily lead to low consumer
confidence, and then construction will lead to lower economic growth and development. The fall
in the house prices can lead to an economic recession.

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Houses and Banking Sector
House prices can have a big impact on bank lending practices. When the house prices are
going down, the banks do not see any improvement in the value of their assets. The banks then
become less confident and therefore do not increase their lending and increasing reserve ratio.
Bank lending will hence decrease firms will hence not be able to borrow money and lend more
mortgages (Kohler & Van Der , 2015). Precisely banks will not be able to lend since they will
fear to lose their money in a case where the homes are repossessed.
Housing Prices and the Construction Sector
The construction sector has high volatility and any period of falling house prices is more
likely to lead to reduced investment (Knoll, Schularick, & Steger, 2015). The fall in construction
is likely going to lead to low economic growth.
Conclusion
A House price is an important factor since it is a determinant of economic growth in
Australia. Several factors contribute to the fall in housing prices, and their effects are felt by the
government. The housing prices affect several sectors including the banking sector, the
construction sector and the labor force among others. It is important for the government to
control the housing prices so that the economic growth does not become stagnant.

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References
Connolly , E., La Cava , G., & Read, M. (2015). Housing prices and entrepreneurship: Evidence
for the housing collateral channel in Australia. In Small Business Conditions and
Finance, 34(5), 132-146.
Knoll, K., Schularick, M., & Steger, T. (2015). No price like home: Global house prices, 1870-
2012. American Economic Review, 56(5), 54-89.
Kohler , M., & Van Der , M. (2015). Long-run trends in housing price growth. Reserve Bank
Bulletin, 23(6), 21-30.
Paris, C. (2017). Housing Australia;Macmillan International Higher Education. London:
Macmillan Publishers.
Saberi , M., Wu, H., & Amoh-Gyimah, R. (2017). Measuring housing and transportation
affordability: A case study of Melbourne, Australia. Journal of transport geography,
65(4), 134-148.