Analysis of Demand and Supply of Homes in Australia

This report provides an analysis of the demand and supply dynamics within the Australian housing market. It begins by examining the factors that contribute to the increasing demand for homes, such as population growth in major cities like Melbourne and Sydney, low borrowing costs, and government incentives. The report then explores the supply side, highlighting the challenges faced by developers, including bureaucratic delays, infrastructure limitations, and financing difficulties. The report emphasizes the inelastic nature of the demand for housing, which is driven by its necessity and limited alternatives. The study also incorporates statistical data from the Australian Bureau of Statistics to illustrate the trends in residential property prices, particularly in Sydney and Melbourne. This report aims to offer a comprehensive overview of the current state of the Australian housing market.

Running head: DEMAND AND SUPPLY OF HOMES IN AUSTRALIA
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Demand and Supply of Homes in Australia
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DEMAND AND SUPPLY OF HOMES IN AUSTRALIA
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Demand for Homes in Australia
In the recent years, the demand for homes in Australia has been on the increase. Studies
show that the surging demand for houses in this country results from non-price factors.
Foremost, major cities like Melbourne and Sydney are experiencing high population influx. As
more individuals settle in these towns, the demand for homes has increased considerably. The
rising demand for homes has also resulted from the low cost of borrowing for homes and
improved access to credit. Moreover, increase in the incomes of Australians and tax concessions
on housing have amplified the demand for homes in Australia. The rising demand has increased
the price of homes and Australian cities like Sydney and Melbourne are among the places where
the price of homes is exceedingly high globally (Dufty-Jones & Rogers, 2016).
Figure 1: Increase in Demand
Price
Number of houses
The rise in demand for dwellings in Australia’s housing market is shown by the shift of
demand curve from D1 to D2. Consequently, the number of homes demanded increases from Q
S
P1
P
Q1Q
D2
D1

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to Q1 and the price also rises from P to P1. The table one below depicts the annual change in
residential property prices. Sydney and Melbourne recorded the highest increase in the price of
houses, that is, 14.4% and 13.4% respectively (Australian Bureau of Statistics, 2017).
Table 1: Extracted from Australian Bureau of Statistics
Supply of Homes
While the demand for dwellings has been on the rise, the supply has not responded to put
the surging demand in check. Research shows that several factors are impeding the delivery of
homes in Australia. For example, the approval of structures is delayed by government
bureaucracies. Insufficient provision of vital infrastructures like roads, water and sewerage and
difficulties in obtaining finances among the property developers also hinder the delivery of new

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housing units to the market (Dufty-Jones & Rogers, 2016). The aftermath of this situation has
been shortages and prices increases.
Elasticity
The price elasticity of demand for dwellings in Australia’s housing industry is inelastic.
This reasoning is based on the fact that a house is a necessity and that is why the demand is high
regardless of the price increase. Also, the alternatives to owning a home are limited, that is,
renting or residing with a relative. High rental fee worsens the situation for Australians.

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Bibliography
Australian Bureau of Statistics. (2017, June 20). 6416.0 - Residential Property Price Indexes:
Eight Capital Cities, Mar 2017. Retrieved August 27th, 2017, from
http://www.abs.gov.au/ausstats/abs@.nsf/0/510D8915596EEFE9CA257F1B001B0107?
Opendocument
Dufty-Jones, R., & Rogers, D. (2016). Housing in 21st-Century Australia: People, Practices and
Policies. London ; New York : Routledge.