Analysis of Current Affairs: Australian Housing Affordability Crisis

This report examines the current affairs surrounding the housing affordability crisis in Australia, focusing on the soaring prices of residential land. It analyzes the issue, referencing a news article highlighting the significant increase in land values. The report delves into the economic interpretations of the problem using microeconomic concepts of supply and demand, identifying stakeholders affected by the crisis. It explores the impact of rising land prices, particularly in urban areas, and discusses the imbalance between housing demand and supply. The report concludes with potential recommendations to mitigate the crisis, such as government intervention through price ceilings to improve affordability. Various figures and data points are included to support the analysis, providing a comprehensive overview of the issue and its underlying economic dynamics.

Running head: CURRENT AFFAIRS
Current Affairs
Name of the Student
Name of the University
Author Note

1CURRENT AFFAIRS
Table of Contents
Introduction................................................................................................................................2
Article Summary........................................................................................................................3
Discussion..................................................................................................................................5
Issues cropping up in Australia..............................................................................................5
Stakeholders Effected.............................................................................................................7
Economic Interpretation of the problem....................................................................................8
Recommendation and Conclusion............................................................................................10
References................................................................................................................................11

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Introduction
In the contemporary period, the global economy and overall dynamics have faced
considerable dynamics, thereby leading to considerable dynamics and activities in almost all
the major countries across the world, of which Australia a primary one. Australia, has
remained as one of the primarily developed and influential economies in the global scenario,
showing immense development over the decades and impressive performance in almost all
the economic and social indicators of the country (Bishop et al., 2013). The country has
experienced huge booms in its economy owing to robust industrial and mining development,
with considerably increase in its economic prospects over the years.
The increased economic prospects have led to an increase in the population growth of
the country, much of which can be attributed to the huge inflow of people from all parts of
the world, in search of jobs, economic prospects and an overall better life with high standards
of living and secured environment (MacKillop, 2013). The inflow of immigrants has been
specifically high in the urban and economically developed zones of the country, including
Melbourne, Sydney and Victoria, which in turn has resulted in an increase in demand for the
housing facilities in these regions. The demand for housing facilities being higher than the
supply has led to an affordability crisis in the country in the contemporary period.
In this context, the assignment tries to discuss the recent phenomenon of striking
increase in the prices of residential lands in the country, referring to the news article, “The
cost of residential land in Australia is going through the roof”, published on February 14th,
2018 (Scutt, 2018). The report takes help of the different conceptual tools of microeconomics
to analyse the concerned issue of concern in the geographical domain of the country.

3CURRENT AFFAIRS
Article Summary
The concerned article highlights one of the issues of immense concern in Australia in
the contemporary period, which is highly related to the housing affordability crisis of the
country, the issue being that of the consistently soaring prices of the vacant residential lands
in the country. The article asserts, in this aspect that the median price of the vacant residential
plots has gone up 10.9% higher than their rates in the previous year (Nicholls, 2014). The
hike in the median prices of the same has been much higher in the capital city areas has been
much higher than that of the other areas in the country.
Figure 1: Increase in the median value of the residential lands in Australia over the
years
(Source: Scutt, 2018)
As is evident from the above figure, the median residential prices have gone up
steadily over the years. As per the arguments put forward by the concerned article, this
increase in the prices of residential lands in the country has been one of the primary factors
which has kept the supply of housing properties in the country lower compared to the demand

4CURRENT AFFAIRS
for the same and is thus one of the primary reasons behind the increasing housing
affordability crisis in the country in the contemporary period (Knoll, Schularick & Steger,
2017).
The housing demands being stronger in the metropolitan cities, supported by the low
mortgage rates and housing subsidy as well as government schemes, the availability of lands
are even lesser in the metropolitan and highly economically active zones of the countries
which in turn has led to even more striking increase in the residential lands in these regions as
can be seen from the following figure, showing the situation in the market of Sydney:
Figure 2: Increase in the residential land prices of Sydney
(Source: Scutt, 2018)
The increase in the price of residential lands across the different regions have been
however different across the decades, within the country itself, which the article shows as
follows:

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Figure 3: Region wise increase in price of residential lands in the country in a decade
(Source: Scutt, 2018)
These evidences, together indicates that in the contemporary period the rising prices
of land values in Australia is one of the primary issues of concern in the country and is also
one of the primary reasons behind the housing affordability crisis in the country, as per the
assertions of the article.
Discussion
As per the assertions of the article, the report tries to discuss the primary issue of
concern in this aspect and also tries to highlight the impacts of the same on the different
stakeholders who are affected by the issues into consideration.
Issues cropping up in Australia
As is evident from the assertions of the article, Australia, in the contemporary period
has been found to be experiencing an acute crisis in the housing affordability, with the prices
of the houses consistently increasing with time. This increase in the house price of the
country as well as the increase in the rents can be seen as follows:

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Figure 4: Increase in house prices in Australia over the years
(Source: Cpd.org.au, 2018)
The house price of Australia, can be seen to be increasing at a higher rate than that of
the global house price index as can be seen from the following figure:
Figure 5: House price index of Australia vis-à-vis that of the world
(Source: Businessinsider.com.au, 2018)
However, the problem of the house price increase in the country is not only attributed
to that increase in the demand for the same in the country. The main problem behind the
increase in the housing prices of the country can be mainly attributed to the huge increase in

7CURRENT AFFAIRS
the price of the vacant residential lands in the country, especially in the urban and highly
developed economic zones of the country (Kulish, Richards & Gillitzer, 2012).
Stakeholders Effected
The primary stakeholders in these situations are the ones in the demand side as well as
in the supply side of the residential land market. The supply side of the market being
represented by the land owners, these people have deliberately kept the land non-available to
some extent, in order to increase the price of the same. On the other hand, the demand side of
the market represents the construction companies who feel the supply unavailability of the
land resources, which in turn has led to the increase in their cost of production, thereby
affecting the prices of their housings (Scutt, 2018). This in turn has affected a significant
share of the population, especially those in the lower and middle-income sector of the society,
as can be seen from the following figure:
Figure 6: Share of population facing the housing affordability crisis in Australia
(Source: Worthington, 2012)

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Economic Interpretation of the problem
The problem discussed above can be explained with the help of the concepts of
demand and supply dynamics in the theoretical and conceptual framework of economics. In
terms of economics, the demand for normal commodity is inversely related to the price of the
same, which makes the demand curve negatively sloped. On the other hand, the supply of
normal commodities increases with the increase in the price of the same and vice versa which
makes the supply curve usually upward rising (Baumol & Blinder, 2015). Therefore, in the
market, the equilibrium occurs at the point, where the quantity demanded of a commodity is
equal to the quantity supplied, which can be seen as follows:
Figure 7: Demand, supply and market equilibrium
(Source: As created by the author)
As is evident from the above figure, the equilibrium in the market occurs at the point
E, where demand and supply curves intersect each other. Any deviation from that point

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causes market distortions, thereby affecting the price level of the commodity or service in
concern.
This is what has happened in the residential land market of the country, which in turn
has caused the housing affordability crisis. With the increase in the population of he country,
the demand for residential properties has also increased, which is shown as follows:
Figure 8: Demand for housing properties in Australia
(Source: As created by the author)
This in turn has encouraged the suppliers of housings in Australia to indulge more in
creating new housings, for which new lands are required (Frank & Cartwright, 2013).
However, the land resources being constant in the country, the suppliers of housings face an
almost inelastic supply curve for vacant residential lands in the country, the effects of which
can be seen as follows:

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Figure 9: Inelastic supply curve for vacant residential land in Australia
(Source: As created by the author)
This, clubbed with that of the increase in the demand for the land in the country in
face of increase in the demand, has led to a huge increase in the price of the vacant lands,
thereby leading to the increase in the cost of production of new housing supplies, which in
turn is one of the primary reasons behind the concerning issue of housing affordability crisis
in Australia (Nicholson & Snyder, 2014).
Recommendation and Conclusion
The problem of housing affordability crisis can be avoided to some extent if the
supply of residential lands in the country can be mobilised. The main problem in this context
is that the suppliers of vacant land, knowing the increasing value of the same often
deliberately keeps their land unavailable or available at a much higher price. This can be
averted to some extent, by the government of the country, by imposing a price ceiling in the
residential market. By doing this, the price of the lands can be limited to a maximum level
above which no seller can sell their land in the country.

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References
Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Cengage
Learning.
Bishop, J., Kent, C., Plumb, M., & Rayner, V. (2013). The resources boom and the Australian
economy: a sectoral analysis. RBA Bulletin, 39-50.
Businessinsider.com.au. (2018). Australia has 5 of the world's 20 least affordable cities in
which to buy a home. Retrieved from https://www.businessinsider.com.au/australia-
has-5-of-the-worlds-20-least-affordable-cities-in-which-to-buy-a-home-2016-9
Cpd.org.au. (2018). Tim Hamilton | Costing us the house: Reforming policy for affordability
- Centre for Policy Development. Retrieved from https://cpd.org.au/2011/03/tim-
hamilton-costing-us-the-house-reforming-policy-for-affordability/
Frank, R., & Cartwright, E. (2013). Microeconomics and behaviour. McGraw Hill.
Knoll, K., Schularick, M., & Steger, T. (2017). No price like home: Global house prices,
1870-2012. American Economic Review, 107(2), 331-53.
Kulish, M., Richards, A., & Gillitzer, C. (2012). Urban structure and housing prices: Some
evidence from Australian cities. Economic Record, 88(282), 303-322.
MacKillop, F. (2013). Sustainable as a basis of affordable? Understanding the affordability
‘crisis’ in Australian housing. Australian Planner, 50(1), 2-12.
Nicholls, S. (2014). Perpetuating the problem: neoliberalism, commonwealth public policy
and housing affordability in Australia. Australian Journal of Social Issues, 49(3), 329-
347.
Nicholson, W., & Snyder, C. M. (2014). Intermediate microeconomics and its application.
Cengage Learning.

12CURRENT AFFAIRS
Scutt, D. (2018). Data shows a huge underlying problem for Australian house hunters: land
prices have been soaring. Retrieved from
https://www.businessinsider.com.au/australia-housing-affordability-new-land-price-
population-growth-2018-4
Scutt, D. (2018). The cost of residential land in Australia is going through the roof. Retrieved
from https://www.businessinsider.com.au/housing-affordability-australia-residential-
land-prices-2018-2
Worthington, A. C. (2012). The quarter century record on housing affordability, affordability
drivers, and government policy responses in Australia. International Journal of
Housing Markets and Analysis, 5(3), 235-252.