Holmes Institute: HC1072 Economics Report - Australia Property Market

This report analyzes the Australian property market, focusing on market conditions, supply, demand dynamics, and the influence of economic factors. It begins with an introduction to the Australian property market, highlighting its composition of permanent fixtures and land trade. The report delves into market descriptions, examining the increasing property prices, driven by factors such as population growth, immigration, and income levels. It explores the characteristics of the real estate market, including durability, heterogeneity, transaction costs, and immobility. The report further investigates the reasons behind rising housing prices, such as high demand compared to supply and wage disparities. It also assesses the degree of competitiveness in the Australian market. The report concludes by examining changes in market conditions, such as inflation, demand and supply fluctuations, and infrastructure developments, along with their impacts on property values. This report is a comprehensive analysis of the Australian property market for the course HC1072 Economics and International Trade, offering insights into the market's complexities and economic influences.

Running head: Economics 0
Economics and International Trade
9/21/2019

Economics 1
Contents
Introduction......................................................................................................................................2
Market description...........................................................................................................................2
Changes in market condition(s) and their impacts..........................................................................6
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

Economics 2
Introduction
The assignment is prepared in regards with the topic property market in Australia. The purpose
of this assignment is to enhance the knowledge of the economic applications and to analyses the
market condition of the Australia and their impacts. The Australia property market is consisting
of the permanent fixtures and the trade of land which is located within the Australia. There are
many crisis has been seen in the Australian market which also lead to the decline in the per
capita GDP of the country (Wong, et al., 2018). The prices of the houses are drooped and many
crashes in the market have been seen. By the prices of the Sydney’s house are still increasing due
to higher demand and supply. The supply of housing is less in the Sydney in comparison to the
demand of the people as many people are immigrating over there which keep the prices of the
housing up. In this report the description will be given for the property market of the Australia
including the market structure, characteristics, degree of competitiveness, product or services,
etc. The impact of the changing market on the price and the quantity will also be explained with
the help of the appropriate diagram.
Market description
The prices of the property market is increasing in the Australian market as it is consist of the
permanent fixtures and the trade of land which is located within the Australia. In the year from
1890 to 1990 the prices of the property in Australia has grew up at the rate of the 0.5% yearly
after the inflation (Tapsuwan, et al. 2019). The rate has been increased in the faster manner from
the year 1990 to 2017 and also shows many contracting economic bubble. In the past few
decades drastic changes have been seen in the Australian property market specially in the
residentially housing. In the certain cities like Melbourne, Sydney, Perth, Brisbane, Hobart,
Adelaide, etc. are the major cities where the prices of the housing are continuously rising. The
reason behind increasing the prices of the housing is that the demand of the housing has
increased in the Australia and the supply is very less. There are any people who are immigrating
in Australia which was increasing the demand of the housing (Phillips and Joseph, 2017).

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Australian property market is also known as the property bubble as it was becoming significantly
overpricing until the sustainable level can be reached related to the rents and the incomes. Due to
the financial crisis and the recession many changes have been occurred and the Australian
property market is crashing. There are many Australian housing prices have been dropped. Real
estate market is declining and the per capita GDP has also declined (Sisson, et al., 2019).
Demand of housing: The demand of the housing in Australia is continuously increasing at the
rapid rate and main determinants of increasing the demand of the housing are the demographic
factors. Demand of housing in the Australia has increased due to the certain factors which have
examined below:
Population growth: The size of the population has been continuously increasing in the Australia
which results in the greater demand of the housing. Due to the migration, many people have
shifted to Sydney and Melbourne which has increased the prices of the houses (Ley, 2017).
Income of the person: Income is the important determinant which helps in measuring the
income elasticity of demand. As the income of the person rises they are able to pay the high rents
which is also the basic reason the prices of the housing is increasing in the Australia as the
incomes of the person is increasing with the time (Morris, 2018). As the prices of the property
are very high so there are many economists who use their permanent income rather than their
annual income.
Availability of the house: Due to the increasing population and migration, the number of the
people living in the Australia has increased and it results in the declining the viability of the
houses. People over the Australia did not get the houses easily and if they get then it charges too
much prices. So due to the lack of availability of the houses the demand of the houses has
increased (Blunden, 2016).

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(Source: The Conversation, 2018)
Supply of housing: The supply of the housing in the Australian market is very less due to the
increasing population, increasing income and other determinant factors. The supply of the
housing market is less so it results in increasing the prices of the houses. As per the law of the
supply, the prices of the housing are increasing as the supply of the housing is decreasing
(Shelton, et al., 2016).
Characteristics of the real estate market of the Australia:
Durability: The housing property is very durable as they can last for the decades and centuries.
The property is indestructible. The market trend of the property can be mitigated by large stock
of the buildings and it affects the property at the great manner (Shi, et al., 2016).
Heterogeneity: The prices of the housing have increased as every unit of the property has
unique such as building, financing and the location. The prices of the housing is increasing due
to the increase in creating the information asymmetry, the search cost, etc.
High transaction cost: The transaction cost is very high in the property as buying and moving
into the home requires many transactions. Many transactions cost incurred such as moving cost,
real estate cost, deed registration fees, transfer taxes, legal taxes, etc.

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Long time delays: The housing property is subject to the time delays market adjustment as it
requires time in the certain things such as time in designing, financing, constructing, etc. due to
the more fluid markets the adjustment mechanism is very slow.
Immobility: the land of the property is immobile and the location of the property is immobile.
The property never goes to the customers; the customers come to the property. So there is no
physical marketplace for the property. So the adjustment of the market in the property is
dependent on the moving to the dwelling units (Shi, et al., 2016).
Consumption a well as investment good: The consumer can buy the property for both the
purpose as an investment or by using the property for their own use. For attaining the return on
the property generally people make the investment on the property but if the consumer wants to
use the property then they will make the consumption. So the property has the duel nature.
Reason behind the prices of the housing is increasing:
Demand of housing is more than the supply: The demand in the market for the housing is very
high in comparison to the supply of the housing which is creating the issues. The prices of the
housing have been increased as many people are migrating over Australia which was increasing
their population (Wong, 2017).
The prices of the house rise faster than the wages: The prices of prices are so higher that they
are becoming less affordable for the people as their wages are less than the prices of the house.
Before the bubble in Australia if anyone is there who didn’t purchased the house then pay most
of their salaries as the rent of the house. The amount spent on the mortgage repayments have
been increased due to the increasing in the prices of the house (ABC News, 2019).

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(Source: On the House, 2019)
Bank created hundreds of the pounds and put into the property: The prices of the houses get
tripled in last few years when the financial crisis has started. The major reason behind increasing
the prices of the house are the banks as they have the ability to create the money by making the
loan. The major reason behind the increasing the prices of the houses are the lending of the
money through the mortgage is very higher.
Degree of competitiveness in the Australian market
There is the high degree of the competitiveness in the Australian market as real estate market
provides the same kind of the properties to the consumers in the same are only the competition is
very higher in the market share. The properties whose infrastructure is good and located at the
desirable place then its rates are higher and all the competitors generally charge the same prices
for the houses. The entry and exit of the real estate brokerage have the low barriers as there is the
large number of the firm in the market (Crabtree, 2018).
Changes in market condition(s) and their impacts
The market conditions are very dynamic so it has the great influence on the market conditions
also. As per the latest ABP news, the property market is showing the signs of recovery as due to
the financial crisis, the property market was declining. They are recovering in owner occupier
and investor lending as now the number of the people are borrowings and the taking out the

Economics 7
bigger mortgages. In July 2019, it was evaluated the ABC news that value of the new loans
which was issued to the households has jumped from 3.9% to $32 billion (Leal, et al., 2017).
As per the Australian bureau of statistics (ABC News, 2019), Australian house prices are in free
fall due to the imposition of the higher taxes, market culling measures, etc. The house price
variation has been fall in the Sydney also with the decline rate of the 11%. In Melbourne also the
decline rate has been seen with the 10% (ABC News, 2019). The price was also falling for the
housing in the certain areas such as Darwin, Perth, Brisbane, etc. There are the certain factors
through which the market conditions are changes and their impact has been seen below:
Inflation: The money value of the property falls due to the inflation also as the excessive amount
is circulating in the market. Due to the inflation many prices has increased in the market such as
construction material, land prices, labor, etc. At the time of the inflation the real estate market
can have the good returns as there is the direct correlation between the demand and the price.
(Source : Live
Wire, 2019)
Demand and
supply: The
market structure
is highly get
affected due to
the demand and
the supply and it
is the influential
of the human
behavior in the property. The houses whose infrastructure is good are highly demanded (Baur
and Heaney, 2017). The demand of the houses will be higher if it is located at the desirable
location. The supply slows down in terms of selling as the people want to sell the property when
the demand is higher so that more profit can be earned.

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Infrastructure: For the real estate market, change in the infrastructure also affects the market.
The growth in the property market can be seen when there is the social and physical
infrastructure is there. If the infrastructure is better than the greater value is added in the market.
The projects related to higher infrastructure influences the higher prices of the property where
they are interlinked with the localities (Darcy and Rogers, 2016).
(Source: RBA, 2019)
Change in nearby properties: The property prices changes in the market when the nearby
locality of the market changes. The higher prices will be there if there is the desirable locations
and population growth and infrastructure development is good. The value will be more if the
demand will be more in the market.
Conclusion
From the above report it is concluded that Property market in Australia is increasing but due to
the economic crisis and financial crisis the prices of the houses has been fall in the last few years.
In this report, the determinants of the demand and the supply related to the Australian property
has explained and from that it was concluded the prices of the houses will increase if the demand
will increase and prices of the houses will fall when the supply will be higher. The characteristics
of the market have also explained in this report. The market conditions has been changed due to

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the several reasons such as due to the change in demand and supply, inflation, etc. which has
clearly stated in this report with the appropriate diagrams.

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Appendix
(RBA, 2019).

Economics 11
(RBA, 2019).