Housing Supply and Demand for Australia-myassignmenthelp.com

Question: Discuss about theHousing Supply and Demand for Australia. Answer: Introduction: The dynamics of any economy as a whole and the markets in the economy specifically depend upon the mutual interaction and behavior of the demand and the supply forces in the market. The demand patterns portray the consumer behavior in general, while the supply statistics are indirectly the portrayal the producer side of that specific market. The equilibrium of any market depends upon the interactions of these two key forces, making them tools of key significance for studying the economic conditions of any market or economy (Canto, Joines Laffer, 2014). The report, using these two microeconomic concepts, tries to analyze the conditions of the market for housing in the current times in Australia. For the purpose of studying the conditions of the concerned market, the article, Housing affordability: Is more supply the answer to driving down prices?, by Julia Holman, has been considered (Abc.net.au, 2017). Housing Market: In terms of economics, factors of production and resources can be broadly divided into four categories, namely, land, capital, labour and organization. Among these four resources, capital includes among others, the investments made in the economy in general. Investments on houses can be regarded as a type of residential investment and therefore, by economic definitions, housings fall in the capital resources category of any economy during a specified period (Tsai, 2013). Housings are considered to be investment and not consumption because though they are mainly used for staying purposes, they also add to the asset valuations of the individual who is investing on housing. To measure the growth of this market in any economy, an indicator named Housing Start is commonly used. Housing start refers to the addition of new residences or residential constructions, which are initiated in that particular economy within a specified period. Much of the growth patterns and future prospects of hou sing markets can be predicted with the help of the housing start statistics of any economy. In a housing market, the construction companies form the supply side whereas the demand side generally consists of the residents (Hulse et al., 2014). Housing Market in Australia: The study article discusses about the contemporary issue of a substantial hike in the price levels of housings in overall economy of Australia, which has raised concerns among economists, policymakers and government of that country. With the publication of the 2017 Federal budget just about two weeks before, one of the primary concerns of the Australian government is going to be implementations of appropriate policies to control the continually increasing housing prices in the economy (Abc.net.au, 2017). The article tries to incorporate different views and perspectives regarding this unusual price hikes. According to the article, one group of economists attribute this increase in housing prices to lack of supply of new housings in the current period which implies a low value of Housing start index. This has raised concerns among the central authorities, who are aiming towards reduction of the price-levels using supply-side mechanisms, by increasing supply (Paciorek, 2013). However, a nother group of analysts have countered this theory by stating that the increase in the current housing prices have very less to do with supply dynamics. They have backed up their claim by contemporary housing data, mainly state specific, which shows that in places like Melbourne and Sydney, the supply of new housings are growing at a faster rate than that of population growth, having little impact on the price levels. According to them, the hike in the prices of the housings is majorly attributed to the behavioral patterns of consumers. Housing being a type of assets, they argue that many people are investing in this market for building up future assets than for staying (Hulse et al., 2014). The high prices are acting as an incentive for these people as they are expecting prices to rise more in future. These two schools of thought have been used by a third group who are arguing that given the current situation, the prices of housings are not expected to fall with the increase in su pply. However, the prices can rise even drastically in absence of new supply in the housing market due to the presence of substantial demand in the market. The article also takes into account the possibility of releasing out land held by the Australian government, in order to create future scopes of expansion of supply in the housing market of the country (Paciorek, 2013). Economic Analysis: The scenario discussed above can be explained with the microeconomic concepts of supply-demand dynamics and market equilibrium. The argument of one school, regarding the contributions of increased demand for housing in the price hike can be explained with the help of the following diagram: From the above figure it can be seen that given a constant supply, the increase in demand for housings can cause an excess demand for housing in the market, of amount Q0Q0, at the initial price level, P0, thereby, increasing the price level for housing to P1and taking the economy from E0 to E1. In the new equilibrium, both the price and the number of housings are expected to increase as is shown in the above figure (Abc.net.au, 2017). However, as according to some economists, an increase in the supply if not highly, can bring down the price level to some extent. In Figure 1, an increase in the supply of housings can be seen increasing the supply till Q2, thereby decreasing the price level to P2, thereby shifting the new equilibrium to E2. Recommendations: It is evident from the above economic interpretation of the concerned problem in the housing markets of Australia that the problem lies in both the demand side and the supply side. To control the hike in the level of prices, therefore, two actions are required on part of the government. On one hand, the government can release few of their land holdings, like those kept for Commonwealth Games and others, to increase the scope for supply of housings in the market (Wadud, Bashar Ahmed, 2012). Impositions of restrictions on construction prices can also help in toning down the intensity of the problem. On the other hand, restrictive policies to control the excessive demand for housing by those who can afford, can also prove to be beneficial. Slab pricing mechanism can be implemented for this purpose to make housing affordable for less privileged class in order to ensure a welfare maximizing equilibrium in the market (Jord, Schularick Taylor, 2016). References Abc.net.au. (2017).Housing supply and demand in balance: Fitch.ABC News. Retrieved 7 August 2017, from https://www.abc.net.au/news/2016-11-30/housing-supply-and-demand-in-balance-fitch/8080218 Abc.net.au. (2017).Will more housing drive down prices?.ABC News. Retrieved 24 August 2017, from https://www.abc.net.au/news/2017-04-25/is-supply-the-answer-to-housing-affordability/8470552 Canto, V. A., Joines, D. H., Laffer, A. B. (2014).Foundations of supply-side economics: Theory and evidence. Academic Press. Hulse, K., Pawson, H., Reynolds, M., Herath, S. K. (2014). Disadvantaged places in urban Australia: analysing socio-economic diversity and housing market performance. Jord, ., Schularick, M., Taylor, A. M. (2016). The great mortgaging: housing finance, crises and business cycles.Economic Policy,31(85), 107-152. Paciorek, A. (2013). Supply constraints and housing market dynamics.Journal of Urban Economics,77, 11-26. Tsai, I. C. (2013). Housing affordability, self-occupancy housing demand and housing price dynamics.Habitat International,40, 73-81. Wadud, I. M., Bashar, O. H., Ahmed, H. J. A. (2012). Monetary policy and the housing market in Australia.Journal of Policy Modeling,34(6), 849-863.