Demand and Supply of Houses in Australia Free-Samples for Students

Questions: Discuss about the Demand and Supply of houses in Australia. Answer: Introduction The article titled RBA governor Philip Lowe only sees one way to solve Australia's housing affordability problem written by David Scutt on April 5th, 2017 shows factors influencing the demand and supply of houses in Australia. Australia is experiencing imbalances between the supply and demand of dwelling units. While the demand for houses in the main cities like Melbourne and Sydney has been increasing, the supply has not grown in response to the rising demand. As a result, the prices of houses have increased significantly making it difficult for the low and mid-income families to secure affordable homes. The demand for homes has been driven up by population influx in the cities low cost of borrowing as well as an increase in investor demand due to capital gains(Scutt 2017). The supply of homes has remained relatively constant to due underinvestment in this sector. The issues presented in this article are of interest to the government as it has come up with ways to correct the situation in the housing market to ensure that the low-income earners have access to affordable housing. Both the demand side and supply side policies have been proposed to help restore the situation. The demand side policies involve restricting tax concessions on housing and decreasing immigration levels. On the other hand, the supply plans entail the improvement of infrastructure to increase the supply of well-located lands for delivery of new homes. Economic Analysis The Demand for Houses From economic theory, we understand that prices and other factors usually influence the demand for commodities. In Australia, the demand for homes is currently determined by other factors. Foremost, major cities like Melbourne and Sydney have experienced population pressure thus increasing the demand for accommodation units. Furthermore, low cost of borrowing for homes and the provision of tax concessions have had an impact on increasing the amount of money in the economy and hence growth in demand. Increase in Demand for Houses Price Demand Increase in city population, reduced cost of borrowing and provision of tax concessions on houses has resulted in growth in demand for houses in Australia. The growth in demand is shown by the shift of the demand curve from D1 to D2. The number of housing units demanded increases to Q2. Similarly, the price of homes has increased, that is, movement from P1 to P2. Scarcity in Houses While the demand for dwelling units has been increasing, the supply of homes has not changed to respond to the rising demand. The incapability of the supply to increase has been linked to underinvestment. For example, the government is not doing enough when it comes to the development of core infrastructures such as roads, water, and sewerage. As a result, there is the inadequate provision of suitably located land to facilitate the constructions of new houses. Moreover, inadequate infrastructure increases the costs associated with the building of houses and hence low supply. The aftermath of this situation is the shortage of houses that has contributed to the rising prices hindering low-income households from securing homes. The shift in demand from D1 to D2 resulted in an increase in the number of dwelling units required. The individuals now demand Q3 housing units while the landlords can only supply Q1. Therefore, the difference between Q3 and Q1 represents a shortage of homes in Australian real estate market. Recommendations It is evident that Australia is facing housing affordability crisis. The higher price of houses is an indication of market failure in rental apartments. Therefore, government intervention is necessary to restore the worsening situation and ensure that all the citizens have equal access to affordable housing. The state needs to focus on measures that will increase the delivery of affordable dwelling apartments. Foremost, infrastructure is essential to proper operation of the housing market in any country. Better infrastructures act as an incentive for property developers to continue providing additional homes(Gurran Phibbs 2013, p. 384). The government should, therefore, develop roads, water and sewerage services and other essential social amenities in different locations to increase the availability of well-situated land for development of new rental apartments. Studies depict that poor infrastructure raises the costs of constructing new houses and the landlords usually pass the costs to the purchasers of homes through hiked prices(McLaren, Yeo Sweet 2016, p. 54). Better roads and other essential social amenities will not only reduce the cost of providing homes but also reduce the prices of houses and hence affordable to many individuals. Furthermore, financial support is a major factor that facilitates investments in a country. The government should develop measures to increase the provision of funds to the property developers. For examples, the state can reduce the interest on loans made for the construction of residential houses. Providing the required financial and regulation support to the non-governmental organizations involved in the development affordable dwellings will also help the supply of cheap houses for low-income individuals. Land laws in Australia have been known to hinder the building of new homes. The country has stringent policies on land use which make it difficult for the delivery of apartments as the compliance costs are high(Rowley, Ong Haffner 2015, p. 480). If the government relaxes some of the strict land use regulations, then more houses can be constructed. The tax concessions should be limited to reduce the investor demand that has contributed to hiked prices of dwellings. Conclusion Higher prices of homes in Australia have denied the low and mid-income persons to secure affordable homes. The incidences of homeless are going to rise, and also more people will live in substandard houses. Key public employees who cannot afford to stay in their areas of work will suffer more. Therefore, the input of the government is vital given that it has the capabilities to use both supply side and demand side policies to restore the situation. The supply side policies should incorporate the improvement of infrastructure to guarantee sustainable delivery of homes. The state can also limit the investor demand by reducing the tax concessions provided to them. Bibliography Davidson, NM 2016, Affordable housing and public-private partnerships, Routledge. Gurran, N Phibbs, P 2013, 'Housing supply and urban planning reform: the recent Australian experience, 20032012', International Journal of Housing Policy, vol 13, no. 4, pp. 381-407. McLaren, J, Yeo, A Sweet, M 2016, 'Australia is Facing a Housing Affordability Crisis: Is the Solution to this Problem the Singapore Model of Housing? ', Australasian Accounting Business Finance Journal, vol 10, no. 4, pp. 38-57. Rowley, S, Ong, R Haffner, M 2015, 'Bridging the Gap between Housing Stress and Financial Stress: The Case of Australia', Housing Studies, vol 30, no. 3, pp. 473-490. Scutt, D 2017, RBA governor Philip Lowe only sees one way to solve Australia's housing affordability problem, viewed 25th April 2017, https://www.businessinsider.com.au/lowe-housing-affordability-2017-4.