Discuss about the Business Macroeconomics for Australian Economy.
Housing is one the most important sector in the Australian economy and house is an asset that is owned by majority of Australian households. It is considered as an effective component of household’s wealth and also as popular investment decision. Changes in housing prices are a result of change in behaviour of number of economic variables. Biggest increase in residential property prices around 19.9% has been observed in Sydney during the year 2015.
Reasons behind surging housing prices in Australia
Population growth is fundamental to increasing housing demand, as it directly affects the number of households requiring accommodation. Population growth includes both natural increase and net migration. There has been continuous increase in population of Australia as a result of migration or increasing immigrants. This creates a direct impact on increasing housing prices in Australia as demand for accommodation increases at a higher rate. Migration added 473500 people to the Australian population (Davey, 2015). Sydney records its highest interstate migration in more than 35 years. This will automatically results in surging housing prices.
Increase in housing prices creates a drastic impact on inflationary conditions in Australia. As increasing number of immigrants increase population and thereby increasing prices of house in Australia as demand for dwelling increases at a higher rate. Moreover, in Sydney and Melbourne, the property values have grown faster than the rate of inflation over the previous five years. The real housing value growth in all cities of Australia in past five years is less than 1.5% in all cities except Sydney and Melbourne where growth rate is 12.5% and 4.2% respectively (Kusher, 2016). Additionally, increasing inflation leads to increase in maintenance cost of housing in Australia.
Livability index higher than other countries:
Australia is one of the most liveable places in the world having effective health status, housing conditions, subjective well-being, job and earnings. Australia is also second best country for its quality of life. Effective liveability conditions of Australia create its long lasting impact on majority of general people and immigrants. This leads to creation of more and more demand for housing facility in Australia. Among the major cities in Australia, Melbourne is the most liveable city. Additionally, the structure and conditions of housing also affects the liveability of cities effectively leads to increase in its prices (Australian Government, 2011). Therefore, increasing demand for housing facility leads to drastic increase in housing prices effectively.
Preference of people for home than Apartments:
Preferences of people to live in their own separate house as compared to apartments contribute effectively in increasing housing prices in Australia. The reason behind preference for house is its effective structure and housing conditions. Along with this, increasing prices of house leads to decrease in housing affordability because it will increase the difference between income level of people and price of houses. As per year 2014, the current ratio of housing prices in Australia to average people’s income is 31.6% (Jericho, 2014). This shows least affordability of housing facility due its increased price.
Inability to compete with foreign investors:
The high housing prices were currently experiencing in Australia especially in Sydney and Melbourne. There are large number of foreign investors in these areas who are willing to pay top dollar and locking the chance of local people to purchase houses. This leads to increase in affordability issue for local people because of willingness of foreign investors to pay even high price for purchasing the property (Law, 2014). Ultimately, it will results in inability of local people to compete with foreign investors.
Macroeconomic solutions the government can undertake to ensure affordable housing prices
Secure and affordable housing is fundamental to the wellbeing of Australians. It provides a platform for a wide range of benefits including connection to the community stable employment and a sense of home. There are large number of Australians who are not able to access affordable and sustainable housing. So, there is wide range of action taken by government of Australia for providing secure affordable housing to eligible Australians. At Common wealth level, the government makes different macroeconomic policies that influence the housing outcomes such as taxation setting, financial sector guidelines, development of infrastructure, income support system, immigration policy and agreement related to national housing (Gurran, et al., 2015).
Government building social housing for poor:
The facility of social housing is introduced by state government of Australia to provide housing facility to low income families and for homeless and poor people. It includes houses owned and managed by state government, housing managed and owned by community housing providers, and housing owned by Aboriginal Housing Office. The aim of government behind this policy is to provide dwellings that effectively help to meet priority social housing needs of people. The housing policy leads to creation of 23500 new social and affordable housing dwellings in Sydney (Yeomans, 2016). In addition to this, providing affordable housing is the important part of national economic infrastructure that leads to effective fulfilment of accommodation need of low income and homeless people.
First-time home owner grant (New Homes) scheme:
First home owner grant scheme was introduced by Australian government to help eligible first home owners for purchasing a new home or to build their own home through offering grant to them. The amount of grant is decided according to the date of eligible transaction. The date of eligible transaction is the date when contract to purchase a new home or contract to build a new home is made. Moreover, the eligible date for an owner builder is the date when the work of building starts. In addition to this, the eligibility criteria for buyer for getting grant includes that the date of contract must be either 1 January, 2016 of after this date, the home that buyer is going to purchase should be new and the age of buyer should be above 18 (NSW Government,2016). Along with this, the value of property should not be more than First Home Owner Grant Cap of $750,000, it is also required that minimum one applicant is an Australian citizen or permanent resident and there is also requirement to live in a home for a minimum period of 6 months.
The grant amount for eligible transaction made on or after 1 January 2016 is $10,000 and the grant amount for transaction that is made between 1 October 2012 and 31 December 2015 is $15,000. Moreover, if a person receive the grant and fail to meet the eligibility requirement of receiving grant that it is required by that person to replay the grant. If the person fails to do this, then it can result into payment of penalty by that person up to $11000 and prosecution.
National Affordable Housing Agreement (NAHA):
The National Affordable Housing Agreement is introduced by Australian government to ensure that all Australian have chance to get affordable, sustainable and safe housing that will effectively helps to promote social and economic participation. The NAHA is an agreement by Council of Australian Government including whole-of-government approach for solving housing affordability problem effectively. This agreement offers $6.2 billion worth of housing backing for low and middle-income Australians (Australian Government, 2016). Additionally, this agreement is also supported by National Partnership Agreements on different aspects like social housing, homelessness and native Australian living in remote areas.
Actions taken against foreign investors:
As per Australian government, no foreign investor allowed to make investment for purchasing property in Australia without the approval of Foreign Investment Review Board (FIRB). The government has also announced that no foreign investor can purchase existing residential real estate without government permission. However, they are allowed to purchase new residential property according to the demand of housing stock. As per new laws of Australian government, the residential estate functions are transferred from FIRB to Australian taxation office. Moreover, the government has also taken strict actions against foreign investor who purchase property illegally, by either charging penalties or by forcing them to divest (The Guardian, 2015). The government is more concerned about housing affordability than high-end real estate transactions, so that lower and middle income families can get accommodation. Additionally, government of Australian has also decided to increase the price of stamp duty and land taxes in order to prevent foreign investors to buy real estate properties in Australia.
Other initiatives taken by government:
Government of Australia also develop various initiatives through making changes to its planning legislation for increasing supply of affordable housing efficiently. Government has taken various measures to improve affordable housing facility initially through its State Environmental Planning Policy (Affordable Rental Housing) 2009 and afterwards through State Environmental Planning Policy No. 70 Affordable Housing. However, The NSW Government also established Greater Sydney Commission and it is effectively implemented by government to improve the supply of affordable accommodation facility in Sydney. The Greater Sydney Commission includes local and state government representatives and also independent experts for making effective planning and its implementation (NSW Government, 2015). Therefore, the solutions that are introduced by government are effectively helpful in improving the supply of affordable housing for lower and middle income group persons in Australia.
Australian Government (2011) Livability. [Online]. Available at: https://www.environment.gov.au/science/soe/2011-report/10-built-environment/2-state-and-trends/2-1-livability .
Australian Government (2016) National Affordable Housing Agreement. . [Online]. Available at: https://www.dss.gov.au/housing-support/programmes-services/national-affordable-housing-agreement .
Davey, M. (2015) Australia's population increase from migration continues to slow. The Guardian. [Online]. Available at: https://www.theguardian.com/world/2015/jun/26/fewer-australians-are-moving-overseas-but-more-are-moving-to-victoria.
Gurran, N., Phibbs, P., Yates, J., Gilbert, C., Whitehead, C., Norris, M., & Goodman, R. (2015) Housing markets, economic productivity, and risk: international evidence and policy implications for Australia—Volume 1: Outcomes of an Investigative Panel. Australian Housing and Urban Research Institute (AHURI), pp.1-101.
Jericho,G. (2014) Why Australia is the third most expensive place to buy a house. The Guardian. [Online]. Available at:https://www.theguardian.com/business/grogonomics/2014/jun/12/why-australia-third-most-expensive-houses.
Kusher, C. (2016) Sydney & Melbourne growth outpacing inflation. Realestate.com.[Online]. Available at: https://www.realestate.com.au/news/sydney-melbourne-growth-outpacing-inflation/ .
Law, J. (2014) Housing affordability: Are foreign investors to blame for Australia’s high property prices. News.com. [Online]. Available at: https://www.news.com.au/finance/real-estate/buying/housing-affordability-are-foreign-investors-to-blame-for-australias-high-property-prices/news-story/710ba2cff1932f0fb3f81ce83a07946b .
NSW Government (2015).Affordable rental housing: the problem and its causes. [Online]. Available at: https://www.parliament.nsw.gov.au/researchpapers/Documents/affordable-rental-housing-the-problem-and-its-ca/Affordability%20in%20a%20nutshell%20-%20E-brief%20FINAL.pdf.
NSW Government (2016) First Home Owner Grant (New Homes) scheme. [Online]. Available at: https://www.osr.nsw.gov.au/grants/fhog .
The Guardian, (2015) Foreign investors face crackdown on Australian property purchases. [Online]. Available at: https://www.theguardian.com/australia-news/2015/may/03/foreign-investors-face-crackdown-on-australian-property-purchases.
Yeomans, C.(2016). Social housing: Mike Baird has set the standard for the rest of Australia. [Online]. Available at: https://www.abc.net.au/news/2016-01-27/yeomans-commonwealth-should-take-lead-on-social-housing-policy/7118172