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Economics: High Housing Pricing

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Question:

Discuss about the Economics for High Housing Pricing.

 

Answer:

Introduction 

Notably, Melbourne and Sydney have recorded high housing pricing as compared to other areas in Australia. Currently, housing affordability in Sydney and Melbourne is not affordable for some of the Australian population. Also, the housing prices in these two places are considered overpriced thus deterring potential new house owners in these areas. Predominantly, the housing skyrocketing prices are attributed to inadequate supply of decent housing facilities in Sydney and Melbourne(Collyer,2016)However, some observers attribute this high pricing of housing facilities to high number of migrants moving into Sydney and Melbourne thus encouraging the housing shortage and high pricing.

Reasons for High Housing Pricing

Primarily, general economic conditions of a country influence the pricing of commodities and services and housing is no exception. Financial regulation is vital for any sector of the economy. Easy accessibility to credit facilities has enable most of the population to own households in various part of the Australian state thus easy availability of income to afford housing facilities. Subsequently, this has put pressure on the demand and supply of housing facilities in urbanized areas like Sydney and Melbourne.Naturally,with high demand for a good or services, there’s need for equal supply to meet the growing demand thus causing an upsurge of prices .

Further, interest rates on credit facilities has the potential to affect housing prices in that low interest rates have encouraged borrowing by potential home owners (Holt, 2009) Typically, low interest rates imply most of the population will have access to credit facilities with low interest rates hence they will be able to afford decent housing in urbanized places like Sydney and Melbourne. Usually, high interest rates is likely to deter borrowing by potential house owners hence less demand for houses at high prices and high interest rates.Particularly,low  interest rates imply that house owners will have low repayment rates as compared to high interest rates which mean  equally high repayment rates.

Predominantly, government regulation is vital for any industry in the economy.Notably,the government of Australia regulates land use  through policies and planning requirement for erecting building in urban areas.Notably,Australian law prohibit use of new land for developmental purposes thereby limiting available land for housing facilities in urban areas.(Collyer,2016)Further, government regulation on how land ought to be used is also a hindrance for building of dwelling facilities for the growing demand in Melbourne and Sydney.Notably,policies have been formulated prohibiting greenfield development thereby creating supply deficiency rates in Sydney and Melbourne.         

Specifically, foreign competition for the housing market in Australia is not favorable for local housing investors. Substantially, foreign housing developers have had better incentives in investing in Australia which has demoralized local investors(verrender,2015)The influx of foreign house developers has encouraged  more foreign dwellers than Australians thereby causing high prices and housing shortage for Australians. Despite foreign investment, most of the Australian population cannot access affordable and decent housing due to high pricing of the houses and the influx of foreign Australian dwellers. Significantly, foreign dwellers have created housing competition between them and the Indigenous people.

Significantly ,population increase affects demand and supply of any good or service .Notably, more people implies more resources.Similarly,the migration of part of the population to Sydney and Melbourne has causes an increase in demand for houses hence the high housing prices due to the limited supply of  decent housing facilities.Arguably,it is viewed that foreign migrants are drawn to urban areas for better working conditions as compared to rural areas hence the pressure on housing facilities in Sydney and Melbourne.Also,local migrants from other Australian states to Melbourne and Sydney have also added pressure  to the already existing demand for houses in Sydney and Melbourne thus the high prices.

Undeniably, increase in household size affects housing arrangements and affordability trends of housing facilities.Notably,Housing facilities in Sydney and Melbourne average sizes have relatively increased with most dwelling facilities adopting a luxurious approach.Consequently,housing developers are incurring substantial increases in their construction budgets hence the increase in housing prices in Sydney and Melbourne.Further,housing developers are more focused on big houses rather than small housing capacities thus the reduced supply of small housing units creating huge demand on available small unit housing capacities thus the high prices for houses in these two areas.

 

Regulation of Housing Prices

Consequently, regulation of housing prices in Sydney and Melbourne has become critical and necessary for the Australian Government. Subsequently, the Australian government has incorporated various measures and policies to mitigate the negative effects of high housing prices on its citizens .Negatively, the high housing prices has encouraged homelessness , high interest rates on credit facilities and high repayment rates and periods for most Australians.

Primarily, financial incentives have been availed to housing developer through grants and subsidies to encourage housing investment. Through this grants and incentives the government aims to boost the number of houses to meet the ever growing demand for housing facilities in Australia. The supply of housing facilities is likely to increase due to incentives given to housing developers through grants and subsidies. The availability of these grants and subsidies to local and foreign housing sector investors has encouraged more housing supply, affordable and decent housing to Australians and foreign dwellers, increased developer incomes and also boosted government revenue in the long term thus the need for more grants and subsidies availability.

In addition, the availability of public housing facilities is likely to reduce high prices of few housing facilities available .Notably, government investment into public housing facilities will create many affordable and decent dwelling places for most of its population. In turn, easy and affordable housing will reduce demand for more houses which are likely to be expensive in urbanized places thus encouraging moderate house pricing in Australia (Dalzell, 2016) Notably, public housing initiative ought to be undertaken by government agency in order to provide basic and decent housing to most of its population thereby reducing homelessness and reducing high housing prices.

Further, there are available option s for new home owners in the Australian market. Notably, credit facilities such as loans and mortgages are accorder to dream owners in most Australian states .Also, housing schemes have been developed to boost the supply of housing facilities and to make the hope of decent housing arrangements available to the Australian households.Predominantly,shared ownership of housing facilities has been able to accord decent housing facilities for some people( Dalzell,2016)Through the Australian housing department, new potential home owners open start loans that is shared with the government credit provider.Also,reduction of initial purchase cost is done to encourage home ownership.

Notably, the government has a 30% stake in the purchased home allowing the borrower to exclusively buy out the government and have sole home ownership at borrowers convenience thereby empowering a young professional own his /her own home eventually at the high housing prices in Sydney and Melbourne.Significantly,this shared home ownership will enable a young professional secure decent housing facilities despite his or her current income status and later fully own the home when he or she is able to buy out the government of its stake of the house thus making him a sole home owner in the highly priced areas of Sydney and Melbourne. This shared ownership concept was a government based agency initiative to create more homes.

Notably the availability of grants to first time home owners has been able to achieve home ownership dreams of many young professionals in Sydney and Melbourne. Application for first home owner grants can be made by young professionals to the housing government department (Office of state Revenue, 2017)Substantially, these first grant application have been able to accord decent housing facilities to first time house owners due to the financial assistance accorded to persons who can’t afford to finance own home ownership expenditure at the time.Usually,successful first home grant applications has helped young professionals afford the houses of their dreams despite their current financial condition.

Also, easy accessibility to mortgage loans to the Australian population is a good and viable option for a young professional to own a house in Sydney and Melbourne despite the high pricing of houses. Through mortgage loans, decent housing has been availed to persons who cannot afford to buy or rent a house right now to be able to afford affordable and decent housing with the option of paying for the house according to the mortgage terms. Notably, mortgage is a common way towards home ownership in developed economies and Australia is no exception. Financial facilities have been able to accord mortgage facilities to current home owners worldwide.

Conclusion

Inevitably, the housing market price in Australia s, Sydney and Melbourne is among the highest in the world. Predominantly, the high prices have been attributed to easy accessibility of credit facilities, low interest rates, and regulation of land use by government and increased in population due to foreign and local migration.However,the government Of Australia has implemented measures to mitigate the negative effects of the housing bubble .Notably, grants and subsidies have been availed to housing investors and public housing initiatives to help meet the demand and supply of housing facilities. However, housing affordability by young professionals has been made possible through shared home schemes, first home owner grants and favorable mortgage arrangements.

 

References

Collyer, D. (2016). Australia’s housing bubble and the road to private serfdom. [Online] Prosper. Available at: https://www.prosper.org.au/2016/04/12/australias-housing-bubble-and-the-road-to-private-serfdom/ [Accessed 14 Mar. 2017].

Dalzell, S. (2016). Push for shared home ownership scheme in NSW to help those locked out of the market. [Online] ABC. Available at: https://www.abc.net.au/news/2016-07-27/calls-for-nsw-shared-home-ownership-scheme-to-be-introduced/7666232 [Accessed 14 Mar. 2017].

First Home Owner Grant (New Homes) Scheme. (2017). [Online] Office of State Revenue. Available at: https://www.osr.nsw.gov.au/grants/fhog [Accessed 14 Mar. 2017].

Holt, J 2009, ‘A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper, Journal of Business Inquiry, vol. 8, no. 1, pp. 120-125.

Law, J. (2016). Housing affordability: Are foreign investors to blame for Australia’s high property prices. [Online] News.com. 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 [Accessed 14 Mar. 2017].

Verrender, I. (2016). Who's the real culprit behind soaring house prices? (Hint: it's not Chinese buyers). [Online] ABC. Available at https://www.abc.net.au/news/2015-06-08/verrender-whos-the-real-culprit-behind-soaring-house-prices/6528710 [Accessed 14 Mar. 2017].

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