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Content

1. Introduction
2. Economic Analysis
3. Personal views
4. Conclusion
5. References

Introduction

Australia is considered as a developed economy in the world. The lifestyle falls under the category of high income country. This article deals with issues of affordable housing and its implications with respect to supply and demand.

The author has a few valid points to consider. One being the fact that as Australians are in the high income bracket, they buy housing as an investment. They see this as a sound investment opportunity, and sell the same when the prices rise in the near future. Unfortunately, with the rise in trend of buying houses, the chances of supply will keep going up. Another important point the author considers is the historic lag in the supply of houses. This is due to the fact that the demand is much higher than the time it is being supplied in. this is causing the prices of housing to not come down. We will conduct an analysis on how to deal with such a situation.

The Australian housing bubble is considered as the widest and deepest asset bubble in the history of the capitalistic world. Most Australians plan their finances around owning property and housing. It can be shown in his article that increasing supply is not the solution to the housing affordability issue.

Economics Analysis

Let’s take a look at the above diagram. It can be seen that with a rise in demand, there is a similar rise in supply to meet the rising demand. With that, a systematic rise in prices is also seen. For example, a vendor has one apple and there are two customers willing to buy it. One customer has a higher buying power than the other. The vendor will increase the price of the apple so as to get a maximum profit for himself. The customer with the higher spending value will buy it, and the other will not get an apple.

With the same logic, the government of Australia, provides incentives to any sector that in turn helps in the growth of the economy. As the housing sector has seen the longest running growth, the government has provided many incentives to this sector like cheaper loans. Hence, increasing the demands in the housing sector.

This has in turn led to the lack of growth in the other tradable sectors of manufacturing. As the housing sector has pulled up the other sectors of steel and cement, the short term goal seemed right to the government.

Personal Views:

The Australian citizens have been seeing the housing and property possession as a lifestyle necessity for too long. As the income has increased in the average Australian household, the investments have largely been in the housing sector.

I see the rise in income and a shortage of avenues for investments as the main cause of such a rise in housing prices. This coupled with the innumerable incentives provided by the government, are pushing the citizens to invest in housing. The investment in property is taking place in the urban areas, which has a limited amount of space to expand in. This is another factor that is driving the prices of housing upwards.

With a change in land hoardings outside the urban areas of Sydney and Melbourne, the government can invest more in infrastructure instead of incentivizing the housing sector. This will bring down the demand in the housing sector, but increase the demand in the allied sectors of cement and steel.

This will help in reducing the demand of housing, by not affecting the GDP growth of the economy.

Another parallel solution can be to open up more avenues for investments for the citizens of the country. With a rise in infra growth, the government can provide debt funds as options for citizens to invest in. Thus, not just providing a channel for investments for the citizen but also bringing in the required funds for the government in the infra sector.

Conclusion:

I have come up with two recommendations after the analysis of the article.

• Increase supply of land, to bring down prices. As mentioned earlier, the supply has never caught up with the ever growing demand. Once the supply is more than the demand, the prices will automatically come down. (Image (A))

  

• Reduce the demand without affecting the prices and GDP growth. This can be done by diverting the demand for investment options on the citizens from housing into other avenues. (Image (B))

  

Thus, with a shift by the government from housing to infrastructure, and the shift of the citizens from investing in housing to other avenues, the issues with affordable housing in Australia can be changed in the near future. This can also help the economic GDP to be overly dependent on the housing industry and as they say “not put all the eggs in a single basket”.

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