In the contemporary period, the global economy and overall dynamics have faced considerable dynamics, thereby leading to considerable dynamics and activities in almost all the major countries across the world, of which Australia a primary one. Australia, has remained as one of the primarily developed and influential economies in the global scenario, showing immense development over the decades and impressive performance in almost all the economic and social indicators of the country (Bishop et al., 2013). The country has experienced huge booms in its economy owing to robust industrial and mining development, with considerably increase in its economic prospects over the years.
The increased economic prospects have led to an increase in the population growth of the country, much of which can be attributed to the huge inflow of people from all parts of the world, in search of jobs, economic prospects and an overall better life with high standards of living and secured environment (MacKillop, 2013). The inflow of immigrants has been specifically high in the urban and economically developed zones of the country, including Melbourne, Sydney and Victoria, which in turn has resulted in an increase in demand for the housing facilities in these regions. The demand for housing facilities being higher than the supply has led to an affordability crisis in the country in the contemporary period.
In this context, the assignment tries to discuss the recent phenomenon of striking increase in the prices of residential lands in the country, referring to the news article, “The cost of residential land in Australia is going through the roof”, published on February 14th, 2018 (Scutt, 2018). The report takes help of the different conceptual tools of microeconomics to analyse the concerned issue of concern in the geographical domain of the country.
The concerned article highlights one of the issues of immense concern in Australia in the contemporary period, which is highly related to the housing affordability crisis of the country, the issue being that of the consistently soaring prices of the vacant residential lands in the country. The article asserts, in this aspect that the median price of the vacant residential plots has gone up 10.9% higher than their rates in the previous year (Nicholls, 2014). The hike in the median prices of the same has been much higher in the capital city areas has been much higher than that of the other areas in the country.
As is evident from the above figure, the median residential prices have gone up steadily over the years. As per the arguments put forward by the concerned article, this increase in the prices of residential lands in the country has been one of the primary factors which has kept the supply of housing properties in the country lower compared to the demand for the same and is thus one of the primary reasons behind the increasing housing affordability crisis in the country in the contemporary period (Knoll, Schularick & Steger, 2017).
The housing demands being stronger in the metropolitan cities, supported by the low mortgage rates and housing subsidy as well as government schemes, the availability of lands are even lesser in the metropolitan and highly economically active zones of the countries which in turn has led to even more striking increase in the residential lands in these regions as can be seen from the following figure, showing the situation in the market of Sydney:
The increase in the price of residential lands across the different regions have been however different across the decades, within the country itself, which the article shows as follows:
These evidences, together indicates that in the contemporary period the rising prices of land values in Australia is one of the primary issues of concern in the country and is also one of the primary reasons behind the housing affordability crisis in the country, as per the assertions of the article.
As per the assertions of the article, the report tries to discuss the primary issue of concern in this aspect and also tries to highlight the impacts of the same on the different stakeholders who are affected by the issues into consideration.
As is evident from the assertions of the article, Australia, in the contemporary period has been found to be experiencing an acute crisis in the housing affordability, with the prices of the houses consistently increasing with time. This increase in the house price of the country as well as the increase in the rents can be seen as follows:
The house price of Australia, can be seen to be increasing at a higher rate than that of the global house price index as can be seen from the following figure:
However, the problem of the house price increase in the country is not only attributed to that increase in the demand for the same in the country. The main problem behind the increase in the housing prices of the country can be mainly attributed to the huge increase in the price of the vacant residential lands in the country, especially in the urban and highly developed economic zones of the country (Kulish, Richards & Gillitzer, 2012).
The primary stakeholders in these situations are the ones in the demand side as well as in the supply side of the residential land market. The supply side of the market being represented by the land owners, these people have deliberately kept the land non-available to some extent, in order to increase the price of the same. On the other hand, the demand side of the market represents the construction companies who feel the supply unavailability of the land resources, which in turn has led to the increase in their cost of production, thereby affecting the prices of their housings (Scutt, 2018). This in turn has affected a significant share of the population, especially those in the lower and middle-income sector of the society, as can be seen from the following figure:
The problem discussed above can be explained with the help of the concepts of demand and supply dynamics in the theoretical and conceptual framework of economics. In terms of economics, the demand for normal commodity is inversely related to the price of the same, which makes the demand curve negatively sloped. On the other hand, the supply of normal commodities increases with the increase in the price of the same and vice versa which makes the supply curve usually upward rising (Baumol & Blinder, 2015). Therefore, in the market, the equilibrium occurs at the point, where the quantity demanded of a commodity is equal to the quantity supplied, which can be seen as follows:
As is evident from the above figure, the equilibrium in the market occurs at the point E, where demand and supply curves intersect each other. Any deviation from that point causes market distortions, thereby affecting the price level of the commodity or service in concern.
This is what has happened in the residential land market of the country, which in turn has caused the housing affordability crisis. With the increase in the population of he country, the demand for residential properties has also increased, which is shown as follows:
This in turn has encouraged the suppliers of housings in Australia to indulge more in creating new housings, for which new lands are required (Frank & Cartwright, 2013). However, the land resources being constant in the country, the suppliers of housings face an almost inelastic supply curve for vacant residential lands in the country, the effects of which can be seen as follows:
This, clubbed with that of the increase in the demand for the land in the country in face of increase in the demand, has led to a huge increase in the price of the vacant lands, thereby leading to the increase in the cost of production of new housing supplies, which in turn is one of the primary reasons behind the concerning issue of housing affordability crisis in Australia (Nicholson & Snyder, 2014).
Conclusion
The problem of housing affordability crisis can be avoided to some extent if the supply of residential lands in the country can be mobilised. The main problem in this context is that the suppliers of vacant land, knowing the increasing value of the same often deliberately keeps their land unavailable or available at a much higher price. This can be averted to some extent, by the government of the country, by imposing a price ceiling in the residential market. By doing this, the price of the lands can be limited to a maximum level above which no seller can sell their land in the country.
References
Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Cengage Learning.
Bishop, J., Kent, C., Plumb, M., & Rayner, V. (2013). The resources boom and the Australian economy: a sectoral analysis. RBA Bulletin, 39-50.
Businessinsider.com.au. (2018). Australia has 5 of the world’s 20 least affordable cities in which to buy a home. Retrieved from https://www.businessinsider.com.au/australia-has-5-of-the-worlds-20-least-affordable-cities-in-which-to-buy-a-home-2016-9
Cpd.org.au. (2018). Tim Hamilton | Costing us the house: Reforming policy for affordability – Centre for Policy Development. Retrieved from https://cpd.org.au/2011/03/tim-hamilton-costing-us-the-house-reforming-policy-for-affordability/
Frank, R., & Cartwright, E. (2013). Microeconomics and behaviour. McGraw Hill.
Knoll, K., Schularick, M., & Steger, T. (2017). No price like home: Global house prices, 1870-2012. American Economic Review, 107(2), 331-53.
Kulish, M., Richards, A., & Gillitzer, C. (2012). Urban structure and housing prices: Some evidence from Australian cities. Economic Record, 88(282), 303-322.
MacKillop, F. (2013). Sustainable as a basis of affordable? Understanding the affordability ‘crisis’ in Australian housing. Australian Planner, 50(1), 2-12.
Nicholls, S. (2014). Perpetuating the problem: neoliberalism, commonwealth public policy and housing affordability in Australia. Australian Journal of Social Issues, 49(3), 329-347.
Nicholson, W., & Snyder, C. M. (2014). Intermediate microeconomics and its application. Cengage Learning.
Scutt, D. (2018). Data shows a huge underlying problem for Australian house hunters: land prices have been soaring. Retrieved from https://www.businessinsider.com.au/australia-housing-affordability-new-land-price-population-growth-2018-4
Scutt, D. (2018). The cost of residential land in Australia is going through the roof. Retrieved from https://www.businessinsider.com.au/housing-affordability-australia-residential-land-prices-2018-2
Worthington, A. C. (2012). The quarter century record on housing affordability, affordability drivers, and government policy responses in Australia. International Journal of Housing Markets and Analysis, 5(3), 235-252.
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