Factors influencing high housing prices

Discuss about the Housing Prices In Sydney And Melbourne.

Notably, the housing prices in Sydney and Melbourne have sky-rocketed over the recent years. The surge in prices can be attributed to the fact that most household owners in the areas enjoy high income levels. The high household income is due to the fact that commodity prices have risen thus increasing household income .With the income increase, part of the Australian population can afford the higher housing rates (Parliament of Australia N.d).In addition high household income, the demand for housing facilities in urban areas has increased thereby leading to the high prices With the decrease in household sizes, be it from separation ,few dependents has increased the demand for housing facilities hence the rise in prices.

In addition ,to the high demand for houses in Sydney, Low interest rates on financial credit facilities has contributed to the high housing prices(Pettinger 2017).In the case of higher interest rates being issued by financial institutions, the price for mortgaged houses will go up hence the high housing prices in Sydney and Melbourne. Further, with high interest rates, the interest on mortgaged merchandise goes up thus contributing to the thigh housing costs in Melbourne. High mortgage rates are responsible for the high housing costs in Melbourne (Scrutt 2018).It is important that the interest rates on financial credit facilities be regulated to prevent the high price surges of commodities, Houses inclusive.

Typically, the laws of demand and supply dictate that in the event that the supply of a given product or service cannot meet the demand, the price of that commodity goes up. The same principle applies to the housing prices in Sydney .Usually, urban centers are a center for economic activity due to the well-equipped infrastructure and other factors. With the desire for better economic livelihoods, the immigration rate into urban areas in most cities is rampant thus putting pressure on the existing resources. The demand for houses cannot be supplied due to the ever growing population growth and limited land resource within the cities thus the high prices due to limited supply of houses. Typically, an increase in the demand for housing facilities alongside a decreased supply of housing facilities will cause the housing equilibrium price to rise hence the current high cost of housing in the two Australian cities.

Further, inflation is also responsible for the rising housing prices (Kohler 2015).Inflation directly impacts on the price of commodities due to the fact that producers have to make their profit after production. In the event that the construction raw materials for houses are inflated, the house owners and renters will be the ones to bear the additional production and cost of raw materials. The inflation levels in Australia directly inflated the cost of raw materials for the construction of houses thus increasing the price of the housing facilities. The fact that commodity prices are affected by the price of raw materials makes the end product affected by the price .The construction materials for houses has been inflated thus the highly inflated house prices.

Demand and Supply: Effect on Housing Prices

Undeniably, the high housing cost in Sydney and Melbourne had to be addressed. Among the actions taken in bringing the housing prices down, is boosting the housing supply within and around the cities (Bell 2017).The fact that there is more demand and less supply makes the price to go up but in the event that there is adequate or oversupply of housing facilities around this cities will automatically contribute to significant price reduction. In the case of equilibrium demand and supply, the price of a good or service stays at equilibrium. Alongside improving the supply of houses in the city, it is also important to make the cities more accessible through better infrastructure to ease the congestion.

In the event that the cities are easily accessible through infrastructure, many Australians will chose to live outside the city even though they work within the city. Predominantly, the incorporation of fiscal and monetary policies has proven effective in curbing inflation (Chand N .d).Primarily, monetary initiatives such as control of credit can be very effective in curbing high housing prices. This is because uncontrolled credit quantity allows many people to have much income thereby raising the prices for goods and services and housing is no exception .Credit control can be effected through higher credit rates which will discourage credit borrowing as opposed to lower interest rates that encourage more money in circulation thus the high prices for goods and services.

Through fiscal policies such as taxation, the high housing pricing might go down (Chand N. d).Higher taxation rates shift the supply curve upwards leading to a substantial deadweight thus reduced prices as illustrated in figure 1(Investopedia 2018).The taxation regime ought to be equilibrium because extremely higher taxation rates will completely discourage the supply of housing facilities .Primarily, the regulation of interests on loans can be effective in limiting the disposable income available. The imposition of a huge deposit for housing facilities might discourage the demand for housing facilities in Sydney or Melbourne. This Kiwi approach has been effective in solving a similar problem in Auckland (Pandey & Cole 2017).

Similarly, the approach has been implemented in China with a 40% deposit requirement for housing facilities within the city to discourage demand for housing facilities therein. In addition, the implementation of DTI policies might prove equally effective on Melbourne and Sydney cities.   

How To Afford Housing Facilities In Melbourne And Sydney As A Young Proffessional

Inflation and Its Impact on Housing Prices

Through the first home owner grant system, young Australians professionals are able to afford their own households in the highly priced cities of Sydney and Melbourne. Primarily, this form of ownership grant was introduced in the year 2000 by the Australian government. The grant is funded by the various states and are subject to the respective state legislation. In the event that a young professional applies for the grant and is awarded the grant, it is very easy for them to own a house anywhere in the Australian states. In addition, to the first home ownership grants, young professionals get to enjoy tax exemptions such as stamp duty, insurance and other reliefs (New South Wales, 2018).

In addition, the availability and easy accessibility of mortgage facilities to the Australian population is likely to encourage young professionals to own houses in highly priced areas. Mortgage facilities are available in Australia (Yanotti 2014).Financial institutions, Sacco’s, and other institutions have invested in offering mortgaging facilities to their consumers as an investment and in the bid of providing affordable housing population for the Australian population. Due to the various types of mortgage facilities and terms, these factors enable a young professional to own a house at a rather early stage in life. Mortgage facilities have made the dreams of home ownership for many Australians.

Moreover, the ease of accessing home loans has made the reality of home ownership so much real for most Australians (Scrutt 2018).According to the ABS estimations of financial lending to home owners, occupiers and investors,there was a one percent to thirty three point five billion in the year 2017.This goes to show how financial lending has boosted the housing sector in Australia. The fact that financial lending institutions are able and willing to supply credit housing facilities make it easy for a working young professional to secure a loan and own a house in the highly priced, Sydney or Melbourne.

Also, the implementation of affordable public housing system might help reduce high housing prices. In the event that the Australian government invested in affordable public housing systems in cities then the high cost of housing facilities will go down .Part of the reason the house prices are high in Sydney is due to the fact that they are owned and developed by private sector investors. In the event that a public housing system is implemented in the cities, cases of homelessness will be reduced and affordability of housing facilities will be enjoyed by Australian. Young professionals might be able to afford living in public housing system within or around the city due to the affordability of the public nature of the housing.

References

Bell, M. (2017).The high cost of housing and how to reduce it. Sydney University. [Online].Available at https://sydney.edu.au/business/itls/thinking/2017/the_high_cost_of_housing_and_how_to_reduce_it[Accessed 7 May 2018]

Chakraborty, A. (2014).”End field tears up rules in radical attempt to ease housing problem”, The Guardian, I September .Available at https://www.theguardian.com/cities/2014/sep/01/enfield-experiment-housing-problem-radical-solution [1 September 2014]

Chand, S. (N. d).Controlling Inflation: 3 important measures to control inflation. Article library. [Online].Available at https://www.yourarticlelibrary.com/macro-economics/inflation-macro-economics/controlling-inflation-3-important-measures-to-ontrol-inflation/31093[Accessed 7 May 2018]

Investopedia. (2018).Effects of taxes on supply and Demand. Figure, Viewed 7 May 2018, < https://www.investopedia.com/exam-guide/cfa-level-1/microeconomics/tax-effects.asp>

Kohler, M & Merwe, V.D.M. (2015).Long-run trends in Housing Price Growth. Semantics scholar. [Online].Available at https://pdfs.semanticscholar.org/7218/cac7c64402c313028c779d34c62bb6c35bf5.pdf[Accessed 7 May 2018]

Nd.Edu. (N .d).The effects of changes in demand and supply on equilibrium price and quantity. Nd.Edu. [Online].Available at https://www3.nd.edu/~cwilber/econ504/504book/outln3b.html[Accessed 7 May 2018]

New South Wales Government. (2017).The NSW government has developed a new package of measures designed to improve house affordability across NSW. New South Wales.  [Online].Available at https://www.nsw.gov.au/improving-nsw/projects-and-initiatives/first-home-buyers/[Accessed 8 May 2018]

Pandey, S & Cole, W. (3 Apr 2017).Australia can learn from NZ Housing as prices sink on regulatory clubs, or China. Financial Review. [Online].Available at https://www.afr.com/real-estate/residential/australia-can-learn-from-nz-housing-as-prices-sink-on-regulatory-curbs-or-china-20170402-gvc2hz[Accessed 7 May 2018]

Parliament of Australia. (N. d).Chapter 4-Factors influencing the demand for housing. Parliament of Australia. [Online].Available at https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Former_Committees/hsaf/report/c[Accessed 8 May 2018]

Pettinger, T. (2017).House Prices and Interest Rates. Economicshelp.Org. [Online].Available at https://www.economicshelp.org/blog/10942/housing/house-prices-and-interest-rates/[Accessed 8 May 2018]

Scrutt, D. (2018).The Value of Australian Home loans hits a 7-Month High. Business Insider. [Online].Available at https://www.businessinsider.com.au/australian-home-loan-lending-february-2018-4[Accessed7 May 2018]

Yanotti, B .M. (2014).A review of the Australian Mortgage Market. Tasmania School of Business. [Online].Available at https://eprints.utas.edu.au/17829/1/2014-01_Yanotti.pdf[Accessed 7 May 2018]