Reasons behind the Rising House Prices in Sydney

Discuss about the Diets and Potential Impacts of Policy.

The report deals with the study of the most contemporary issue regarding the house prices in the Australian city of Sydney. The construction sector in Australia has grown in leaps and bounds in the last few years and the real estate industry has also improved a lot in these few years. The report has shown the growing demands of houses among the people of Australia and the problems that currently persist in the country.

The objective of the project is quite clear in the topic itself as it aims to find out the socio economic impact of the rising prices of houses in the Australian city of Sydney. The report has analyzed and determined the reasons behind the rising prices of houses in Sydney.

As mentioned earlier part of the report, the report has provided a detailed analysis of the different types of reasons and the different types of elements related to the cause of the rising prices of the housing in the city of Sydney in Australia. Therefore the inclusion of all these elements has provided a much greater scope and serves as an excellent piece of work for the future works regarding the same topic.

There was a time when Australians used to answer healthcare, crime and cost of living in Sydney as the most important worries that they had in them. However the situation has changed since the last few years and there has been a change in the selections. Housing is the most common concern for the people nowadays as because there has been a sharp rise in the prices of housing and tough times are awaiting for the people in the coming future. A five year property boom in most of the major cities of Australia has been the main cause of such a tension. A popular report by a magazine has shown that around 1.3 million people in desperate need of houses (Jin Hoagland and Qiu 2015). About 60% of them are existing household that requires rental support and the rest 40% of them are the low income households who have restrained themselves from building or purchasing houses just because of the excessive cost that is involved in the housing sector. The rising price of the different types of the housing in Sydney as well as the cities of Australia has been a real headache for the survival of the low income population. The continuation of such a trend may result in the creation of a void economy with just two classes of people namely high class and the low class society. The sharp rise in the housing prices in the mentioned Australian city, the low income population of the city is finding it hard to manage a house of their own. The Australian people provide a great value for the houses in their lives and believe it as their single largest asset. Housing plays an important role in the social well being of the organizations and has been one of the key factors in the growth of the Australian economy. Therefore the rise in prices has disturbed the social and financial life of the low income households in Sydney (Knoll Schularick and Steger 2017). The report shows the socio economic impact of the rising prices of housing on the selected population in the mentioned city of the island continent.

Impact of Rising House Prices on Low-Income Households

According to, Forrest and Hirayama (2015) the global credit crisis has further added fuel to the fire and has led to the increase in both the demand as well as the prices of the housing. There has been also an impact on the working sector in Australia as employees and workers are demanding more wages as a result of their adaption to such high standards of living in the modern days. The rising price has forced the public and private sector organizations to meet up the cost of the daily expenses of the people working for them. Different studies show the alarming increase in the amount of mortgaged loans that are waiting for repayment by the people of Australia. The particular people who have outstanding mortgaged loans in Australia are mostly the people belonging to the low income households of the country. More than 70% of their salary or wages are spend in the repayment of the loans which severely affects their social and financial lives.

Similar to the sudden increase in the housing prices of Australia there has been a sudden decrease in the in the number of buying houses by the low income population of Australia. The decline has been due to the sole reason of the heated price of the following sector in the market. The market condition was not the same all the time as the housing market in Australia saw an upsurge in the buying and selling of houses from the year 2003 (Favilukis Ludvigson and Van Nieuwerburgh 2017). However the sudden increase was followed by a sharp decline due to the result of exaggerating prices of houses. This rise was enough to resist the low income group from buying or building properties and made them helpless. The activities of these particular low income groups thus faded with time and the current situation is too much volatile for them to handle.

The Australian Housing Boom which has experienced a price climb of housing properties in both Sydney and Melbourne is quite different from the earlier instances of price rising in the same cities. Speculation about the rising prices, record amount of low interest rates and a sharp drop in the price of the rentals has played a much bigger role in the current situation. The prices of home in the city of Sydney have reached unimaginable figures from the late 2000’s and have been a pain for the low income households. Some of the main features that have acted as the main reason for such a huge rise in the prices of the houses and real estate properties are as follows;

1. The investors have the tendency to fuel the prices of the houses to earn the maximum profit from each houses sold. The housing credit of the investors rose by 0.8% in the year 2017. On the other hand there was a rise in the investor finance in the real estate industry by almost 5% to an amount of close to $14 billion. The current situation has turned so grave that the regulator has requested banks to stop providing funds to the investors as a measure to counter the huge growth in the price of the housing properties. This is one of the most positive steps that helps to ensure the financial stability as well as helps to reduce the future impending growth of the prices of housing in Australia (Favilukis Ludvigson and Van Nieuwerburgh 2017).
2. There has been another recent trend in the real estate and housing industry of Australia as the investors in the industry are taking much less time to offload their properties. The reduction in the amount of rental yields has forced the investors to resort the properties. Resorting is the only possible action and also the only option for the organizations to keep the total returns up (Colic-Peisker Ong and Wood 2015). The traditional style of buying a property and holding onto it for a much greater period has totally changed and the contemporary trend is to buy a certain property and sell it within a short period of time to gain huge returns from such an investment.
3. Nowadays it is seen that Australian investors are not buying or selling only one or two particular sites, home or properties but they owns multiple properties which are sold to the buyers accordingly (Colic-Peisker Ong and Wood 2015). The problem that occurs in such cases is that the investor waits for the huge rise in the demand and price of the properties and ultimately sells them at a high escalated cost to gain the maximum possible revenue. The investors in such cases revalue the properties regularly and borrow at an unchecked rate. This can also turn out to be a pain for the investors as they might face huge crisis during the time of financial emergency which may lead to high amount of interest rates and fall in the prices of the properties.
4. Earlier the investors relied on banks and financial institutions that offered interest rates on loans for just five years. This type of loans have a special characteristic as because the principal remains intact and the borrower has to only cover the cost of the particular component that draws the interest. However the recent times have saw a change in the times and there has been a rise in the amount of mortgaged loans that are provided to the house owners by the banks and the financial institutions.

Economic Impact of Rising House Prices

The economic impact on the rising prices of houses has both negative as well as some positive impacts. The positive impacts of such a trend are as follows;

• There is a trend in the rise of the buying activities of the people of Australia due to the current phenomenon. The change in the financial status of the owners of the houses leads to a drastic change because of such a condition and their low income living gets more compromised (Bertrand and Morse 2016).
• As mentioned earlier there is a huge demand for the hosing in the market of Australia. The rise in the demand for housing has encouraged the low income buyers to shell out money beyond their capacity just to own the most valuable asset that they believe
• The rise in the prices of the houses leads to the aggregated rise in the economy of the country
• The Australian economy hugely benefits from the enormous amount of revenues that it generates from the state of Australia (Colic-Peisker Ong and Wood 2015). The more the rise in the stature of the following business sector, the economy will become compact.

The presence of positive aspects itself paves the way for the presence of negative economic aspects within the organization. This includes a number of direct as well as indirect impacts. These are as follows;

• The first and foremost negative impact of the rising prices of housing among the low income buyers is their economic and financial inability to opt for the houses because of the huge expenses to be incurred by them.
• Lonely and totally segregated households which had only one member or a handful of two to three members were the most vulnerable as they are under tremendous stress. They are unable to both opt for buying houses and leave the city (Colic-Peisker Ong and Wood 2015).
• The lower income household faced major problem in repaying the mortgaged amount or loans that they took from the financial institutions to build or purchase their houses
• At least 70% of the income including the wages and salaries of the lower income households are spent towards the repaying of the loans and mortgaged amounts
• The financial condition of the lower income household is totally ruined as a result of the rise in the prices of the housing sector
• The loss of the rate of consumption can lead to a severe economic crisis
• The economic impact as a result in the fall of business in the retail sector can lead to disturbances in the economy of the country

The rise in the prices of housing and other properties has a key impact on the economic as well as the social life of the low income households. Some of the key social impacts of the rise of the business are as follows;

1. Repaying the large sums of mortgaged loan will be an uphill task for the organization as because it will involve a huge sum of money that is quite tough to repay for the poor household
2. The buyers of the particular category has to manage their budgets adjust them and will have to implement them both before and after the buying process is finalized.
3. The inability of the low income households to purchase their dream houses forces them to either rent the houses or stay in a very typical and unhealthy environment.
4. The rising prices of the houses in Sydney have a negative impact on the social life of the individuals as because they are forced to compromise with short spaced budget houses that are not healthier and do not provide the ample amount of space for proper life (Bertrand and Morse 2016).
5. The social activities of the low income households have to be kept on a restriction as because they are unable to make any extra expenses given their tight budget schedule.
6. The people who fail to buy houses fear from social insecurity and social seclusion. This happens as most of the people in Australia consider homes as one of the single largest asset of the country.
7. The absence of a proper social life can lead to a number of different types of mental, economical and financial distress among the low income population of the island continent.

There is a huge demand for housing in Australia and Sydney turns out to be the hotspot of the demand as it has seen an unprecedented rise in the demand for modern, luxurious to semi luxurious or cheap households (Lee et al. 2016). The above stated report clearly highlights the growing problems in the Australian housing market and its impact on the low income households. The situation has been worsening since the last decade as the growing prices of buildings and houses have been the direct or indirect cause for the increase in the prices of other daily materials. The continuation of such a same situation for another 5 to ten years can be devastating as the economic and social balance of the Australian society will experience a paradigm shift (Aalbers 2016). The middle class society will completely be removed and there will be only two kinds of society in Australia, one being the high class and the other being the low class with a huge void left in between them. This huge void can lead to a total destruction in the social and economical aspects of the Island Nation.

Conclusion

The following report has been successful to properly analyze the current situation in the housing market of Sydney. The report shows the problems with the low income households of the organization and their plight on buying houses. The current situation has restricted this mentioned population from owning a proper house in Sydney. The report has quite well determined the different elements related to the characteristics of housing in Sydney, the contemporary trends that is being followed by the investors of housing properties and has also discussed the impact of rising house prices in Sydney on both the social and economic life of the low income households of the mentioned city.

Reference List

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