Supply of Homes in Sydney and Melbourne †Myassignmentehlp.Com

Question: Discuss About the Supply of Homes in Sydney and Melbourne? Answer: Introduction The article titled Kochie takes aim at the government to fix housing affordability by David and Libby Koch on 21st March 2017 talks about the demand and supply of houses in two largest Australian cities, Sydney and Melbourne. Compared to other cities in the Australian, these two major cities are facing housing affordability crisis. The demand for dwellings in these towns is high than the supply a scenario that has led to the price hike. As a result, many individuals are unable to own a home in Sydney and Melbourne. Several factors cause a high demand for houses. For instance, high immigration levels in Sydney and Melbourne has increased the population and hence a strong demand for dwelling units. Moreover, investor activity, from both local and foreign buyers has increased the demand for houses. Statistics shows that the foreigners especially from China, United Kingdom, and India buy approximately 10% of the homes(David; Libby Koch; News Corp Australia Network 2017). David and Libby Koch criticizes some of the government actions of addressing housing affordability as unbalanced since they tend to increase demand and price pressure in real estate market. Instead, the management argue the government to focus on measures that will subdue the demand and at the same time increase in the supply of houses to solve the housing unaffordability in the main Australian cities. Article Analysis Demand for Houses Both Melbourne and Sydney are currently facing high demand for homes compared to other regions in Australia. Population increase is one the factors that can be used to explain this situation. There is high influx of persons both from oversea countries and within Australia to the major cities in search of opportunities a situation that put pressure on accommodation units. Reduction in the cost of borrowing for homes in Australia in the recent years made individuals to increase their demand for houses and hence shortages. Additionally, the investor demand facilitated by the availability of tax concessions has resulted in increased speculative demand among the investors in anticipation of capital gains(Rahman 2010, p. 579). The investors buy houses and retain them waiting for prices to rise to make more profits. Retrieved from Australian Bureau of Statistics On the chart above, it is clear that property prices are high in Melbourne and Sydney. In September- December quarter of 2016, the house prices in these cities rose by 5.3% and 5.2% respectively. The annual price increase in Melbourne and Sydney were also higher than other cities, that is, 10.8% and 10.3%(Australian Bureau of Statistics 2017). Quantity As noted earlier, several factors have contributed to the high demand for dwellings in Melbourne and Sydney. This scenario can be demonstrated by the use of demand and supply model. On graph one above, growth in demand for homes is shown by the shift of demand curve towards right from D1 to D2. The change leads to price hike, from Pe to P1 as well as the number of dwellings required from Qe to Q1. Supply of Homes Shortage of housing units in Australia is a clear indication that the supply is unable to put the rising demand in check. Several factors impede the provision of dwelling units in Australia. Foremost, inadequate provision of essential infrastructures such as roads, water, energy, and sewerage reduces the supply of well-located land to facilitate the delivery of additional homes(Gurran Phibbs 2013, p. 382). The bureaucracy involved in constructions of homes is another hindrance to supply of dwellings. The planning processes and approval of structures are very complex. This situation does not only raise the costs of developing houses but also discourages potential market entrants to the housing industry. Furthermore, zoning and other land use policies introduce compliance costs thus increasing the burden on the property developers who are often faced with financial constraints(Haslam McKenzie Rowley 2013, p. 374). Quantity The decline in the supply of homes in Melbourne and Sydney due to the factors Accounting above is depicted by the change in supply curve leftward from S1 to S2. As the supply shifts, the number of homes provided drops from Qe to Q1. The prices also increase from Pe to P1. Recommendations to the Government Rise in housing unaffordability in the main Australian cities is a sign of market failure. The substitute for owning a house is renting. However, the rents are also on the increase and thus subjecting the consumers to suffering. The low and mid-income families are most the disadvantaged by this market failure. Such individuals will eventually find it hard to leave in the cities they work and even end up residing in substandard shelters. Therefore, the intervention of the government will be essential in making the homes affordable to many in the society. Increasing the supply of homes should be the first step the government should consider since it has control over most of the supply-side factors. For example, the state needs to ensure fair and adequate supply of core infrastructure to facilitate the constructions of new homes. Equal provision of infrastructure and other social amenities will minimize the number of persons moving to Sydney and Melbourne. In the presence of better roads, water and sewerage facilities, the property developers will have an incentive to build more houses. Bureaucracies involved in building planning process should be eliminated to accelerate the constructions approvals. Moreover, tax concessions should be limited to restrict investor activities that increase demand pressure. Conclusion Australian major cities, Sydney and Melbourne, are facing housing affordability crisis. The increase in demand for houses and the incapability of the supply to respond to the rising demand has led to the higher price of dwellings. The demand for homes has been fueled by the low cost of borrowing, elevated levels of immigration and investor activity. On the other hand, the supply is hindered by the complicated planning process, stringent land utilization policies, and inadequate supply of core infrastructure. Since the government has control over the demand and supply side factors, its intervention will be essential in correcting this market failure. Sufficient provision of infrastructure, limiting tax concessions, relaxing land use policies and eliminating bureaucracies are some of the measures that can be used to restore housing affordability. References Australian Bureau of Statistics 2017, Residential Property Price Indexes: Eight Capital Cities, Dec 2016, viewed 11th May 2017, https://www.abs.gov.au/ausstats/abs@.nsf/0/510D8915596EEFE9CA257F1B001B0107?Opendocument. David; Libby Koch; News Corp Australia Network 2017, News.com.au, viewed 11th May 2017, https://www.news.com.au/finance/david-and-libby-koch/kochie-takes-aim-at-government-to-fix-housing-affordability/news-story/4e9793b1fdd8ed4ea02ebdaff4719a4d. Gurran, N Phibbs, P 2013, 'Housing supply and urban planning reform: the recent Australian experience, 20032012', International Journal of Housing Policy, vol 13, no. 4, pp. 381-407. Haslam McKenzie, FM Rowley, S 2013, 'Housing Market Failure in a Booming Economy', Housing Studies, pp. 373-388. Rahman, MM 2010, 'The Australian housing market - understanding the causes and effects of rising prices', Policy Studies, pp. 577-590.