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Demand and Supply of Houses in Australia and Factors Other than Price which Affects Demand and Supply

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Question

Choose any One of the topics from the following list:

· Micro-economics – study of individual behaviour – individual industry like education meat industry,  tourisrn and agriculture.  Choose any ONE industry in Australia from this list and discuss the reforms been done in that industry.

· Cost of production- in any industry in Australia where costs of production are an important issue and analyse what is being done in the industry. May be the industry is switching to technology or/and some substitutes have been used to overcome this problem !

· Demand and supply of certain resources in Australia and factors other than price which affect demand and supply

· Market structures like Monopoly, Duopoly, Oligopoly and Monopolistic competition in any industry in Australia.

Solution

Globally, Sydney and Melbourne are in the list of top four most expensive markets. Demographia's annual survey report shows the typical Australian house costs 5.6 times the median household income (Janda, 2016). Like any other market, the housing market is basically a function of two parameters. Those are the demand for a house and the supply of a house. The price of a house is determined by the level of demand and supply. Economic theory suggests there is a strong relation between price and the balance of demand and supply. In simple word, we can say the higher price of a house accelerates the supply level and lower price accelerates the demand level. Apart from price, there are many factors that affect the level of demand and supply in the housing market. One important factor among them is government involvement. In the Australian housing market, the government has involved to a great extent through its policy. Australian government intervention influences the housing demand as well as the housing supply.   This policy directly or indirectly has an impact on the housing market. Foreign investment in residential property is another factor that influences housing demand. 

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Demand for housing is a function of different factors including household income, house location preference, house size preference, easy access to jobs and transport, the interest rate on home debt etc. Apart from that, government involvement in the housing market has an influence on the housing demand.  The Australian government has the provision of housing assistance. There, it incorporates the stamp duty concessions, First Home Owner Grants, rent relief and bond loan. Funding and the subsidies provided to the housing market from the government is one of the important factors that affect the housing affordability. The Commonwealth and the States and Territories both have provided funds for homelessness services and housing assistance. In 2012-13, the contribution from the States and Territories was about $4 billion on social housing and homelessness services (Australian Government- Reform of The Federation White Paper, 2013) Australian government has decreased the home loan interest rates to take care of inflation. It causes increased borrowing capacity because of lower repayments. It again leads the housing demand to go up. Due to deregulation, it has become easier to get a loan. So this greater credit availability is responsible to increase housing demand. The taxation system of Australia allows excessive tax exemptions on capital gains on the purchased house. The tax rate for Capital gains on the purchased house is half of the marginal tax rate (Parliament of Australia, 2004). It motivates the households to buy a house and causes the housing demand to go up.

Because of the resource boom in Australia, the average household incomes have lifted up. This, in turn, encourages households to buy houses. Another thing, as indicated by the rising labour force participation rates, in Australia, the household income has increased because both partners work. In recent years, there is an increase in rental cost which motivates household to buy a house instead of renting. Demographics of Australia also has influenced the housing demand. The new trend of later marriage, fewer children and increased separation cause the average household size to decrease. This, in turn, leads the housing demand to go up. Apart from that, there is a strong population growth which causes the housing demand to be more.

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