HOME HOUSING MARKET IN AUSTRALIA

Q1)

Throughout the previous 30 years, the Australian housing market has seen massive price hikes,
particularly in major cities. According to Australian Bureau of Statistics (2021), average annual
increases in house prices were 6.8% from 1991 and 2021. There have been periods of significant
expansion, such as in the mid-2000s, which have been accompanied with corrections from the
2008 global financial crisis. Yet, the overall pricing trend has been upward. Low interest rates,
rising demand, and limited availability have all contributed to this trend. Despite major changes
in the rate of rise, the Australian housing market has been characterized by rising prices
throughout the previous 30 years.

Q2)

i. Cost of renting becomes expensive and more people found buying a house to be a
cost-effective option.

It is expected that as a result of this event, Australia's housing market will experience an increase
in demand, as more people will opt to buy their own homes rather than rent them. Because this
adjustment has no direct impact on house producers, the supply curve for homes would initially
remain unchanged at S. if the cost of renting becomes expensive and more people find buying a
house to be a cost-effective option, the demand for houses would increase. A shift from D1 to D2
would result in the demand curve shifting to the right. We would expect equilibrium prices and
quantities of homes to increase from P1 to P2, assuming no change in supply and an increase in
demand.
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E2

P1

Quantity
Q1 Q2

ii. With consecutive increases in mortgage interest rates, more and more borrowers are
selling their houses as they find it difficult to meet their mortgage repayments.

Mortgages will become harder to obtain and repay as a result of this event, which will have a
negative impact on property prices in Australia. Provided everything else is constant, an increase
in mortgage interest rates would increase the cost of borrowing, making it more expensive for
customers to purchase homes. Housing demand would shift from D1 to D2 as a result of falling
housing prices. Mortgage payment difficulties may lead some homeowners to sell their homes,
increasing the housing supply. Consequently, S1 becomes S2 on the supply curve. Equilibrium
prices (P) decrease when demand and supply change and equilibrium quantities (Q) increase or
decrease.
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Price
S1

S2

P1

P2

D1

D2
Quantity
Q1 Q2

iii. People expect housing prices to fall.

If we assume everything else remains constant, when consumers anticipate a decrease in housing
prices, they may delay their decision to purchase a home, which would lead to a decrease in
housing demand from D1 to D2. On the supply side, some property owners may choose to defer
selling their properties, hoping for a higher price in the future, resulting in a decrease in housing
supply. As a result, the supply curve would shift from S1 to S2. An increase in demand and a
decrease in supply could result in a decrease in the equilibrium number of houses and an
uncertain effect on the equilibrium price.
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Price
S2

S1

D1

D2
Quantity
Q1 Q2

iv. Several big housing builders made huge losses due to costly materials, shortage of
labor and shipment delays and have gone into liquidation.

In the first place, new homes would be built less frequently, resulting in a decrease in the
market's supply of houses. The shift from S1 to S2 illustrates the shift in the supply curve.
Moreover, a reduction in the supply of homes may result in a decrease in demand since
prospective buyers may not be able to find properties that meet their preferences or needs. Thus,
from D1 to D2, the demand curve shifts to the left. The equilibrium house supply would decrease
and the equilibrium house prices would increase if demand and supply shifted leftward. As a
result, the equilibrium price (P) would rise and the equilibrium quantity (Q) would decrease.
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Price
S2Price

S1
E1

P1 E
PEP2

D1

D2

Quantity
Q1 QE

v. Strong population growth in Australia.

Due to this event, there will be an increase in the demand for houses in Australia. More people
would need housing as a result of population growth, resulting in a shift up in the demand curve
(from D1 to D2). The supply curve, on the other hand, would shift to the left (from S1 to
S2).Although the increased demand for housing would encourage property developers to build
more houses, it takes time to construct new homes, resulting in a temporary shortfall of available
houses. Due to the rise in demand and temporary shortage of homes, the equilibrium price of
homes would increase. As developers construct more homes to satisfy demand, the equilibrium
quantity of homes would increase.
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Price

S2
S1

E2
P2

E1
P1
D2

D1

Quantity
Q1 Q2
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References

Australian Bureau of Statistics. 2021. Residential Property Price Indexes: Eight Capital Cities,

Jun 2021. Retrieved from https://www.abs.gov.au/statistics/economy/price-indexes-and-

inflation/residential-property-price-indexes-eight-capital-cities/latest-release