BECO001 Housing Affordability Crisis in Australia for Foreign Investor

present in Australia. The housing affordability crisis present in places such as Wingecarribee shows the way Australians live. The housing affordability crisis also making the people much poorer. One of the major reason behind the housing affordability crisis is due to the availability of cheap and easy credit provided by the Australians banks. Another reason behind the housing affordability crisis is also largely because of the baby boomers (Austin, Gurran and Whitehead 2014). The wealthy people buy the property in Australia and spends only few weeks in a year which however, impacts the housing market.  A huge level of interest in investing the real estate market of Australia had been an important contributing factor for the affordability crisis. The investors had also made up huge money from the properties in Sydney. Migration is also one of the significant factor behind the housing affordability crisis. The huge surge in the purchase of the dwellings also leads to the crisis. The surge in the currant population of Sydney also one of the reason. The huge cost of the dwelling in Australia had been in the currant policy debates which concerns the taxation arrangements of Australia. The affordability of housing in Australia has already went down since the early 1980s. There had been a huge growth in the price of the house between the year 2009-2010. According to the Australian Bureau of Statistics it has been found out that the expenditure of the household on the currant housing have risen to 18% (McGreevy 2018). Another reason of the crisis is the huge cost of the land which results in the high cost of the housing construction.

Key stakeholder impacts

Stakeholders are referred to that party that has interests in any organization which can be affected by the business. The primary stakeholders in a business consists of investors, employees, suppliers and customers. Stakeholders can be of two types on in external stakeholders and internal stakeholders. Internal stakeholders are those stakeholders whose interest in any organization usually comes through a direct relationship  like investment or employment. A person or group of people  who usually owns a share of business is termed as stakeholders (The Conversation. 2018). Lastly, as the average incomes are lower in the country towns, households need to spend  a high percentage o their earning on their rents.

Consumers

Consumers are the biggest suffers in the housing affordability crisis which took place in Australia. The consumers have been fruitlessly searching for the affordable homes where the prices of houses and rents are increasing at a huge rate. People have to pay so much for the houses that they are into financial hardships.  The housing prices in Australia have increased at the rate of 140% (Minnery 2017). Although the wages have stagnated, the rents in the city have increased twice the rate on inflation when compared to the last five years.

Investors

A high level of interest in investing in the real estate of Australian market had been an important contributor present in the current affordability crisis.  Investors are those people who commits to invest at that time in the market which will help them to grow wealth in the long time (McGreevy 2018). Although in the present situation the investors have shown little interest in the housing due to the presence of risk and low returns of the affordable housings. Investors usually invests when they expect a high rate of return.

Renters

According to the housing affordability and cost publications the proportion of renters have increased to 31%. Along with that the proportion of households who are renting from the private landlords have risen to 26% in the same period (Jacobs 2017).  The cost of renting privately has also increased at a huge rate. There also have been increase in the competition among the renters making the household to either rent down or append more that they can afford on rent.

Economic concepts

Economics have impact on every moment of the life. Some of the basic economic concepts which relates to the case study are one of the is the scarcity. Another one can be the supply and demand. The third economic concept which can be applied in the case study is that market failure, might need government intervention.

Scarcity

Theory- It is known that economic growth reduces scarcity. Scarcity also means that everything is limited.  Scarcity is the fundamental economic problem which is faced by all societies. Unlimited wants with only limited resources are the main cause of scarcity.

 In the following report it can be seen that there has been a scarcity of affordable place for housing in Australia. Places like Melbourne and Sydney have been regarded as the least affordable places in the world due to the housing affordability crisis. It has been found out in the Demographia report that Australia has some of the least affordable housing markets in the world (Demographia.com. 2018).

Market structure

Theory: It is known that when the demand of a good rises more compared to the supply, then price of the good will also rise. According to the law of demand, price of a good increases when demand rises.

The property market of Australia comprises of the trade of land along with the permanent fixtures which is located within Australia. The property price of Australia had also grown after inflation. However, the property prices grew at a much faster rate between the years 1990 to 2017 due to the contraction of the economic bubble (Austin, Gurran and Whitehead 2014). It had also been found out that during the late 200s, the pricing of houses in Australia which is relative to the average income were among the highest in the world.  Then prices of the housing were more than six times high than the average rate.

Government interventions

Theory: government intervention is a regulatory action taken by the government in the presence of market failure. Taxes on the negative externality make the consumers pay the social cost of the good which in turn will reduce consumption.

It is known that government interventions are required when there is a presence of market failure. The government tries to combat the inequalities in the market through taxation, regulation or by providing subsidies (Birrell and McCloskey 2016). He also intervenes the market in order to promote general economic fairness. Therefore, in this case it was announced by the Australian government that the COAG Council would be forming an Affordable Housing working group. The government had also promised to fix the housing affordability crisis in Australia. However, the housing affordability did not receive much attention before.

Alternative solution

It has been stated in the case study of the housing affordability pricing in Australia that it is quite difficult to solve the problem of the crisis since the affordability of housing is quite difficult in the regional centres as due to their geographical spread and of differing circumstances. In some communities planning restrictions have been meant in order to protect the land that is used for the purpose of agriculture. Buffers have been placed around water courses for protecting the natural vegetation. The sale of housing by public government had also been termed as a solution.

However, other alternative solutions include removal of stamp duty. As stamp duty is collected on the value of the property and with the strong growth in the price of the housing means it will have a huge impact on the budget of the property buyers. Therefore, by scraping the stamp duty it will be easier for people to afford houses. Another solution is tat new tax rules around housing can help the Australians to afford more houses (Minnery 2017).  however, decentralising government business and services can be another method of solving the problem of housing affordability crisis. As most of the Australian population resides in the capital cities, therefore it is needed to incentivise businesses or start ups in the small regional centres. The third alternative solution can be reducing subsidies for owner occupied houses. When home owning subsidies will be reduced, owning a home will become less affordable.

The best solution to reduce the housing affordability crisis in Australia is either by implanting a new tax rules or by reducing subsidies on owner-occupied housing as it will make place for the government to build more public housing for a large number of people.

Conclusion

It can be concluded from the report that the Australians face housing affordability crisis in the recent decade. The major reason behind the housing affordability crisis is mainly due to the baby boomers and the foreign investors. The article also states that most of the famous cities in Australia have been ranked as the least affordable housing market. The reason behind is that due to the rise in land prices. The above report states the reasons behind the housing affordability crises faced by the Australians. Therefore some of the recommendations are that government should increase public housing,  promote efficient housing land supply and funding programs should also be started.It also shows how the crisis has impacted the major stakeholders in Australia. lastly, the report also showed certain alternative solution in order to deal with the housing affordability crisis in Australia.

Reference list 

Austin, P.M., Gurran, N. and Whitehead, C.M., 2014. Planning and affordable housing in Australia, New Zealand and England: common culture; different mechanisms. Journal of Housing and the Built Environment, 29(3), pp.455-472.

Bentley, R.J., Pevalin, D., Baker, E., Mason, K., Reeves, A. and Beer, A., 2016. Housing affordability, tenure and mental health in Australia and the United Kingdom: a comparative panel analysis. Housing studies, 31(2), pp.208-222.

Birrell, B. and McCloskey, D., 2015. The housing affordability crisis in Sydney and Melbourne Report One: The demographic foundations. The Australian Population Research Institute.

Birrell, B. and McCloskey, D., 2016. Sydney and Melbourne’s housing affordability crisis report two: No end in sight. Canberra: The Australian Population Research Institute.

Chappell, J. and Campbell, N., 2018. The Housing Gap—Sydney, Australia. In Sustainable Development Research in the Asia-Pacific Region (pp. 293-304). Springer, Cham.

Demographia.com. (2018). [online] Available at: https://demographia.com/dhi.pdf [Accessed 23 Sep. 2018].

Jacobs, K., 2017. Neoliberalism and the Housing Affordability Crisis.

Jacobs, K.A., 2016. Australia’s housing affordability crisis.

Li, J., 2015. Recent trends on housing affordability research: where are we up to?.

McGreevy, M.P., 2018. Housing Diversity and Affordability: The Effects of 35 Years of Exclusionary Land Use Regulations on Housing Affordability in Adelaide, South Australia. Urban Policy and Research, pp.1-18.

McLaren, J., Yeo, A. and Sweet, M., 2016. Australia is facing a housing affordability crisis: Is the solution to this problem the Singapore model of housing?. Australasian Accounting, Business and Finance Journal, 10(4), pp.38-57.

Minnery, J., 2017. Politics, Planning and Housing Supply in Australia, England and Hong Kong.

Power, E., Mee, K. and Horrocks, J., 2018. Housing: An infrastructure of care for older Australians. Parity, 31(4), p.16.

The Conversation. (2018). A housing affordability crisis in regional Australia? Yes, and here's why. [online] Available at: https://theconversation.com/a-housing-affordability-crisis-in-regional-australia-yes-and-heres-why-71808 [Accessed 23 Sep. 2018].