HOME HOUSING MARKET IN AUSTRALIA

Q1) Research and briefly describe the trend of the home housing market in Australia over
the past 30 years.

The housing market in Australia has undergone huge price increases over the last 30 years,
particularly in large cities. House prices climbed by 6.8% each year on average between 1991
and 2021 (Australian Bureau of Statistics, 2021). There have been times of tremendous
expansion, like in the mid-2000s, accompanied by corrections from 2008 global financial crisis.
Nonetheless, the overall trend has been one of rising pricing. This tendency has been aided by
factors such as low interest rates, growing demand, and restricted supply. Notwithstanding
significant fluctuations in the rate of increase, the Australian housing market has been defined by
growing prices throughout the last 30 years.

Q2) Treating each sub-question as a separate event and draw separate diagram for each
separate event, explain and illustrate how each event ceteris paribus will affect the supply
curve, demand curve, equilibrium house prices and quantity in the home housing market
in Australia:
i) Cost of renting becomes expensive and more people found buying a house to be a
cost-effective option.

Price (P)

E2
P2

E1

P1

D2

D1
Quantity (Q)
Q1 Q2
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 The supply curve for homes would remain unchanged at S at first since this adjustment
has no direct impact on house producers. But, in the long run, we may see a rise in
housing supply as more producers enter the market to capitalize on the growing demand
for housing.
 Demand for houses would rise as more individuals would realize it is more cost-effective
to buy a house rather than rent. This rise in demand would cause the demand curve to
move to the right (D1 to D2).

 With an increase in demand and no change in supply, we would expect equilibrium prices
to increase (P1 to P2) and equilibrium quantities to increase (Q1 to 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.

Price
S1

S2

P1

P2

D1

D2
Quantity
Q1 Q2
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 Assuming ceteris paribus, an increase in mortgage interest rates raises the cost of
borrowing, making it costlier for consumers to buy homes. As a result, housing demand
would decline, pushing the demand curve to the left (D1 to D2).
 On the supply side, some owners may sell their houses owing to problems paying
mortgage payments, resulting in an increase in housing supply. As a result, the supply
curve would move to the right (S1 to S2).
 Accordingly, the equilibrium price (P) will fall and equilibrium quantity (Q) will rise or
fall based on the amount of supply and demand change.

iii) People expect housing prices to fall.

Price
S2

S1

D1

D2
Quantity
Q1 Q2

 Assuming ceteris paribus, if consumers expect housing prices to decline, they may
postpone their choice to buy a home, resulting in a reduction in housing demand. As a
result, the demand curve would move to the left (D1 to D2).
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 On the supply side, some property owners may opt to postpone selling their properties in
expectation of a higher price in the future, resulting in a decline in housing supply. In this
case, the supply curve would move to the left (from S1 to S2).
 The combined impact of a leftward shift in demand and a leftward shift in supply may
result in a reduced equilibrium number of houses and an uncertain influence on
equilibrium price of houses.

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

Price
S2

S1
E1

P1 E
PE

D1

D2

Quantity
Q1 QE

 With numerous large housing builders going into liquidation, the market's supply of
houses would fall since there would be fewer builders building new homes. The supply
curve shifts to the left from S1 to S2 indicating a drop in supply.
 On the demand side, a fall in supply may result in a decrease in demand because
prospective buyers may be unable to purchase properties that fit their wants or
preferences. As a result, the demand curve would move to the left (D1 to D2).
 As a result, the equilibrium price (P) rises while the equilibrium quantity (Q) falls.
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v) Strong population growth in Australia.

Price

S2
S1
E2
P2

E1
P1
D2

D1

Quantity
Q1 Q2

 High population growth in Australia would raise demand for housing since there would
be more individuals in need of homes. This would cause the demand curve to move to the
right (D1 to D2).
 At the same time, due to the time lag necessary to build new houses, the supply of
housing does not increase correspondingly in the near run. As a result, the supply curve
moves to the left from S1 to S2.
 E2 is the new equilibrium point. The equilibrium price of housing increases from P1 to
P2, while the equilibrium quantity increases from Q1 to 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