Economic Principles And Decision Making

Executive Summary of Economic Principles And Decision Making

There is a decline in the rate of houses in Australia amid Covid-19 situation. The supply of the houses increased and the demand was very low. The entire market of the sellers got converted into buyer’s market. It was a piece of good news for the people who were trying to purchase a house but could not because of higher rates. However, the overall condition of the company got affected. In this report let’s find out factors which led to the decrease in the property prices and which schemes and subsidies were provided by the government to the people for improving their conditions.

Contents

Introduction.

Buyer’s property market

The same condition in all parts of Australia.

Buying power of the people in Australia.

Effect of decrease in house price on supply and demand.

Impact on price elasticity on demand.

Consumer welfare schemes

Impact of change on buyers.

First Home Loan Deposit Scheme limits.

Effect of subsidies and grants over people.

Conclusion.

References

Introduction to Economic Principles And Decision Making

The report aims at understanding the impact of COVID-19 restrictions on the housing sector of the country. It is identified that housing price has decreased up to 30 per cent in major cities of Australia making it a more buyers' market rather than a seller's one. The capital index of the five major cities of Australia for this current month states that prices of the houses have softened this week from -0.2 to -0.3 per cent. The price of a house in Melbourne decreased to -1.0 per cent and that of Perth to -1.1 per cent. Sydney and Adelaide also saw an overall net decline of -0.8 and -0.2 per cent respectively. There is a relaxation in Brisbane price this month clawing back from -0.7 per cent to +0.5 per cent. It can be cleared from the statistics that Australia housing market has been severely hit in the coronavirus epidemic. It has even affected the GDP growth of the country. The report thus tries to find the microeconomic factors that affected housing prices and also try to determine the change that has been noticed in the past few months. It also emphasis on how decrease in house prices has affected the demand and supply of Australia and how will it impact on the price elasticity of demand. It also tries to determine that the change will be beneficial for the consumer or they still have to suffer from the housing problems. It even evaluates whether the offering and grants will help in changing the supply and demand of the housing market.

Buyer’s Property Market

It is observed through statistics that the housing market in Australia has become a buyers’ market rather than the sellers because the supply of the houses has crossed the demand. The home available for sale has increased in comparison to the number of buyers seeking to purchase. It means that buyers have a wide range of houses from which they can select any one of their choices. The competition in the market has increased making the market in favour of the buyers. It is the best time for the person who is willing to purchase their first home. By entering into the market, they can find out their dream house at a lower price (Peters, 2020). These things give a sign of cold real estate market. The real estate market has been changed from hot property market to the cold one. It means that houses available in the market are more in comparison to previous months and the year. It also means that the current listing prices of the company are low than the previous sales. Despite buyer's market, there are very few people who are ready to purchase a property(McLaren et al. 2016) It has also been identified from the research that average price of the houses has also declined. In addition, the real state advertisements are prompting the buyers to purchase a property. Still, it is observed that properties are staying a longer time as it is not getting the potential buyer. The change is widespread across Australia especially in the major cities where people migrate towards from the rural region.

The Same Condition in All Parts of Australia

The condition is the same everywhere that is the property rates are decreasing. It is also identified that the number of searches in the property has decreased by -1.3 per cent. It was the first weekly fall in the last 13 weeks. All the states and territories in Australia have experienced fall in sale search volume and the biggest decline in the sale search was seen in Australian Capital Territory and South Australia. The falls were moderate in Victoria and New South Wales. No doubt the lockdown has a severe impact on the property market; it can be seen particularly in terms of the transactions. It was identified through a weekly indicator that the number of property that has shifted from auction to sold stage has also decreased. The number of property sold decreased in comparison to the properties sold in previous years(Atalay et al. 2016). Due to Covid-19 shut down the property shift from auction to sold sate has declined by -43 per cent. These conditions prove that the property market is worst affected in Australia.

Buying Power of The People in Australia

There are some people who are very cautious about a property right now it is because, despite the decrease in the price, they have to do a high commitment for which they are recently not ready as they are uncertain about their job. Moreover, getting a loan is difficult. Bank is probably stricter in lending money to people with low income. Despite this Australia’s housing condition is in the hands of the buyers as there are many people in Australia who are in the same position before and after the epidemic (Beck & Hensher, 2020). They have a good income and a secured job. They can fulfil the requirement of purchasing a house. The low in the price of the houses has favoured the potential buyers in the market who are in a good financial condition. It has also been observed that the interest rates have fallen.

It is good news for the buyers who are thinking to purchase their own space of leaving by taking a loan from the government. This proves that the buying capacity of the people in Australia has not improved. They are the same neither there is an increase in their salary. They are thinking to purchase the house because the price is low. Sellers are trying to get the cash equity of their houses by selling it at a low price. Sellers knew that the price of the property is going to decrease further so it would be beneficial for them if they get the deal done as soon as possible(Tai et al. 2017). Early the deal, the more profit they can earn by selling their property. The housing condition is very tight. The people are unable to even afford the lower prices of the property it is because of this that there is very less number of buyers in the market.

Effect of Decrease in House Price on Supply and Demand

The decrease in house prices will affect the supply and demand for housing in Australia. It is identified from the statistics that people in Australia are putting their houses in the sale. It is because of the rise in unemployment that has increased mortgage stress among people. They are finding it hard to repay the debts. It is due to financial stress they are selling their properties in the market(Atalay et al. 2017).The increasing housing stock is in the dwindling demand. The change has been introduced in the market because of the job loss and paused migration. People from the regional areas have stopped their migration to the cities. The stock is rising but there are very few people in the market who have the confidence to purchase property in Australia. It can be stated that the demand is not very high. Some buyers are coming out in the market as the price of the houses has decreased. These buyers are coming out and inspecting property through online medium to make good buying decisions. There buying capacity demands on the loan which they will get from the banks. The supply has increased but due to less demand, the properties in Australia have to be in the market for a longer time.

Impact on Price Elasticity on Demand

There is an increase in total revenue of the country when the demand is elastic due to the decrease in the price whereas there is an increase in the revenue when the price of the commodity increase and the demand remains inelastic. Price elasticity of demand is a process to measure the change in the quantity demanded or purchased in consideration with its price. It is a very important phenomenon because it helps in understanding the working of a real economy(Phillips & Joseph, 2017). There are various factors which affect the price elasticity on demand. These include close substitutes in the market, cost of switching between the products, the degree of necessity, proportion of consumer income, the period allowed for facing the change and so on. Here, the price elasticity of Australian homes isto be calculated. It is identified from the research that the change in the price of the Australian homes in May fell by 0.5 per cent. There was 25 per cent change in the quantity of the demand which indicates that the price of elasticity of demand for houses in Australia will be calculated by the following formula.

Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price = 25 %/0.5% =0.5

This indicates that the price of elasticity of demand for houses in Australia was very less that is 0.5. Since the change is the quantity demand increased by 25 per cent it can be stated that the change was large and was elastic. Therefore, there was a need to find out the impact of change in price on the demand. The demand curve, in this case, is inelastic.It was observed that there were many factors which affected price elasticity of demand like the income of the people in Australia(Sanders, 2018). There are very few people in Australia whose income is in high range. Another reason identified was the degree of necessity. There is a large group of people in Australia that are willing to purchase their house but they do not have a proper source of income on which they can rely and commit the government to pay the debt of the loan taken. Besides the time of change is going to be very larger. Statistics prove that it will take time for the property market to get back to its stable stage after the unlock process.

Consumer Welfare Schemes

Consumer welfare will increase with the change. The government of Australia is planning in this direction. Currently, the government has given 4,30,000 borrowers six-month payment holidays. It is providing wage subsidy to 2.9 million workers in Australia. It is even found that if the economic condition does not get restored it will make further decrease the housing prices in the country(Saunders&Tulip, 2020). The government even banned the auctions of the houses in May month as a part of social distancing measure. The government has also announced a policy in which it will give employment to ten per cent of the nation’s workforce in the building industry(Cho et al. 2019). The government in its stimulus plan has also added that it will provide a grant to the first buyers of home. The government has kept aside 20,000 Australian dollars for new construction of homes. In addition, the government has also announced that it will give cash grant for home renovation. This steps taken into consideration by the government proves that there will be no loss of welfare in and after the Covid-19 situation.

Impact of Change on Buyers

The change will affect the buyers most. They will be able to purchase a home and would not have to live in the streets. They will no more have to suffer as homeless. There are many people in the country who due to high prices could not afford the houses. But the decrease in the prices would allow them to have their own houses (Paris, 2017). Though the decrease in price is not big enough it would help many people to live up to their dreams. It is also observed that the government after understanding the needs of the people has alreadybrought the first home deposit scheme in the market. According to this scheme, people can get a loan on just 5 per cent deposit even there would be no need for getting the mortgage insurance. It is with the help of this scheme people would be able to accelerate their homeownership goals.

The government has even made the process of getting a loan easier(Gurran & Bramley, 2017). Earlier, it was observed that one of the key challenges for the people was to get loans from the bank. Now, with the first home scheme, people would easily get a loan and purchase their house. A survey was conducted to identify who many people are aware of the scheme. The finding of the survey suggested that 85 per cent of the people have no idea about it. In addition, it was also identified that building approvals from the council have dropped to 16.4 per cent in May. Building approvals started declining in the year 2017 and it continued in the Covid-19 scenario. Some of the researchers even claimed in their research that there is going to be a decline in net migration in the year 2020-2021. Around 200,000people will migrate in comparison to last year statistics which states an annual migration of 240,000 people. This indicates that there will be a lower demand for housing which will further decrease the prices of houses in most of the cities.

First Home Loan Deposit Scheme limits

Sydney: $700,000

Melbourne: $600,000

Brisbane: $475,000

Perth: $400,000

Adelaide: $400,000

Hobart: $400,000

Canberra: $500,000

Darwin: $375,000

Source: Treasury 

Effect of Subsidies and Grants Over People

Offering grant and subsidies to the people would increase the demand of the houses irrespective of whether it is a buyer or a seller's market. The government has also introduced a job keeper payment facility for all the workers who have lost their job or whose jobs are in danger due to Covid-19 pandemic. This wage facility would be provided to 6 million workers. They will receive $1500 per fortnight. This wage was provided to the workers so that they can keep their job safe and remain connected with the employer(Disney & Gathergood, 2018). Once the situation will get back on track they can resume their work immediately. The government of Australia is doing everything to meet the needs of the population be it in housing sector or tourism and hotel industry. They are ensuring the welfare of their people by trying to reduce their problems of homelessness, unemployment and so on.

Conclusion on Economic Principles And Decision Making

It can be concluded from the above findings that Covid-19 has a hit the property market severely. All the major cities are affected due to this pandemic these include Perth, Queensland, Melbourne, Sydney, Adelaide and so on. It is because of the increase the property in the market with limited buyers, the Australian property market has been converted from sellers to buyers' market. The buying capacity of the people is the same. Few of them who have a good financial state can purchase the property at low rates rest all of them are not thinking of purchasing because they are not certain for their commitment. The government has introduced some plans for the welfareof the people so that each one of them can have their own home in Australia. It came with the first home scheme which helps the people to get a loan of the property by just giving a security amount of five per cent of the value that they are purchasing. This scheme will help Australians to get their dream house for which they were waiting for a long time. It will decrease homelessness which was a prominent problem of the country. The government has even made the process of getting a loan easier. Earlier, it was observed that one of the key challenges for the people was to get loans from the bank but now they can avail for it in few simple steps.

References for Economic Principles And Decision Making

Atalay, K., Edwards, R., & Liu, B. Y. (2017). Effects of house prices on health: New evidence from Australia. Social Science & Medicine, 192, 36-48.

Atalay, K., Whelan, S., & Yates, J. (2016). House Prices, Wealth and Consumption: New Evidence from Australia and Canada. Review of Income and Wealth, 62(1), 69-91.

Beck, M. J., & Hensher, D. A. (2020). Insights into the Impact of Covid-19 on Household Travel, Working, Activities And Shopping in Australia–the early days under Restrictions.

Cho, Y., Li, S. M., & Uren, L. (2019). Investment Housing Tax Concessions and Welfare: Evidence from Australia.

Disney, R., & Gathergood, J. (2018). House prices, wealth effects and labour supply. Economica, 85(339), 449-478.

Gurran, N., & Bramley, G. (2017). Housing, Property Politics and Planning in Australia. In Urban Planning and the Housing Market (pp. 259-290). Palgrave Macmillan, London.

McLaren, J., Yeo, A., & 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), 38-57.

Paris, C. (2017). Housing Australia. Macmillan International Higher Education.

Peters, R. (2020). Reflections on COVID‐19 in Sydney, Australia. City & Society (Washington, DC), 32(1).

Phillips, B., & Joseph, C. (2017). Regional housing supply and demand in Australia. Centre for Social Research & Methods. Canberra: Australian National University.

Sanders, W. (2018). Opportunities and problems astride the welfare/work divide: The CDEP scheme in Australian social policy. Canberra, ACT: Centre for Aboriginal Economic Policy Research (CAEPR), The Australian National University.

Saunders, T., & Tulip, P. (2020). A model of the Australian housing market. Economic Record.

Tai, M. Y., Hu, S. W., Chao, C. C., & Wang, V. (2017). Foreign buyers and housing price dynamics. International Review of Economics & Finance, 52, 368-379.

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