The Housing Industry

The Housing Industry

Name:

Subject: Economics

Title: The Housing Industry

Introduction:

This paper focuses on the recent news regarding housing needs in Australia. From the article it is evident that the nation requires more homes due to the increase in population. This increase has been attributed to immigration and growth in the population. This means that the demand for houses have increased more than the supply. The high demand will definitely lead to increase in house prices, increase in rent and a substantial increase in homelessness.

Economic concepts:

We use the law of demand and supply to analyze this article, we also analyze the short term and long term changes in the equilibrium price and quantity of houses. We use these economic concepts to show how the prices and equilibrium quantity are affected by the increase in demand for houses in Australia and show how this will change over time. We also discuss the possibility of a housing bubble that has been common in most housing industries in other economies.

The Housing Industry

We also apply the law of demand that states that as demand increases then prices will declines and that as supply increases then prices will decline. We also discussion we highlight the various factors that affect the demand for a good which include the price, taste and preferences and prices of substitutes. Finally we state that in the long run the free market is at equilibrium due to the adjustments that occur in the demand curve and the supply curve.

Summary of the article:

This article states that Australia needs over 1 million homes to cater for the increasing demand for houses in the near future, this increase in demand has been caused by immigration and also population growth in the nation, HIA states that over 150,000 homes will be built in the year 2008 to 2009 but this is 40,000 short of the demand by the population, the article also states that approximately 1 million homes will be required in the year 2012 to 2013.

This increase in demand will result to changes in return on property where house prices will rise and also rent will increase, however despite this increase some areas still lag behind and instead of an increase in the value of property there has been a decline in the value, example Perth homes are worth less than half a million dollars which is a 3% decline since the beginning of this year while Sydney homes cost slightly over half a million dollars.

Economic implication:

From our above statement there will be changes that will occur in the demand and supply in the home industry, the demand for homes will increase and prices will definitely increase, the following diagram shows the changes that will occur on the demand curve in the Australian housing industry:

The Housing Industry

The diagram shows the demand and supply curve in the Australian housing industry before the increase in demand:

The chart above shows the equilibrium price and quantity before the change in demand for housing; however after the increase in demand we expect the demand curve to shift upwards as shown below.

The diagram below shows the supply and demand curve in the housing industry after the increase in demand:

The above chart shows the demand curve and the supply curve in the housing industry, when the demand for houses increase then the demand curve shifts from demand curve 1 to demand curve 2, this means that the equilibrium price and the equilibrium quantity will be determined by the point where demand curve 2 intersects with supply curve 1, this is at a higher price and also higher equilibrium quantity than the previous equilibrium. However we also expect the supply to increase so as to meet a proportion of the demand where only 40,000 of quantity demands will not be met, the diagram below shows the change in supply:

The diagram below shows the changes in the supply curve as a result of the increase in supply in the housing industry:

The above diagram shows the effect of increase supply in the housing industry, from the diagram it is evident that the increase in supply will result into a slight decline in the equilibrium price, however this price will still be higher than the previous equilibrium price, for this reason therefore there is need to ensure that the prices do not increase at a higher rate and this can be achieved by only ensuring that there is an increase in supply of houses to meet demand.

The Housing Industry

From the article it is also evident that Perth homes are worth less than half a million dollars which is a 3% decline since the beginning of this year while Sydney homes cost slightly over half a million dollars. This might be attributed to the demand, demand may increase for one type of a good and decline for the other good, as a result of the decline in the demand then prices are expected to decline.

Conclusion:

From the above discussion it is evident that there will be changes in the demand and supply curve in the housing market, this is due to the increase in the population in Australia which will result into higher demand than supply, this will lead to increase in prices for the houses and also rent, if the supply does not meet demand then there will be an increase in cases of homelessness, therefore there is need to increase supply in order to avoid the high prices of houses and also the high levels of homeless individuals.

The high prices in Sydney homes than in the Perth homes can be attributed to the taste and preferences of consumers, this is because the demand for a good or service will depend 9n the taste and preference of consumers and for this reason the population may prefer the Sydney homes and therefore this results into higher prices for these homes.

References:

Phillip Hardwick (2002) introduction to modern economics, McGraw Hill publishers, New York

The Housing Industry

The news (2008) Nation needs 1 million houses,