ECON100 - Essay on Property Prices and Housing Affordability

This essay contributes 20 marks (20%) towards the final mark for ECON100.

Submission Guidelines:

1. Report length: up to 1,500 Word count (excluding references) must be provided.
2. Include the title page and table of
3. Write your name, student number and tutorial class at the title
4. Marks will be deducted for poor grammar, spelling mistakes, and poor
5. Please pay attention to general formatting (i.e, Font: Times NR 12, Spacing: 1.5; paragraphing: as necessary, and page numbering )
6. Your answers must be typewritten; graphs can be drawn manually or using a suitable software. If drawn manually, you may scan it and insert in the word document as
7. All work should be your Marks will be deducted for material directly downloaded from internet or other sources (i.e. no cut and paste!)
8. You should answer each question in a new No need to follow the essay format.
9. Please stay on topic and use economic arguments. An economic argument proceeds by spelling out the assumptions of the model and then deriving the conclusions. It excludes information and consideration that are not directly relevant to the topic. The goal is to allow the reader to see the logic of the argument as it proceeds from the statement of facts to the Consequently, particular attention will be paid to the logical flow of the essay.
10. If you use facts/information from other sources, you should show in-text references using the Harvard A List of references must be provided at the end of the essay. These might include newspaperarticles, research reports, data sources etc. References must be presented in alphabetical order.
11. This is an individual assignment. When you submit your essay via Turnitin a Similarity Report will be generated and checked for evidence of plagiarism or collaboration. Please note the following section in the subject outline to help you navigate all issues related to proper referencing and academic integrity.

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Plagiarism Prevention:

The Faculty of Business has introduced an e-learning module which aims to orientate you withthe knowledge and resources to:

• avoid problems related to plagiarism
• develop your capacity to integrate evidence into your arguments
• reference

The online module is openly available for use by students at any stage in their degree. You arestrongly encouraged to use the module to help in assessing the academic integrity of your written work. The module can be accessed via https://moodle.uowplatform.edu.au/course/view.php?id=5679

Essay Topic: Property prices and housing affordability

Property prices in Australia appear to be falling since recently signalling an end to the housing boom which lasted for few years pushing home ownership out of reach of many low and middle-income families while making wealth and housing inequality worse. According to some market analysts, the average real estate prices are likely to drop as much as 15% to 20% in the next few months (thegardian.com, 03.08.2022). While this is good news for the potential home buyers, the situation in the rental market is not that favourable for the renters. According to ABC website, “for most of the 2.4 million households renting from private landlords, rents will go up at a historically rapid clip over the next year” (abc.net.au, 02.08.2022). For more information see:

• https://www.theguardian.com/australia-news/2022/oct/03/property-prices-dropped-further-in- september-and-falls-could-accelerate-again-with-rate-rise;
• https://www.abc.net.au/news/2022-08-02/house-prices-falling-but-rents-tipped-to-increase-10-per- cent/101288418;
• https://www.theguardian.com/commentisfree/2022/dec/05/the-solution-to-australias-rental-crisis- is-more-regulation-and-fewer-landlords

In this essay, you will analyse the current situation in the Australian housing market and prepare a report answering the following questions. You may need to undertake additional research as necessary.

Question 1: (5 marks)

Use an economic model of a generic housing market (i.e. demand for, and supply of, existing houses, not the market for rental properties) and explain how the house price is determined in the market.

Make sure to label the axes, curves and the equilibrium point clearly in your graph. (Note: This part is a theoretical discussion, so make sure to include a coverage on factors such as the (relevant) determinants of demand for/supply of houses, and the shape of your demand and supply curves (i.e. elasticities) etc.            [Mark allocation: properly labelled graph 2 marks; explanation 3 marks]

Question 2: (8 marks)

Assume your model from question 1 above refers to the housing market in Sydney, Australia, where the median house price topped $1.3 million in January 2022, at the peak of the housing boom, according to some research. Since then, Sydney home values are down by about 11.4 per cent taking roughly $132,000 off the median value of a dwelling. Briefly discuss the demand-side factors and/or supply-side factors that have caused this downward trend in house prices (not rental price) in Sydney since March 2022. Clearly illustrate the new equilibrium price and the quantity of houses using the graph you created in question 1 above. (Note: Draw a new graph for this part and clearly show the direction of demand and supply changes, and old and new equilibrium prices and quantities.

[Mark allocation: properly labelled graph 3 marks; demand and/or supply side factors 3 marks, explanation using the graph 2 marks]

Question 3: (7 marks)

Now we consider the rental market in Australia. According to market sources, while property prices are falling, residential rents are rapidly increasing in almost all the capital cities in Australia. For example, national residential vacancy rates in Australia held at the lowest point on record at 0.9% as of September 2022 and asking rents have jumped 15 % over the year to September (SQM Research).

1. Briefly discuss the factors that have caused this rapid increase in rental price in Australia using a demand and supply graph for the (generic) residential rental (4 marks)
2. According to some market analysts (for example see: theguardian.com, 05.12.2022) the solution to Australia’s rental crisis is more regulation. What type of regulations do you think the policy makers can use in this situation? Do you think they are effective in making rental dwelling more affordable? If not, are there better solutions? (3 marks)