The Australian housing market - understanding the causes and effects of rising prices

Abstract

This article analyses current housing market conditions in Australia; specifically the factors that have caused increased housing prices in recent years and there implications. The article finds that the number of home-owners with a mortgage and the number of renters have increased. For owners with a mortgage, average housing costs escalated substantially. Interest rates, investment demand, economic climate, financial deregulation and innovation, land supply and the land-use planning system, government taxes, levies and charges, demography, economic growth, and wealth effect all play a vital role in influencing housing prices. Rising house prices positively impact on home owners’ wealth, aggregate demand, employment and real GDP, and reduce affordability of first home buyers and well-beings of Australians in aggregate. It is argued that increasing the supply of housing, approval of tax-free savings for first home buyers, regional development and reduction of government taxes, levies and charges should be the focus of future policy development to redress these problems.