Building the Business Case and Project Management Plan

According to Hulse and Yates (2017) housing is considered to be an important factor for all people. The fundamental need of living is shelter. Ownership of home is key element for living standards. Home provides independence, privacy as well as security. The people of Australia places high importance to the ownership of home which is considered as most stable form of life and wealth creation. Governments of Australia encourages ownership of home by providing direct grants to the home buyer for first time. About 70% of total population in Australia lives in the dwellings that are occupied by owners. Out of this, only 50 % of the dwellings own a house without mortgage loan and other have loans (Maloutas 2016). About 28% of the population of Australia lives in a rented accommodation as well as three quarters of the 28 % of the private land lords.

Home ownership is an important for all the Australians as housing factor has become an unaffordable factor in many Australian citires gradually.  The established price of the houses have increased by 110% in the last five years (Troy 2018). So, rental housing has become an important factor of the people who live in Australia. Details of the price growth of housing are discussed in this part along with the underlying demand as well as supply for new housing. The factors that affects the housing price are also included in this literature review.

Framework

According to Plakandaras et al. (2015) the price of an asset or a good is determined by the demand as well as supply graph. The demand as well as supply factors are to be kept in consideration for the framework. One of the framework that is included in the supply demand network is that there are many approaches and those approaches helps in joint consideration of demand as well as supply stock flow model in housing market. The framework helps to capture all dynamic interaction in between the housing demand, prices, as well as supply of housing market over time.

Favilukis, Ludvigson and Nieuwerburgh (2017) stated that stock flow model of the demand supply gap, the demand for housing asset; for both for the occupiers and the investors are inversely proportional to price as well as the user cost. The demand is directly proportional to the rent. There are other variables also that plays an important role that includes demographic factors, the total income of the households, as well as cost of the credit and access of the credit in the household. This comprises various models that are in demand. A model that consists of housing that is directly related to owning a house with the cost of renting. The cost of user is mainly dependent on real rate of interest, the running costs, decreasing the asset as well as the expected real rate of price appreciation of housing.

Overview of Literature Sources

Figure 1: Stock-Model Diagram

(Source: Waltl 2018)

Underlying Demand for the Housing

Melser and Hill (2018) stated that the demand of the new dwellings are thought as representing the demand for all the new housing that are built. The rate of population growth as well as the estimate of the household size are observed. This demand is a long level run demand which abstracts many shorter term influencing the household demand connected with the business cycle. The underlying demand is not observable (Hill and Melser 2017). This demand mainly has three components. One component is demanding for newly made households, demanding for new dwellings for replacing demolished ones as well as the demand for vacant or for some second homes. This is shown in the figure 2. The most demand for new dwellings are replacing the smaller ones and the demanding for empty or second homes are stable contributors of the underlying demand with comparison to the other component of underlying demand. The rate for the household formation reflects the interaction in between the population growth as well as for the household size.

Figure 2: Components related to Underlying Demand

(Source: Kohler and Van Der Merwe 2015)

Baur and Heaney (2017) stated when supply and the demand gap is generally compared with estimates of underlying demand, or completions analyzed of supply is slow, or is unable in responding significant increase of the demand. The gap in between the demand of new dwellings and supply of new dwellings have become very smaller in Australia. This is shown below in figure 3. There was a percentage gap which is accounted for the developments of the dwellings in NSW. In Queensland and in the Western Australia, the underlying difference in between demand as well as the supply gap estimates of the demand that are underlying are in state level are main subject to the larger uncertainty when compared with the demand in national level.  This is because most of the assumptions are done on household formation that are very less in holding at the disaggregated level. The new supply that is in NSW has raised sharply because of the consistent string underlying demand.

Figure 3: Underlying Demand and Supply Gap

(Source: Kohler and Van Der Merwe 2015)

Short Term Factors:  Interest Rates in Short Term Factors

In economy of Australia, interest rates rapidly fell in the year 1980s because of economic recession (Melser 2017). The rise in Australia was moderate during the year 1955 – 1996. And after that, the interest rate fell again till 2003. The low interest rate over past years resulted in rise of housing price in Australia. As by Kohler and Van Der Merwe (2015), the mortgage rate of interest has short term effects as well as long term effects on the real price of inflation.

The Underlying Demand for Housing

Investment Demand in Short Term Factors

Hulse and Yates (2017) stated that the tax benefits, the underlying factors that are socio-demographic, all the institutional reforms, larger developments in economy, the increasing income of rents, and the contributed capital markets are mainly responsible for the increased investment demand for the housing. There was a downward correction that is mainly observed for equity market in world in the mid of 2000. This can cause capital switch from the share t many assets such as real estate and the bonds. There was increase in the flow of all private investment of debt financed in residential property which occurred in the perception investment in property at risk as well as return terms.

Economic climate in Short Term Factors

The economic condition in Australia is basically good. The inflation of Australia was under control and there was unemployment rate that was falling continuously in Australia. The overall income of the citizen in Australia was rising (Troy 2018). So the sentiments among the investors and the owners occupied were basically very strong. These factors helped to increase the demand of housing in Australia. The unemployment has many effects on housing prices both in long term as well as the short term.

Financial deregulation as well as innovation in Institutional Factors

In the year 1980, the financial system of Australia deregulated. There was very direct controls of government of the leading activities in the financial institutions such as banks were closed (Plakandaras et al. 2015). As a result, the new lending as well as other institutions which includes funds of industry superannuation, originators, mortgage brokers, originators, and foreign banks that are in the market for the housing finance. These factors increased the housing source in Australia.

Land supply as well as the land usage planning system in Institutional Factors

The price of housing and the affordability connected with the price of land are mainly determined as supply of the development in urban land. Residential supply of land is changed by the factors which includes development cost, relative return from all uses related to housing and rules, the land development industry structure,  as well as land effectiveness usage planning system that is used (Favilukis, Ludvigson and Nieuwerburgh 2017). The returns from using the non-housing sectors and rules as well as the effectiveness of the land usage are also determined in these factors. There are control over using of land and availability of the land that developed and the land cost have increased the price of housing price in Australia.

Short Term Factors Affecting Demand

Government taxes, levies and charges in Institutional Factors

The government of Australia implies taxes, charges, as well as levies for developing and the use of the urban land (Kohler and Van Der Merwe 2015). These costs have increased price of house in Australia. The costs that are involved are developer levies, stamp on the duty of sales as well as transferring the land and tax of the land. The construction of new house as well as the renovation of house has also increased the rate of house.

Demography

The demographic factors that are included in housing price in long run are increasing growth of population which increases total number of housel holds in a country (Maloutas 2016). The increased population helps to increase the cost of housing in Australia. The total population of Australia has increased to 20.7 million according to survey in the year 2005 to 2006. Changing of economic roles are also involved in demographic factors in increasing the housing demand.

Economic Growth

Household income and the housing demand are related to each other. In Australia, the demand of housing in always greater in Australia (Plakandaras et al. 2015). So, the demand for the housing also increases with all proper income.

References

Baur, D.G. and Heaney, R., 2017. Bubbles in the Australian housing market. Pacific-Basin Finance Journal, 44, pp.113-126.

Favilukis, J., Ludvigson, S.C. and Van Nieuwerburgh, S., 2017. The macroeconomic effects of housing wealth, housing finance, and limited risk sharing in general equilibrium. Journal of Political Economy, 125(1), pp.140-223.

Hill, R.J. and Melser, D., 2017. Residential Real Estate, Risk, Return and Home Characteristics: Evidence from Sydney 2002-14. Reviewed Papers.

Hulse, K. and Yates, J., 2017. A private rental sector paradox: unpacking the effects of urban restructuring on housing market dynamics. Housing studies, 32(3), pp.253-270.

Kohler, M. and Van Der Merwe, M., 2015. Long-run trends in housing price growth. Reserve Bank Bulletin, pp.21-30.

Maloutas, T., 2016. Introduction: Residential segregation in context. In Residential segregation in comparative perspective(pp. 17-52). Routledge.

Maloutas, T., 2016. Introduction: Residential segregation in context. In Residential segregation in comparative perspective(pp. 17-52). Routledge.

Melser, D. and Hill, R.J., 2018. Residential Real Estate, Risk, Return and Diversification: Some Empirical Evidence. The Journal of Real Estate Finance and Economics, pp.1-36.

Melser, D., 2017. Residential Real Estate, Risk, Return and Home Characteristics: Evidence from Sydney 2002-14 (No. eres2017_296). European Real Estate Society (ERES).

Plakandaras, V., Gupta, R., Gogas, P. and Papadimitriou, T., 2015. Forecasting the US real house price index. Economic Modelling, 45, pp.259-267.

Troy, L., 2018. The politics of urban renewal in Sydney’s residential apartment market. Urban Studies, 55(6), pp.1329-1345.

Waltl, S.R., 2018. Estimating quantile-specific rental yields for residential housing in Sydney. Regional Science and Urban Economics, 68, pp.204-225.