Economy and Policy

Providing sufficient yet affordable housing to the residents has always been a core issue for a country.

Property market is an integral part of the economy at both national and international scale. It interacts with other sectors of the economy. As the economy evolves, the property market reforms and reshapes in its own way however yet based on the performance of the overall economy.

The change of rules or policies, e.g. immigration policy, taxation rules, monetary and fiscal policies, can have significant impact on the economy therefore the property market.

Property market is susceptible to the changes of economy and policy. It is important for the property market participants to understand the impacts on the market and how. The following tasks need to be carried out on a regular basis to support quality decision making:

Monitor the overall economy and policy environment

Investigate the evolving interaction between the property market and other sectors of the economy

Assess the impacts of policy changes on the property market.

House Economics

Housing economics applies the economic techniques to the residential property market. It tries to understand the driving factors and the laws of the property market. Then it tries to describe, analyse and predict the patterns of the price, supply and demand. Housing economics offers the “bone” for the housing market research.

As the foundation for the housing market analysis and forecast, housing economics deals with the following core issues:

The Housing Supply

The housing supply for a market (can be a suburb, or a city) consists of brand new dwellings and existing dwellings. The new dwellings are produced using land, labor, building materials and other factors. Existing houses come onto the market for sale for various of reasons. The supply of the new dwellings and some of the existing houses for sale are determined by economic reasons, simply the cost and the expected benefit. Other existing houses for sale are due to non-economic reasons, such as the change of the family situation. Due to the lag between demand and development completion, and the uncertainties of the family situation, there is always over-supply or under-supply for a certain market.

The supply of new dwellings are quite often regulated by the local governments here in Melbourne. Under those regulations, developers make decision on a certain project based on their understanding of the current market and their perception about the market in the near future.

It is possible to manage the housing supply to meet the planning target for a local government by study the property market. It is also possible for developers to maximizing their profit by making informed decisions.

The Housing Demand

Having a place or a room to live in is one of the fundamental needs for people. Therefore, the main determinants of the housing demand are demographic, essentially the population size and population growth. Especially in Melbourne, the migration from other states, areas, and overseas have been an important determinant.

The demand is usually measured by households. Each household has a certain size. Its spending style, income and savings quite often determine the capacity to purchase a house. By understanding the housing demand, models can be developed to describe those factors and the level of demand.

More specifically, housing economy deals with the following topics:

Residential land use and valuation, rent, construction

Demographics, employment, household income and migrationland use and valuation, rent, construction

The dynamics and evolution of the housing supply and demand