Economic Policy Problem: Demand and Supply
The demand and supply of Housing and the Housing affordability in Australia
Like all other economies The Australian economy has been affected by the global financial crisis which is now a global economic crisis due the collapse of Lehman Brothers and other financial institutions in US. The consequences of the global economic crisis has been severe and as a result of this the world is in Recession therefore many economies has pushed the budget into a deficit launching economic package trying to boost their economies.
Because the housing market and the housing industry is one of the most important sector of the economy this report aim to analyse how the global financial crisis has affected the demand and supply of housing in Australia also what are the condition of housing affordability and how the Government through the stimulus package tend to intervene the economy.
After this report we will be able to understand the movement and the reason for a movement into the demand and supply curve for housing in Australia you will be able also to identify if the Government economic policy is going for the correct pathway or if this temporary measure will not bring certainty and confident to the economy.
It is very clear that at least the Rudd’s Government is addressing the problem anticipating future scenarios and acting to correct this scenarios exploiting and taking advantage of the relative good shape of the Australian economy in this moment in comparison with another countries.
II. Australian Economy
Like all other economies the Australian economy was very much affected by the global economic crisis and the recession around the world therefore the financial institutions started to feel the pressure and the stress of the situation but the Australian Government put in place measures to guarantee the debts of banks.
Apart of that the Australian economy was affected by the collapse of commodity prices this brought real losses of income to the economy which put to business in a position to review their investment plan in the future.
At the same time households have become more cautious about expenditure due the increase of the unemployment rates and they start to increasing savings.
Because the panic caused and the lack of consuming the RBA responded lowering of interest rates reducing from 7 ¼ per cent to 3 ¼ per cent, this reduction have fully passed to the borrowers therefore interest rates on housing loans have fallen as well as interest in consumer and business loan, this rate are at historically low levels.
This has produced an increase in loan demand; other factor that increased the demand of loans apart of the lowest interest rate around 5 ½ per cent is the program first home owner grant which has attracted new buyers into the market.
On top of that the stimulus package is an initiative of the government to support spending but this measure cost that last financial year there was fiscal surplus of 1 ½ per cent of the GPD even so Australia will remain as one of the better performing economies around the world.
One of the reason of the reduction in wealth over the past year is that people which income have grown over the year overestimated the returns of the share market, people did not set up realistic expectations about their financial goals and now they have to increase the proportion of income working additional year or many of them returning to the workforce to compensated the losses of the share market due the global financial crisis, people did not took in count that share market produce negative returns every few years therefore they should have included this into the returns expectations.
Although the large fall in wealth the households sector still is in a relative good position because people is maintaining a good balance between assets and liability and even when the hose market was subdued during 2008 and the...
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