Housing Prices Balance Supply and Demand

There has been much talk recently about the price of housing in Australia – most of it about the perception that prices on homes are too high. But just as in other commodities, values are based on that old concept of supply and demand. This is a far different explanation from those who might deem the current market as a bubble about to burst.

Consider this: housing prices rise as a natural way to balance market demand. Demand is high because supply is low. Traditionally, this encourages investors to develop new properties and in fact, that is what should be happening right now but unfortunately few Aussie investors are rising to meet the challenge.

Perhaps one thing that will stimulate growth in residential building is the elimination of impediments that restrict efficient construction. The RBA is expected to make this happen soon by relaxing zoning laws, speeding up the license approval process, and removing some of the current government levies imposed by many states and cities across the country. In addition, it is hoped that the public sector will do their part by investing in necessary infrastructure to augment supply.

Much of the situation will be aided by looking at the true facts. According to the RP Data-Rismark Capital Cities Dwelling Price Index, the prices for Australian housing have risen 6.1% in the past five years. Concurrently, the median household income also rose to a level 7.9% higher during the same time period. These statistics should not be ignored, particularly by those lamenting the high price of real estate. (ref: http://www.businessspectator.com.au/bs.nsf/Article/Why-we-should-build-more-homes-pd20100310-3E6B7?OpenDocument&src=srch)

For the real estate investor, the opportunity to provide new supply in the market could be a real boon for the entire country. Additional housing projects will stimulate the overall economy as well as the construction industry and real estate market.

Remember that housing prices directly reflect a balance in the supply and demand ratio. Both sellers and developers are needed to bring additional residential properties back on the market to satisfy current demand. Remember, too, that high demand is a good sign in the economy and a problem many other countries wish they had.

Have a Great Day

Regards Richard Colum

Western Australia.


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