Review of Macroeconomic Issues Housing Affordability

Question: Describe about the Research paper on Australian macroeconomic issue? Answer: Introduction/Significance of the Problem Debates over the drivers and the trend of Australian housing affordability and various other advanced countries have stress over the effects of failure of market in particular markets like the private rental sector and the problems related to equity (Yates, Berry, Burke, Jacobs, Milligan and Randolph 2004). However, its also the case that certain factors that results through the enhanced housing stress effects over the broad economy by the interaction of the movements in the prices of housing and changes in the demand (Yates, Berry, Burke, Jacobs, Milligan and Randolph 2004). This report focuses over the main economic impact of the issues related to the housing affordability in Australia, which is also the major microeconomic issue. The main aim of this report is to offer the broad rationale and the basis on which policies could be developed and improved the outcome of housing affordability. In Australia housing affordability is referred in the operational relations of both the regio nal and the national economies and not just the question of social policy (Gabriel, Jacobs, Arthurson, Burke and Yates 2005). As per the traditional theory of public finance explores three branches related to economic involvement through the state which are: stabilization, allocation, and distribution (Milligan 2005). In the case of allocation, government might intervene towards offset or either right market failures or imperfections (Milligan 2005). In the second case of distribution, government tries to act in order to bring the changes in the distribution of both wealth and income as determined by the market (Yates and Gabriel 2006). Finally, in case of stabilization, main agencies like central banks and the government takes the responsibility of steering the entire economy in order to achieve the combination of stability of price, relevant aggregate employment, as well as external balance in economy (Yates and Gabriel 2006). Australia Housing affordability Index 1984-2006 (Source: Yates and Gabriel 2006) Significance of the issue The main significance of this report is to explore the main issues as well as view of the policy towards the role of housing affordability in having the Australian macroeconomic performance (Berry 2006). This report also holds importance in reviewing the evidences over the interactions among the housing investment, macroeconomic policy, household debt and the household consumption in Australia that stress over the role of housing affordability (Yates, Berry, Burke, Jacobs, Milligan and Randolph 2004). Analysis This research indicates the housing affordability as structural issue that could enhance the existing policies and actions taken by government. Measuring housing affordability Housing affordability is considered as the tenure-neutral term, which implies the relationship among the income of household and the expenditure of household over the cost of housing (Berry 2006). Its noted that the average amount spent over the cost of housing in every household in the regions of Australia has increased by 11% of the income of household in the mid of 1970 to more than 15% in the year 2003-2004 (Yates 2007). Present its noted that around 15% of the overall household has paid twice, that is 30% of the income is earned in meeting the cost of housing (Milligan, Phibbs, Gurran and Fagan 2007). In case of low income household is proportion is around 28% that is double of the average of Australian. Its noted that this proportion has increased by 24% in the past decade (Yates 2007). (Source: Yates 2007) Under the scenario that is consistent with the economic as well as geographical trends employed by the intergenerational report of Australian government, the low income household proportion with the housing cost ratio is more than the Australian wide average, and its expected that it might increase by 20% for the one who are between the age group 25-65 (Burke and Pinnegar 2007). Its noted that in the year 2002-03, the total low income households were 860000 in Australia that face the housing stress and faced the risk of housing affordability (Yates 2007). Issues of housing affordability Broad measures cant explain about the factors that could determine the expenditure level on the housing, and explain about the implications of facing the housing stress and it failed to capture the experiences related to issues of affordability (Yates, Kendig and Phillips 2007). The issues of housing affordability increase when the households actually force towards decisions, which impact them and they were not able to make up and had to face the housing stress (Ball and Wood 1999). There are various examples of it in form of deprivation like, going without having the meal, enforce the mobility of housing, and children didnt went to schools, that lead to increase in housing stress into the financial stress (Beddoes 2005). Exploring risk of households Issues related to housing stress and housing affordability is focused towards sub groups (Benjamin, Chinloy and Jud 2004). The low income group of households includes the single people, young people, purchasers, households with family, households living in metro cities, working people, and private renters (Benjamin, Chinloy and Jud 2004). From the one who are at risk, the renters from low income group faced intense and widespread issues in comparison to low income purchasers (Berry and Dalton 2004). There are many private rentals, which were not aspiring to have the ownership of home. From the group of low income group, faced the housing stress for long period instead of short period (Berry and Dalton 2004). The purchasers from low income group got vulnerable towards the risk that was related to the housing lack of security, which even manifested their ability to meet with the increase rate of interest (Bertaut 2002). (Source: Bertaut 2002) Why housing affordability was issue in Australia Not every risk relates with the housing affordability is borne through the individual households, but many risk were borne through the society (Black, Meza and Jeffreys 1996). There were many coping strategies that were employed contributed towards lack of cohesion from social aspect (Yates, Berry, Burke, Jacobs, Milligan and Randolph 2004). Equity of intergeneration was actually compromised through the rising disparity among the one who gain the access towards home ownership and the one who were not able to do so (Boone, Giorno and Richardson 1998). The issues of housing affordability holds the capacity to make it more challenging for the economy to manage, and in result of that sensitivity increased for the risk households towards changes in policy (Boreland, Gregory and Sheehan 2001). The Behavioral Life-cycle Theory The life cycle theory is cast in the standard utility for increasing tradition of economics of mainstream (Brady, Canner and Maki 2000). This theory includes that all households should organize their consumption by certain stages of life cycle for increasing lifetime utility (Brady, Canner and Maki 2000). This theory treats every income on equal basis, which means all income might impact the consumption and savings of household (Burbidge and Sheehan 2001). Its implies household might vary in receiving income as present income stream or either cash payment, which is a capital gain over previous wealth and as a particular income stream towards current value in which income is equal to the payment of cash (Camerer and Lowenstein 2003). Findings The findings of this research over the housing affordability in case of low income group in Australia tries to reinforce the previous studies conducted in Australia (Campbell and Cocco 2004). Overall, they offer strong support towards the case of setting up the national goal of policy for improving the housing affordability issues (Yates, Berry, Burke, Jacobs, Milligan and Randolph 2004). Under this goal, proper actions are taken by spheres of the government in 4 areas of strategy for tackling the drivers as well as results of the decline for long term in Australian issue of housing affordability (Campbell and Cocco 2004). The first set of the actions need to be directed towards the long term trends of increasing house as well as land cost through improving the housing market efficiency (Macfarlane 2005). Specific attention need to be placed for minimizing the impediments towards housing supply in the required regional as well as metropolitan locations in order to improve the residential development efficiency and for reforming the tax settings, which might affect over the houses prices in specific market, either through adding cost or either through stimulating demands (Case, Quigley and Shiller 2001). There exist the needs to offer the direct assistance of finance in order to help the renters in low income group or either buyers who are struggling for house (Case, Quigley and Shiller 2003). This financial assistance need to be designed in order to be responsive towards the variations in the individual household circumstances, which experience the issues of housing affordability (Case and Shiller 2004). Therefore, its important to carefully target the assistance in order to reduce the adverse impact of prices (Kahneman and Tversky 2000). A funding, national policy along with framework of delivery that holds the capability of securing the private investment in referred as additional supply of affordable rent housing and for sale is needed for the purpose of stimulating the provision at the affordable ends in the private market and for redressing the reduction in the provision of social housing (Dalton 1999). Its noted that changes in the system of social housing will be required in order to be secure about the viability of the lying source of los cost housing and then it should be integrated with the lying service providers and to offer asset in the expanded affordable housing sector (Dornbusch and Fischer 1987). Policyrecommendations In order to achieve the sustainable as well as effective improvements in the housing affordability for the Australian households for the coming generations, government of the country require to adapt towards the balance of policy set reforms under specific vision, framework or either purpose of its implementation (La Cava 2003). A coordinated response of the cross government applies to both the policy tools of housing and towards other policy levers in order to address the requirements of the individual households and for redressing the issues of systematic housing markets (Leung 2004). Particular tools of housing policy will be relevant towards alleviating the housing stress and for supporting for offsetting the patterns of the economic as well as social exclusion, which relates to the unaffordable housing situations (Glaeser and Sacerdote 2000). However, the research findings implies about the flexible housing policy that is required in past in order to respond towards the variation in experiences of housing affordability along with diversity of the impacts on the life of the people (Kelly 2001). Specifically, policies that create influence over the market performance of labor or on economic development, along with transport planning, monetary and fiscal policies, population policies, policies of income support, infrastructure policies, settlement planning, needs to enhance the regional as well as urban sustainability, and should also put more stress over addressing the housing affordability issues with the other goals (Dvornak and Kohler 2003). It is by the adjustments made in the main areas that the actions related to the alleviate housing stress for short time period would be buttress through the broad strategies, which could met out the causes as well as effects of deterioration of the housing affordability (Dvornak and Kohler 2003). Conclusion Through conducting the comparison from the last two years, its noted that housing markets have got eased and the equity markets is also trying to recover in Australia. Its also noted that consumption growth is slow along with economy. However, the outcome dont cut the arguments that are presented in the report, but the fact is opposite of the case. The growth of economy has reduced instead of getting sharpen due to the facts. Its noted that prices of housing have gone flatten due to the reduced modesty in most of the market, instead of getting crashed by around 20-30% as forecasted in certain quarters that also tries to reduce the negative effects over spending on wealth. 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