Econ 7002 House Prices in Australia

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In conclusion, this essay illustrates the view hold by author about the decline in housing price, using economic concept learnt in classes. He stands that goods offered by house-led retailing are complements to housing, and the decrease in house demand weaken its sales. Apart from that, I try to give a critical perspective on what happen and talked about other factors influence retailers as well as some recommendations to warm the market. Eliminating assumption made by author, namely taking all consumers into consideration, the price of housing increase, same as the demand quality. And factors like customer preference and innovation pressure are also serious to retailers. Additional market interventions to be introduced are tax relief like stamp duty free, claim of technology expenses and policy of purchase restriction.

Reference

Kirby, J. (2017). Housing fall will hurt retailers. [online] Theaustralian.com.au. Available at: http://www.theaustralian.com.au/business/opinion/housing-collapse-will-hurt-retailers/news-story/4f93e12c78a2c874d0ad9e86ca96b938 [Accessed 13 May]

Letts, S. (2017). Why Chinese investors keep buying Australian property: it's cheap. [online] ABC News. Available at: http://www.abc.net.au/news/2017-03-24/why-chinese-investors-keep-buying-australian-property/8385174 [Accessed 19 May 2017].

Aph.gov.au. (2017). Chapter 4 - Factors influencing the demand for housing – Parliament of Australia. [online] Available at: http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Former_Committees/hsaf/report/c04 [Accessed 19 May 2017].

Sloman, J., Norris, K. and Garratt, D. (2013). Principle of Economics. 4th ed. Australia: Pearson, pp.31-38.

Housing collapse will hurt retailers

URL: http://www.theaustralian.com.au/business/opinion/housing-collapse-will-hurt-retailers/news-story/4f93e12c78a2c874d0ad9e86ca96b938

If houses prices fall further they are going to bring a string of related industries down too. What’s more, the sectors at risk stretch well beyond builders and property companies: high-profile retailers are exceptionally exposed.

The last time house prices fell significantly — in 2011 — the stock prices at leading retailers Harvey Norman and JB Hi-Fi fell hard and fast.

To spell it out: in the 18 months from June 2010, house prices fell a modest 5 per cent. Over the same period the total return of shares in JB Hi-Fi and Harvey Norman fell 35 per cent and 39 per cent respectively.

What will happen this time around? Certainly, the consensus is that house prices are about to take another tumble, but this time any future slump will be accompanied by much higher levels of household debt.

Stockbroker UBS rang the bell calling the top of the housing boom a month ago and since then everyone has been falling over in the rush to tell us how sharply house prices will drop. Even the Treasurer Scott Morrison says house prices are cooling already.

The latest broker to join the dots and forecast a fall in house prices is Citi, which has forecast a drop of 7 per cent by 2018.

The global broker suggests that retailer JB Hi-Fi and Harvey Norman may now come under renewed pressure, but that lesser-known home furnishing operators such as Beacon Lighting and Nick Scali could also face so-called “downside risk”.

“House-led retailer share prices are highly leveraged to house prices — the leverage has been positive for the last four years, but now appears to be turning,” the broker explains.

It also pinpoints two property trusts which now have their highest exposure to the residential sector since the GFC — Mirvac and Stockland.

As analysts suggest the worst price falls will hit inner-city Brisbane and Melbourne apartment complexes, a Mirvac development at Yarra’s Edge Melbourne docklands has been cited as a worrying example. Citi reports: “Only two apartments were pre-sold between June 30 and December 31 last year”.

In contrast, Mirvac’s Green Square development in Sydney sold out on release during the same period.

Citi says investors should “scale back” investments in residential property, building materials and retailing.

According to the broker, as the cash available to consumers hits multi-year lows, the key issues facing vulnerable stocks are: 1. low wage growth; 2 Low employment growth; 3 Rising mortgage costs; and 4. Rising inflation. It suggests growth in non-food spending could be as low as 1.5 per cent (less than GDP growth).

Citi says households face a material step change in energy utility costs, with electricity and gas prices to rise 10 per cent per annum for the next three years.