Economic Markets

Property Markets

The market for property can be thought of in several different ways. For example, some people will look for property so that they have a place to live. This group can be broken down into people who are looking to rent, and those who are looking to buy. There are also some people who are looking for second properties. This might be for a holiday home, or for investment. Others seek out commercial property so that they can operate a business. While each of these people may enter the property market for a different reason, their actions are all inter-related. To keep things simple, we will consider just two of these groups; people who are looking to buy a home, and those who are keen to find a place to rent.

If you were looking to buy a home, there are many factors that you might consider. For example, you might take into account:

- The proximity to public transport

- Access to schools

- The availability of shopping areas

- Local parks

- Long term safety in the area

- Whether you have friends or family in the area

- The number of bedrooms/bathrooms

- Whether or not the house has a yard

The market for properties includes both renters and buyers Of course you will also take time to consider whether or not you can afford to borrow enough money to buy a house in an area that you are considering. After you have put all of these variables into the mix, you will be able to start looking for a home.

Houses are sold in two different ways; some are sold at auction, while others are sold directly. Generally speaking at an auction the price will start below equilibrium, and then bidders will continue to increase the price until only one buyer is left. On the other hand, when a house is listed for sale at a set price, it is likely that the price will be set above equilibrium. This is because no one is going to walk into a real estate agent and offer more than the listed price, and so to maximise the amount received the seller will generally aim high. In both cases, the buyers and sellers negotiate until they are both equally happy with the outcome, and an exchange can take place.

A person who is looking for a home to rent will consider all of the same factors, but their perception of cost will be different. While a home buyer will focus on interest rates and likely mortgage repayments, a potential renter is far more interested in whether or not they can afford the rent that is payable in certain areas. Not surprisingly, you can quickly see that there is a close relationship between these two markets.

Imagine for a moment that house prices have increased. When this happens, some people will find that they are unable to buy a house in the short term, and they will wait until interest rates are more accommodating, or their income increases to make the purchase possible. This will force these people into the rental market. When this happens, the demand for rental properties will increase, and therefore it is likely that the actual amount charged to rent a property will also increase. You should also take a moment to consider the actions of property investors. When house prices increase, new buyers will be forced to make higher repayments on their mortgages. In order to cover these costs, they will need to increase the amount that they charge for rent. In other words, when house prices increase both renters and buyers will be paying more; there is a direct relationship between these markets.

The price of a house will also be affected by the supply of housing in a particular area. The Victorian government is committed to stopping the “spread” of Melbourne. They believe that it is better for us to use existing land more efficiently. For example, high density housing and apartment blocks can provide homes for more people in relatively small areas, and these suburbs are then more readily serviced by existing infrastructure (such as roads, public transport, electricity and so on). This policy has resulted in many existing homes being knocked down so that two (or more!) smaller homes can be built on the same block. While this has encouraged some building, the fact that demand still exceeds supply has caused house prices to increase significantly. Some of the factors that have limited the supply of housing are the high costs associated with building a house, a lack of skilled labour, and public resistance to permits being granted for housing in many areas.

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