Question

Explain how housing prices in Melbourne effect producer surplus in last 20 years with the help of graphs?

Answer 1

Q. Explain how housing prices in Melbourne effect producer surplus in last 20 years with the help of graphs?

Ans (1). Low intrest rates a global search for yield strong population and significant offfshore demand for australian property are all supporting demand for housing.

(2) Disortions in Australian tax system which favour rental properties as a form of personal investment are contributing    investor demand.

(3) The central bank's challenges is maintaining  a low policy rate to get inflation back to target but at the same time   ensuring that they does not  create a housing bubble. This is tricky balancing act.

(4) Of course slowing housing price growth is not the primary goal of tighter prudential setting. The objective is to reduce the risk entering the financial system. If improving housing affordability, the key reforms need to be made on the supply side.