In the past week, the economy has continued chugging along in its COVID-19 recovery, from the housing market to new fiscal policy, the re-opening of the Australian economy offers us many economic statistics to think about and continues to be closely relevant to the ideas and issues found throughout the HSC Economics syllabus.
1. The Housing Market
The booming Australian housing market has been the defining feature of asset growth and wealth inequality across the last few decades. As the largest source of wealth in the economy, owning a home is an important financial goal for private individuals, and an important investment market for companies and speculators. This interesting mix of personal and speculative motivations makes the housing market ripe for periods of extreme volatility. One impact of this, as the Australian Financial Reviews [AFR] notes, is the rise in debt (especially mortgages) being taken out by Australians to pay for homes. The AFR notes that total new mortgage commitments for investment purchases rose by 14.1% in March 2021, before again rising 2.1% in April
This is coupled with the fact that the share of the market controlled by investors has risen back to pre-pandemic levels, making up 25.9% of new demand.
Beyond proving that we will never be able to buy a home, what does this mean for us?
Well firstly, it’s a recognition that investor confidence and thus investment is rising in the Australian economy. Not only does investment make up an important part of aggregate demand, the amount of investment and direction of investment in Australia is a key determinant of the makeup of aggregate supply in the long term. Nonetheless, we must also note that such a steep increase in house prices and the inclusion of wealthy investors in this market will serve to worsen income and wealth inequality of which wealth inequality reached 0.62 in 2017
As we mentioned last week in the budget special, if low income individuals are unable to feel the impacts of the wealth effect and unable to spend the returns of wealth, then we will see a decline in consumption, a limitation of aggregate demand and a slowdown of our recovery.
- Housing prices are at some of their highest in the last decade, driving an increase in the wealth effect.
- Many buyers are being pushed out of the market via the crowding out effect and rich investors are seeing their assets appreciate in value, further worsening income inequality.
To find more economics statistics, one-on-one economics help and band 6 example responses, visit the Project Academy website: https://www.projectacademy.com.au/year-12/hsc-economics/
2. Badgerys Creek Airport
The government recently announced a big new step in their plan to create an airport complex in Badgers Creek, Western Sydney. The appointment of the developers ‘Multiplex’ gives us an insight into the realities of fiscal policy and long term aggregate supply theory. The AUD5.3Bn scheme aims to create a new hub of building and construction work in the west.
According to Keynes’ economic theory, this injection of government investment into new projects will stimulate aggregate demand via increasing demand for building materials, employment via demand for workers to complete the projects and increase the income flowing through the economy. Overall, this will boost consumption in the region’s economy by providing people with more jobs and higher incomes.
The government further expects that the new airport will bring an estimated 10 million tourists a year into the region, driving demand for local goods and services, and contributing to job creation and Western Sydney’s economic development.
In improving Western Sydney’s infrastructure, it is expected that Greater Sydney’s economy will benefit too from the ability to move people and planes more efficiently around the region, allowing Sydney Airport at Botany to specialise in offering a more profitable, premium experience thereby increasing the productivity of Sydney’s transport infrastructure and improving aggregate supply across multiple industries and assisting further sustainable economic growth.
- Short-lag time $5.3 Billion investment injection into the regional and Australian economy, increasing economic growth and infrastructure development.
- Increased employment and consumption, increasing aggregate demand and the level of income flowing through the economy.
This series of weekly articles aims to compile the important economic news of the week into bite-sized summaries with HSC-specific takeaways.
You can expect a new article every Monday!