Affordable Housing Research
This essay offers an overview of the subject matter with the aid of the contribution from eminent economic thinkers, Alfred Marshall and Thomas Malthus. These early thinkers have expressed divergent views which will be of critical assistance in the evaluation of the Australian housing market situation and try to come up with solutions to the underlying problem. Nevertheless, it will be of great importance to analyze the current housing affordability status with a close evaluation of the early economic thinkers. Synthesis The overlying problem of affordable housing in Australia can be attributed to the sector market players, mainly the consumers and the suppliers in the market. The two market forces of demand and supply have played a significant role in the determination of the housing affordability in Australia.
The contribution of these forces has created a severe crisis in the housing affordability in Australia. Affordability of housing is a critical element of the general wellbeing of an individual. Failure to afford a house has various implications socially and economically and can go a long way in reducing the social optimality of a country’s population. The wellbeing of an individual is implied in their educational, satisfaction and mental wellness. Poor housing affordability affects the construction sector which constitutes a significant proportion of the employment level in the Australian economy; therefore, housing affordability has severe implications in the economic performance of Australia as they affect the rate of employment growth. Marshall defended that a free market was capable of creating its equilibrium naturally in the economy and thus market price could only be determined through market forces of demand and supply.
In his theory of price determination, Marshall proposed that order was higher in the short run as compared to the long term. Prices, as well as value, were determined in the short run as a consequence of the prevailing market demand since supply was inelastic in the short run. Marshal also came up with the theory of economic surplus, which is the value that a consumer gains when a consumer pays the price lower than what he will be willing to pay for that particular commodity, also producer surplus which is the benefits that a producer gains when their products or the service is sold at a price higher than what he will be willing to sell the product or the service, which was the price above the break-even point.
The economic surplus was famously known as Marshallian Surplus (Aizenman). On the other hand, Malthus supported equilibrium between population and food production which can be attributed to mean demand and supply side of the market. Though they applied the different approach, both Marshall and Malthus seem to converge at advocating on the idea of market equilibrium which was to be determined freely without application of any external forces. The current affordable housing in Australia would have been considered a critical problem in the Malthusian context, which would be directly attributed to the issue of uncontrolled population growth. Malthus proposed that the societal issue associated with population rapid population growth would be solved through voluntary action to apply both preventive and positive checks (Malthus).
These checks aimed to limit population growth which was to create a balance between resources and population growth. On the other hand, the free market proposition as proposed by Marshal would be advocated, as he would correlate the current issue in the Australian housing market to government intervention. The limits set by the Australian government would be responsible for the existing affordable housing; he would, therefore, advised that the control measures introduced by the government be abolished so that unnecessary delays in the development of housing are eliminated (Stiglitz). Elimination of the government restriction would create a balance between the market forces of demand and supply whose interaction will bring back housing market equilibrium. The current concern in the Australian housing planning procedures should be reduced as more extended planning periods increasing costs involved in developing affordable housing.
Reduced methods involved in the resource allocation process will reduce the costs of construction, and as a result, construction cost will be reduced which will result in affordable housing due to improvements in economic efficiency in resource allocation (Pigou). Credit availability increases the level of competition in the credit market which will encourage productivity for businesses. Under the Marshallian fashion, affordable housing would have been enhanced through encouraging regional development as well as improved transport sector, which will enable the residents to commute to and from their place of work, also opening more lands for housing developments and thus reducing the possibility of poor affordability of housing in Australia. A useful transport network will attract investors in the housing sector in the rural areas leading to balanced development.
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