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As the development growing faster and faster, new technology and commodities seems hard to sustain people’s appetites, however housing as a most traditionally costly and important commodity in human life is always to be the major issue for economists, socialists, government to concern with. Moreover the housing prices are emerged to be varied and oriented into different direction in different area or nations in this world. But in generally, the Housing price was tending to be increased in last few centuries. There are many factors would effect and determined the housing price, for an instance, demographic reason of population growth; Event reason of disaster would wipe out houses make the area to rebuild etc. But here we only analyze the economic factors would influenced the housing price. In generally the unemployment rate, income, inflation rate, foreign direct investment and public policies etc are all economic factors would be the reason to pull or push the demand and supply to cause the price change of housing. The model of the hedonic-based regression approach (GANG-ZHI FAN ET AL January 2006) is most commonly used and has been utilized extensively to investigate the relationship between house prices and housing characteristics. However, this approach is subject to criticisms arising from potential problems relating to fundamental model assumptions and estimation such as the identification of supply and demand, market disequilibrium, the selection of independent variables, the choice of functional form of hedonic equation and market segmentation. Tokyo and Sydney are to be the two typical examples to illustrate the determinant of the housing price. Especially we will analyses from more specific, for an instance: housing boom and public policies.
Determinants in Sydney and Tokyo:
To extend more widely and more specific about the determinants of the house price, we will illustrate Sydney and Tokyo as the particular example to investigate with. Firstly, compare to the hedonic regression the demand and supply equilibrium would use to determinate these complexities. Basically both city would use demand and supply model to constitute with their circumstance to determinate the prices. But both cities use the different variables to determined the price here As the TSUNAO OKUMURA ( July 1996) stated in ‘Housing Investment and Residential Land Supply in Japan: An Asset Market Approach.’ , it is shown that housing price can determined by the market equilibrium is defined by ‘(i) the household optimization behavior, from which the demand for housing stock and residential land is derived, and (ii) housing industry optimization behavior, from which housing investment and the supply of residential land are derived.
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Housing boom and public policy:
From the Table (Appendix and OECD) above showed the fluctuation of real house price in recently few decades. The Australia real house price has experienced significant increased or boom in this post war to present. First, there has been a substantial long-run increase in observed real house prices. ‘Real house prices rose by approximately 180 per cent between 1970 and 2003, equal to a compound rate of approximately 3.3 per cent per annum.’ As the quality of the house remain the same. The real house prices rose by approximately 2.3 per cent per annum and approximately doubled between 1970 and 2003. The year 2003 was almost certainly a peak house price year, during this 33-year period, there were four significant house price booms: ‘from 1971 to 1974, from 1979 to 1981, from 1987 to 1989 and from 1996 to 2003 (the most prolonged price boom).’ (Peter Alson pp97 2005) After each of the first three booms, real house prices tended to be constant or fall for a few years. These are the major events that aftermath of the housing boom. The Australian housing boom in post war period is mainly drive by the government heavily investment to overcome the housing shortage. That’s according to Tony (1998) who states the Australia experienced a self-help housing boom after World War Two and Government policy played an important part in overcoming a serious housing shortage. ‘It argues that the basic factor motivating amateur builders was the absolute scarcity of accommodation rather than its high cost. There were significant regional variations in the extent of self-help activity. These are best explained by the extent of public housing provision. Where state governments invested heavily in public housing the re was less self-help activity.’(TONY DINGLE 1998)
In the second table we found Japanese housing price was fluctuate in the last few decades and the especially in 1971-1973 and from 1982-1983 and also 1988-1991 the price was climb up to the peak at different time period however the housing price is decline in recent few decades but the price of the real estate is still relative high compare with other countries. ‘An Economist survey recently showed that Tokyo and Osaka's residential property prices are the second most expensive of all western cities: an average 2-bedroom city apartment in 2002 cost over US$800,000. More important, these real estate prices are high relative to Japanese average disposable incomes: housing wealth as a proportion of annual disposable income in 1998 was 381 percent in Japan, the highest of all developed countries. The second highest, in Australia, was 355 percent（Olivia S. Mitchell a, John Piggott b 2004）. The Japanese housing boom from 1986-1991 is mainly because the well-know Japanese asset price bubble. ‘The decades following World War II, Japan implemented stringent tariffs and policies to encourage the people to save their income. With more money in banks, loans and credit became easier to obtain, and with Japan running large trade surpluses, the yen was able to appreciate against foreign currencies. This allowed Japanese companies to invest in capital resources much more easily than their competitors making goods cheaper and widening the trade surplus further. And, with the yen appreciating, financial assets became very lucrative.’(Economy wikipedia) at that time period Japanese house price was reach the peak of history. When the Japanese economic indicators have reached an unprecedented high level, but due to asset price inflation can not get the support of Industry, the so-called bubble economy started to decline. The aftermath is leads the longest recession has experienced more than twenty years until now, and it makes the bank set near zero interest rate, high saving rate which people save the money in the bank rather than invest or purchase property. We can find both cities have experienced the fell or declining after the housing boom.
Public policy as economy growth stabilizer is played important role to influence the housing price. This is conducted by government, financial institution and mortgage groups would always highly link with these changes. To achieve the goal, most commonly Reserve bank or Main bank would change the different interest rate to control the economy. For an instance: Japan had adopted near zero interest rate after the economic bubble until recently to rebuild the economy. However by contrast Japan, Australian Reserve bank had increased the interest rate three times in a year to slow down the overheat housing market. Moreover, Government intervention is always involved in housing market. For an instance, Japanese housing price decrease since 1992 because Japanese’s government charge the land tax on the housing market. And by contrast to Australian in post war period to overcoming the housing shortage, government invested heavily in the housing industry. Another classic example is Reverse mortgage market in Japan, As the aging population stands high proportion in the entire population in Japan, to encourage consumption and to release the presser of the welfare for aging people, Japanese government implement an reverse mortgage policy to overcome the problem. As the stated by Olivia S. Mitchell a, John Piggott b (2004) ‘Reverse mortgages allow the elderly to borrow money against the value of their owned homes, so as to enhance their current consumption. No repayments of interest or principal must be made until the homeowner dies or vacates his home, at which point the residence must be sold and the proceeds used to repay the loan. The borrower is guaranteed tenure in his house until death, and he also receives additional income in his retirement. The RM loan is defined by being “non-recourse”—that is, no other asset may be accessed by the lender to reclaim his loan. The lender therefore faces the risk that he will not recover the full value of his loan for a host of reasons to be discussed below. As a consequence, the lender will set the maximum amount that borrowers can receive, and he will also design alternative methods of paying the borrower this amount, including in the form of a life annuity or a lump sum.’ Furthermore, Japan has experienced a very long recession, falling property prices, and extremely low interest rates. Each of these facts will impinge upon the likely success of RMs. The latter two circumstances in particular will reduce the amount of money that households can borrow in relation to their property's value, while the first will promote a lack of confidence generally and diminish the appeal of little-known financial products. Nevertheless, RMs, properly implemented, do offer Japan a sound mechanism by which it can increase the consumption of its elderly and in the long term even reduce its public pension liabilities and health care costs. These considerations underscore the practical importance of this study.
The remainder of this paper deals with the above issues in more detail, and where appropriate, compares the Japanese situation to those of other developed countries.
From the present circumstances, Sydney and Tokyo market are towards to different orientation. Obviously Australia’s housing price is unlike to change much within 18 month as the reserve Bank wont change the interest rate within this time period, the price of the house it will remain constantly for a awhile and the market is slow down by interest rate skyrocketed. The consumer will play more rationally to invest the money into the housing market as the asset bubble become bigger. By contrast to Japan, the housing market tend to be more stable, which the market is under the recessions and the housing market is try to recover in the next few years. But the housing price is still relative high compare to the other developed countries.