Urban Economics and Finance - Case Study Example

Student Name: Tutor: Title: Urban Economics and Finance Course: Institution: Patterns and trends in values Sydney suburbs The value of land has increased tremendously in the city of Sydney in the last five years. The multiple use of land makes its demand to rise thus increasing its cost. Land supply is constant while its demand has increases each day. The basic theory on land rents illustrates that users compete against each other for land. Space is normal traded against accessibility. In this case, users who see accessibility as important as willing to part with highest amount where land is centrally located. The value of land is directly related to savings on transformational costs. This trend places pressure on land as an important factor of production. Sydney inner square comprises of the dubious prize of one of the most expensive property markets in Australia with a mean price of $685,000, which is not constant. Trends for Median Property for Units and Houses in Sydney Figure 1: Trends for medium property for Units and Houses in Sydney Source: RP Data. Some of the cheapest land market in Australia is found in Victoria. Queensland and Victoria make up some of the affordable land markets in Australia. Latrobe is the most affordable city. Inner Melbourne and Sydney form some of the most expensive markets (Archer, 1996). This two are followed by Adelaide in the rankings that were released in the year 2011 by RP data. Sydney possesses the most expensive properties in the middle ring owing to the lower incomes as compared to middle ring suburbs in Melbourne. Some of the comparison between Sydney and other places are shown in graph below. Figure 2: Sydney residential dwelling cost summary Sydney is Australia’s most expensive and largest city. Real estate prices are higher than most parts of the country. Price levels of rentals and mortgages in Sydney range from close to double the price of similar houses in other Australian state capitals such as Melbourne (Stilwell, 1997). Sydney’s prestige suburbs have some of the most expensive private properties in the world. The mounting influx of young immigrant families and international students make properties in traditional working class suburbs to be out of reach in the budget for a majority of the people. The rental markets of the city, which are steep, have pushed weekly rents on houses and apartments to close to three times the national mean in recent times. Only rich buyers or renters could consider property in the eastern suburbs Bellevue Hill, Darling Point, or Double Bay. On the other hand, inner west suburbs such as Drummoyne, Rozelle, and Summer Hill are near the water and provide proximity to downtown Sydney and good value (Troy, 1996). The north eastern and north suburban sprawl has the real estate that is cheapest but requires tiresome daily commuting. Accessibility, amenity, competition from other land users, zoning and planning control can successively be used in patterns and trends using three suburbs in Sydney. Double Bay is situated on the mainland coast, about 12 kilometers NW of Airlie Beach. Demand to Supply trend in Double Bay Date Medium House Price Median Unit Price Jun-11 $2,250,000 $725,000 Jun-11 $4,100,000 $776,000 Aug-11 $6,000,000 $750,000 Sep-11 $2,062,750 $720,000 Oct-11 $3,350,000 $670,000 Nov-11 $2,928,000 $1,500,000 Dec-11 $2,550,000 $725,000 Jan-12 $421,000 $722,500 Feb-12 $2,750,000 $1,650,000 Mar-12 $1,987,500 $701,000 April-12 $5,100,000 - May-12 $2,000,000 $670,000 Source: Myrpdata.com The table above indicates the medium sale prices of units and houses during the described period. Median sale prices in Bellevue for a period of 12 months Date Median House Price Median Unit Price Jun-11 $4,040,000 $615,000 Jul-11 $3,890,000 $707,500 Aug-11 $3,010,000 $770,000 Sep-11 $2,900,000 $740,000 Oct-11 $4,510,000 575,000 Nov-11 $3,300,000 $660,000 Dec-11 $2,090,000 $658,750 Jan-12 $1,150,000 $878,000 Feb-12 $2,100,000 $601,000 Mar-12 $2,600,000 $747,500 April-12 - $563,500 May-12 - $386,000 Source: Myrpdata.com Median sale prices in Darling Point for a period of 12 months Date Median House Prices Median Unit Price Jun-11 $5,000,000 $1,125,000 Jul-11 - $1,135,000 Aug-11 - $1,300,000 Sep-11 - $1,725,000 Oct-11 - $940,000 Nov-11 $1,740,000 $900,500 Dec-11 $5,600,000 $834,990 Jan-12 - $1,532,000 Feb-12 - $1,065,000 Mar-12 - $1, 190,000 May-12 - $1,688,000 Source: Myrpdata.com Accessibility as far as Double Bay is concerned is very important. The suburb is located just ten minutes away from the airport and town. It has on-street parking and excellent bus, train, and ferry links. Accessibility plays a vital role increasing property prices in Double Bay suburb. Among the three suburbs (Darling Point, Bellevue Hill, and Double Bay), Double Bay is the second expensive suburb after Bellevue in property prices owing to its advantage of accessibility to means of transport and communication. Roads are well developed and all means of transport ranging from buses, cubs, and bikes can be used due to its proximity to town. Competition for land use luxury residential houses and commercial offices. Darling point suburb prides itself as being very accessibility due to its location on the Darling Harbour. Pyrmont Bridge connects the city to Ultimo. Greenoaks Avenue and Mona Road serve as two other main accesses to Darling Point. Three hundred and twenty seven bus service passes through Darling Point. The Darling Point ferry wharf offers access to Eastern Suburbs ferry services. The railway station at Edgecliff also service Darling Point (Sydney Metropolitan Strategy, 2006). The median prices of property in Bellevue are above of those trending in Darling Point due to location of suburb close to Sydney CBD. Bellevue is the wealthiest suburb in Sydney. Bellevue means beautiful view. In January 2008, Queen Anne’s home Caerleon fetched a record price of $22 million. A mansion on Victoria Road was sold for $23 million in November 2009, going beyond the record set by Caerleon. In regard to amenity, Darling Point is dotted with variety of hotels, rentals, national parks, and resorts. Visitors to this suburb would find Darling Point comfortable and affordable. Houses and convention centers increase the amenity level at Darling Point. Bellevue has the most expensive and luxurious hotels for people looking for vocation avenues. Other attractive places in Darling Point that complement its amenity include University of Sydney, showground, Hyde Park Barracks museum, Tamarama Beach, Taronga Zoo, Sydney Harbour Bridge, Sydney Aquarium, Pitt Street Mall, Sydney Town Hall, Royal Botanic Gardens, Luna Park, Art Gallery of New South Wales, and Macquarie University. The suburb hosted the sailing events during the Olympics in 2000. Figure 3: Median Property trends in Darling Point Source: http://www.homepriceguide.com.au/ Figure 4: Property trends in Darling Point Source: http://www.homepriceguide.com.au/ The map below shows the location of Double Bay, Darling Point, and Bellevue Hill in Sydney City. Bellevue Hill, Darling Point and Double Bay Figure 5: Sydney suburbs Source: http://apm.domain.com.au/ Housing demand is driven by household composition and size, household incomes, household preferences, cultural, and historical factors. The following graph shows trends in median property in Bellevue Hill for the indicated period. Figure 6: Median property trends in Bellevue Hill http://stgeorge.homepriceguide.com.au/ Population of Sydney city has been increasing tremendously. It was projected that the population of Sydney area would increase by close to 1.1 million to around 5.3 million people in the year 2031. Forecasts of the population have now increased significantly, and population in Sydney is expected to increase to close to 6 million people by the year 2036. The annual increase of people is estimated at fifty seven thousand people every year. There is increasing demand for housing is being propelled not only by the population growth, but also by other factors of demographic entailing ageing population and rising incomes of household, together with changes in average composition of household (Powell & Withers, 2004). The population ageing of Sydney is likely to persist as a main driver of trend for smaller households. Just like other metropolises in the world, a proportion of residents of the city of Sydney are unable to secure housing of any type. Some families and individuals at some time are found to be homeless. In the year 2006, close to 1.5M dwellings catered for 4.1M residents of Sydney. Close of 940 thousand were detached houses while other 180 thousand were semi-detached terrace or row houses. Detached houses that are separate consist of 61% of housing in the city of Sydney, but this proportion is plummeting across Sydney. Row and terrace housing is widespread in the areas found in the inner city, close to eight kilometers from the city center. Surging demand for dwellings that are smaller close to urban amenities, coupled with adjustment in planning laws targeting to address issues over economic and environment costs of urban sprawl, occasioned an increase of 30% in the number of in Sydney city from the year 1996 to the year 2006. This trend has been noted to persist (Sydney Metropolitan Strategy, 2006). The following graph shows trends in house prices in Sydney which is the case for many Suburbs. Figure 7: Median trend in houses in Sydney Source: http://stgeorge.homepriceguide.com.au/ Apartments present close to quarter of all present dwellings. Separate houses persist to dominate in Sydney suburbs. In the western part of Sydney, close to 80% of all dwellings consists of separate houses. It is 70% across New South Wales and 61% in the greater Sydney area. Density and housing types are changing rapidly in the city of Sydney. The increase in the percentage of multi-unit dwellings in the lower dwellings, in western Sydney, has been dramatic as compared to the rest of the city. There is significant discussion in policy circles concerning the placement of additional population, specifically whether growth in population should be included in Greenfields areas on Sydney’s existing and fringe suburbs (Stilwell, 1997). Debate in the mainstream media is focused on the role the New South Wales Government and the various local councils. Issues concerning released land volume in the fringe areas, new land cost of developing and the barriers imposed via the planning regulations have been pointed out as increased barriers to further development. Whereas government plays a pivotal role in influence of development, there are other external factors which influence the location and rate of development. Amenity attracts people to move close to the city center. Diamenity make people to move away looking for what they lack in their area of dwellings. Push factors move people close to amenities available amenities. Hospitals, schools, and government offices attract people who want to get faster services. People avoid remote and inaccessible places for the sake of convenience. Absence of amenities creates unnecessary hustle for people and hence closeness to the city center is influenced by this trend (Powell & Withers, 2004). Patterns and trends that are being witnessed in the land market are to a great extent being influenced by amenity placement. Diamenity makes it is hard for people to attain basic services in life. Accessibility is important in every city around the world. Shorter distances enable easy transport of goods, communication, and getting to work. Consequently residents prefer central locations. Figure 8: Sydney's ferries network map Source: http://www.sydneyferries.info/ This is accentuated by economies of scale and scope and agglomeration economies like knowledge spillovers, labour pooling, and co-suppliers. People living in town consist of majorly professionals who interact and share information. Many people come to town seek opportunities for education and jobs. Sydney will witness a growth in population as more students, workers, and government officials come to town. Housing in the city of Sydney is very expensive (Stilwell, 1997). In the city center, there is labor pooling as most people come looking for jobs. Finding a person to replace a retiree of inefficient worker is very easy. This is the reason why business enterprises prefer their location being near the city center so that they can access any type of labor at the preferred time. Accessibility is very important to many residents. Choice of dwellings is influence to a great extent by accessibility of the area. Being located fur from the central point involves increased cost of commuting. People living there will pay less for housing than people living near the city. Development projects are increasing the need of land use in the city of Sydney. Sydney is referred to as a global city, and it has grown tremendously. Housing is a symbol of economic and social status. Sydney is ranked as one of the most housing markets that are expensive as compared to many parts of the world. Real estate prices are prominent and frequent theme in Sydney media. Many people are trying to secure a portion in the Sydney market of housing (Stilwell, 1997). Most of cities in Australia are highly polarized by costs of housing, but the large area of Sydney and the low density, as well as the inimitable harbor coupled with attractive topography, make sure that housing outcomes and processes in Sydney are main contributors for a few people. Land has many uses, and putting up different projects required the use of land. This has led to increase of prices of land in the city of Sydney. Land is a key factor, not just in Sydney, but also in other Australian cities. Land is required for expansion of housing to accommodate the surging population as well as emerging business enterprises (Powell & Withers, 2004). The government of New South Wales also needs to put offices that will accommodate its workers. Growing land use increases the demand for land. Zoning and planning of Sydney city is directed by the government of New South Wales. Metropolitan Strategy is the main document that indicates the strategic plan of the government in regard to dealing with future population surge in Sydney. The Metropolitan Strategy targets to support continuous economic growth while at the same time balancing environment and social impacts. The strategy was founded on forecasts of economic, demographic, and population trends (Sydney Metropolitan Strategy, 2006). It was developed with the aim of strengthening economic competitiveness, enhancing liveability, improving governance, protecting the environment and enhancing fairness. In the state plan released in 2006, the government of New South Wales indicated that close to 70% of 640 thousand dwellings that are new that were anticipated to be needed by 2031, would be located in prevailing urban areas and close to 30% in Greenfield sites. The government targets to decongest the city center as it encourages people to settle in the anticipated new dwellings. Urban land markets have shown increased dynamics following the surge in the value of land. Government directives, decrees, and evaluation affect the means through which location of dwellings are placed (Troy, 1996). Zoning in the city of Sydney direct the way structures are constructed as more people look for means of housing. The government plays an important role in zoning in the city of Sydney. Conclusion Urban economic theory is crucial in interpretation of urban land markets. Shorter distances as held by the urban economic theory enhance transport of goods, getting to place of work, communication and trade. Suburbs which are situated near Sydney’s CBD are very attractive for people looking to save from shorter distances of commuting. Zoning requirement controls high and medium housing schemes. Government policy is widely used in the determination of zoning, land values, investment in infrastructure with the aim of accessibility and amenity which are key aspects which direct residential prices. Suburbs in Sydney which are located close to the business centers tend to have high density and face value increases that are rapid. If housing density is allowed to vary, land per every household can be substantially reduced by constructing at a higher density. Saving in land costs will be worth more at places the cost of land is expensive. The land markets in Sydney are attracting droves of investors to the city. This trend is pushing the price of rent to unaffordable levels. Urban land markets draws mixed reactions from the mainstream media particularly in Sydney. There are static figures or features in the urban land market. Urban economic theory helps individuals to understand the dynamics in the land markets which assist investors in making right decisions as far as prices of properties are concerned. Demographic trends are influencing the way land markets are experiencing growing pressures. Bibliography Archer, J., 1996, The Great Australian Dream: The history of the Australian house, Angus & Robertson, Sydney. Troy, P., 1996, The Perils of Urban Consolidation: A Discussion of Australian Housing and Urban Development Policies, Federation Press, Leichhardt NSW. Powell, M. & Withers, G., 2004, National Summit on Housing Affordability: Resource Paper, National Housing Alliance, Canberra. Sydney Metropolitan Strategy, 2006, New South Wales Department of Planning, NSW Government Metro Strategy. Stilwell, F., 1997, Globalization and Cities: An Australian Political Economy Perspective, Australian National University Urban Research Program: Canberra. Read More