Essay Questions-

1. Use an economic model of a generic housing market (i.e. demand for, and supply of, existing houses, not the market for rental properties) to explain how market forces could result in rapidly escalating prices for existing houses over just a few years.

2. Assume your model from Q1 above refers to the housing market in Sydney, Australia, where the median house price recently topped $1 million. Briefly discuss one demand side factor and one supply side factor that have likely contributed to the rapid rise in Sydney house prices (not rental price) over the last few years.

3. The removal of negative gearing on investment properties has been recently suggested as one way of reducing house price pressure in major Australian cities.

What is negative gearing?

Using your model from Q1 above, explain how the removal of negative gearing on investment properties would likely affect house prices.