Business Cycles and Asset Markets
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ECOS3021 Business Cycles and Asset Markets
Assessment weight: This assignment is mandatory, and comprises 25% of the final grade for the
class.
Aim: The aim of the assignment is to help you develop your (collaborative) research, analytical
and reporting skills. You will need to read policy reports, news articles, find and download data,
and critically analyse and interpret these materials. In addition, you are expected to apply the
concepts and tools studied in class to the assignment problems.
Groups and group membership: You must work in groups of two (2) or three (3)
At the end of the assignment, attach a brief statement signed by all members describing how each
member has contributed to the assignment.
Structure of the assignment:
• Title, author(s), and executive summary (abstract), with no more than 150 words on a separate
front page
• Primary analysis including tables, figures, and discussion (approximately 1000 words)
• Conclusion summarising your main arguments and results (approximately 300 words)
• A brief description of your data sources and definitions of the variables used, on a separate
page
• Bibliography that clearly cites all of your references (e.g. academic articles, reports, news
articles)
– Your bibliography must include webpage links to the news articles and policy
reports cited in your assignment
The report must not exceed 1500 words (excluding the executive summary, data description, and
bibliography).
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Submission: A representative from your group should upload the final electronic copy via Turnitin
on Canvas (only one report for the group is required) by 5pm on Friday November 4th. The cover
page should include the name and student number of each member of the group. Note that when
submitting the assignment individually, you may receive a warning that it is a group assignment.
However, you can safely ignore the warning. Please note: your assignment will not be graded if
submitted in any other way (i.e. no email or paper submissions).
Penalty policy: Standard Policy. For every day late in submission, 5% will be deducted from the
final grade.
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ASSIGNMENT TOPIC:
The Housing Situation in Australia
1 Background
The COVID-19 pandemic has had a significant impact on economies and housing markets around
the world. After an initial early decline, there recently has been a fast increase in house prices and
rents in Australia, much beyond the increase in the Consumer Price Index. These trends are shown
in Figure 1 below:
Figure 1: House Prices and Overall Price Index - Australia
Notes: Both indeces are normalized to one hundred at Q3 2011. Source: Australia Bureau of Statis-
tics, and Marcel’s own calculations.
This increase has triggered major discussions about housing affordability, as well as wealth
inequality, in Australia. Housing is widely understood as being the one of the most important
source of wealth for households, as well as an important part of individuals’ financial security,
especially later in life. According to the 2020 Income and Wealth Report from the Australian
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Government, owner-occupied dwelling accounted for roughly half of Australians’ net worth in 2017-
2018. For comparison, this number was approximately 25% in the United States in the same
period. But, of course, housing is a basic necessity for everyone, and the recent increase in rental
prices and in interest rates are impacting many individuals, particularly those at the bottom of the
income distribution. In all, the housing affordability crisis, with its profound economic and social
implications, remains a ubiquitous and pressing topic at the forefront of political discussions.
In this assignment, your task is to provide an assessment of the housing situation in
Australia. This task will require an understanding of what the determinants of house prices (and
rents) are, what has their evolution been in the past and what we can expect in the future, both
over the short and over the long run.
2 Assignment
Your task is to assess the outlook regarding the evolution of housing prices in Australia. To support
your analysis, read policy notes from different sources (Australian Bureau of Statistics, Reserve
Bank of Australia), academic and news articles, and listen to podcasts. In addition, you can use
concepts and theoretical tools learned in class to support your arguments. Suggested references and
data sources are provided at the end of this document, but they do not consist of an exhaustive
list. Whenever possible, support your claims and arguments with graphs and data.
The primary analysis of your assignment must be divided in two segments, of approximately
equal sizes. Your assignment must contain segment number one listed below. In addition, you must
select between segments 2 and 3.
1 The current state of the housing market. In this section, you will briefly discuss the
current evolution of house prices in Australia. You should use this section to introduce the
main drivers of house prices and the intuition as for what their impact is. In addition, you
should outline their evolution over the past 10-20 years. Your analysis should evaluate at
least two drivers. A non-exhaustive list of suggestions is below:
– Interest rates.