THE ECONOMICS OF AUSTRALIAN BUSINESSES

THE ECONOMICS OF AUSTRALIAN BUSINESSES

The article “Reserve Bank worried about collapse in apartment prices” by Martin (2017) is about the overinvestment in the housing sector. This situation is likely to undermine the value of houses and cause a collapse in housing prices, both in the purchasing and renting of apartments especially in Brisbane (Martin, 2015). The economic concepts that apply in this case are the fiscal and monetary policies. This is the regulation of the supply and value of money in the economy by the Central Bank of Australia.

The article assumes that the surge in housing investment cannot be controlled by the normal market forces. It assumes that the banks have to come in to regulate the seemingly out of control growth of the real estate market. The regulation of the growth of the real estate sector can be done by the reserve bank using a monetary policy. This is the policy that is used by the Central Bank of a country to reduce the supply of money or increase it depending on the situation of the economy. It is important for this policy to be used in order to ensure that the value of the money in circulation is favourable to the economy at the time. In this case, the monetary policy would be used to reduce the supply of money in the economy and prevent the collapse of apartment prices. The increase in the lending rates will definitely mean that less people can access loans and, therefore, less people can invest in the real estate sector. This policy will be effective in sustaining the industry.

The assumption is that the reserve bank has to come into play to regulate the market behaviour of the real estate prices. The fiscal policy can also be used to regulate the economic performance in Australia and shake the real estate sector back into shape. The government can increase expenditure to reduce the money supply in the economy and prevent the collapse of housing prices. The housing sector is an important part of the economy of Australia. The Australian economy can be regulated by the fiscal policy very effectively because it is a government controlled type of action.

The article explains that the lending rates have been friendly for too long and that the continuation of the trend will reduce the prices of housing and people will incur losses in the end. It is true that unchecked investment in the real estate sector is detrimental to the housing industry. However, it is also true that the government has to safeguard the investment of its citizens. The government cannot watch as people are making dangerous investment choices all along. Therefore, it is important that the government applies both the monetary and fiscal policies in regulating investment in the housing industry. In the same way, the government cannot fail to regulate the farming industry when people start over investing in dairy farming yet the milk market is saturated. 

The economy of Australia is very strong and the government needs to pay more attention to its development. The government needs to be concerned about the performance of money in the Australian economy. This means that the government has to be on the lookout for business practices. The government regulations will also ensure that the real estate industry is not dominated by foreign investors. It should be benefiting the citizens first. 

In other industries, the investment rates should also be regulated. For instance: the Woolworth’s supermarkets are very popular in Australia (Dyer, 2009). This is very tempting for the shareholders of the supermarket to want to open up more branches across Australia. If the investors in this supermarket support and fund the idea, the supermarkets may end up being less profitable because managing many chain stores is difficult. It is also going to make the brand vulnerable and competitors can easily overtake this dominance leading to huge losses for the retailer. The retailer has a world-wide known brand but this does not mean that if it invests excessively in Australia, the profits and hold on the Australian market will be made permanent. It is easier for the retailer to compete effectively with the current investment and maximize profits rather than over invest and register losses.

The Woolworths supermarket has already started facing stiff competition from other brands. This should be a sign that the brand should improve the quality of the current investments rather than increasing the quantity of investments within the Australian market. The Woolworths supermarkets have to be managed properly to avoid reliance on the lending of the banks to run the businesses. This is because when the banks are limiting the lending, the retailer will have to incur more cost to fund the businesses. The lesson that the retailer can take from the happenings in the real estate industry is that the investment should not be done in excess without proper forecasting of the economy’s future. It is also important that the retailer has a plan to cushion the business in case there is an economic recession. 

As a manager at Woolworths, it would be prudent to ensure the brand has a strong customer loyalty before moving on to invest further in a given market, in this case, the Australian Market. As a manger, studying the market trends is a full time job. This helps in ensuring that the business being run is operating within the permitted scope. It is also important because the business can be protected from negative economic impact. It would also be in the best interests of the retailer if the manger was a voice of reason when there is a new investment being planned. For instance, when Woolworths wants to increase their clothing stock and the manager has observed that many customers are buying shoes, it would be logical for the manager to advice the investors to stock more shoes than clothing. Such kind of management is what an economist would encourage – capitalizing on strengths instead of following trends that could result in losses at some point in the future.

References

Dyer, G., 2009. Australia Embraces the Woolworths Economy. [Online]
Available at: www.crikey.com.au/2009/08/28/australia-embraces-the-woolworths-economy/
[Accessed 7 May 2017].

Martin, P., 2015. Reserve Bank worries about collapse in apartment prices. [Online]
Available at: http://www.smh.com.au/business/the-economy/reserve-bank-signals-tighter-standards-unless-banks-rein-in-lending-20170313-guxd74.html
[Accessed 6 May 2017].