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HOusing Lecture

The document discusses the concepts of housing demand and supply. It outlines several factors that influence housing demand such as price, income, and preferences. It also discusses factors that influence housing supply such as costs, number of producers, and technology. The document examines the concept of market equilibrium in housing and why housing is an important good both economically and physically.

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32 views3 pages

HOusing Lecture

The document discusses the concepts of housing demand and supply. It outlines several factors that influence housing demand such as price, income, and preferences. It also discusses factors that influence housing supply such as costs, number of producers, and technology. The document examines the concept of market equilibrium in housing and why housing is an important good both economically and physically.

Uploaded by

bezawitleulyohaness
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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- Policy needed because there is scarcity

Human needs

- Recurring need
- Hierarchical need

Housing need is based on numbers of people requiring housing, whereas, demand on the ability and
willingness to pay for it.

Scarcity-choice-opportunity cost

Resource (factor inputs)

- Anything (natural or manmade) that can be used as an input in production of outputs such as
housing construction. E.g., Land, labor, capital, technology, entrepreneurship
- Resources often have alternative uses.

The monetary value of housing derived from:

- Demand
- Utility
- Scarcity
- Transferability

Demand

- Is a willingness and ability of a consumer to purchase goods and services at a specific price
within a set of possible prices at a given period of time
- Law of demand: price of a commodity and its quantity demanded are inversely related, ceteris
paribus (price is not the only factor that affects supply of quantity demanded, however it is the
major factor)

Ceteris paribus means keeping other factors constant.

Nominal effective demand

Housing demand?

Determinants of housing demand

- Price: law of demand


- Change in tastes and preferences
- Household income (normal goods vs inferior goods) income elasticity of demand for housing is
0.75
- Change in prices of related goods (substitutes vs complement goods)
- Change in number of buyers
- Expectation of consumers (housing is price inelastic)

Housing as a bundle of traits: structural characteristics and locational characteristics

- Number of rooms, bathrooms, layout


- Quality of the components (plumbing, fittings, cupboards, doors and windows)
- Nature of the equipment

Issues to be considered while calculating the housing demand

- Average population growth rate


- Backlog
- Average house hold size
- Standard housing expenditure

Housing supply

- Supply is the amount of goods and services that businesses are willing and able to produce at
different prices during a certain period of time.
- Law of supply: the quantity supplied of commodity varies directly with the price of the
commodity, ceteris paribus

Housing supply- the amount of housing units constructed in a given period of time in
a given area

Determinants of housing supply

- Change in prices of factor inputs


- Taxes and subsidies: taxes increase costs: subsidies lower costs.
- Number of sellers; more or less producers will affect the supply of the product
- Policies: liberalization
- Change in technology
- Expectation of change in price /speculation

Market equilibrium –

- Refers to a situation in which the price has reached the level where quantity supplied equals
quantity demanded
- Equilibrium price: the price that balances quantity supplied and quantity demanded.
- Equilibrium quantity: the quantity supplied and the quantity demanded at the equilibrium price.

Economic and physical reasons why housing is critical

- Durability (physical)
- Heterogeneity or non-homogeneity: dwellings differ in size, location, floor plan, interior
features, and utilities (physical)
- High transaction costs (economic)
- Liquidity (economic)
- Both an investment good and a consumption good
- Immobility: it is impractical to move dwellings from one location to another (physical)
- Relatively high resale costs. (economic)

The five key interdependent components that interact in any housing market are
- Strategies
- Policies
- Instruments
- Actions

Housing is a never enough type of good

- Never good enough


- Never safe enough
- Never accessible enough
- Never the right size enough
- Never liquid enough
- Never near the right schools
- Never close enough to the beach.

Growth was not a passive, trickle-down strategy for helping the poor. It was an active, pull-up strategy
instead. It required a government that would energetically take steps to accelerate growth, through a
variety of policies

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