The equilibrium of housing supply and demand

Based on the Star online newspaper article title ‘Housing supply and demand – are we nearing equilibrium?’ by Datuk Abdul Rahim Rahman dated , Saturday November 26, 2011.        ‘If the economy grows, housing gets better, quicker’- Jamie Demon, that’s the quote describing relation between housing and economy. Housing have become the most essential and necessities for humankind regardless of type of house. Definition for house in Oxford Dictionary is: a building in which people live or residence for human beings. House is the shelter for humankind to find safe and comfortable for family and own life. Since the ancient age e.g. ice age , rock age.. Humankind create a place to stay that’s called home until this 21^st century and beyond. Furthermore the rates of world population have increase drastically in each country.  Without shelter or home, humankind will be staying everywhere and called homeless. There will be 12 topics I learnt in the microeconomics that I may relate in this situation.

            First and foremost, the definition for microeconomics is  the part of economics concerned with single factors and the effects of individual decisions. Microeconomics is basically discuss about a particular situation or a smaller picture  such as setting up a personal business while Macroeconomics discussing a bigger picture e.g the country economy, more towards a larger scale situation. In chapter 2 of business in market environment –demand and supply and market,  we can relate by the increasing number of population in a particular area. I will research on the article ‘ Housing supply and demand – are we nearing equilibrium?’ by Datuk Abdul Rahim Rahman in The Star on Saturday, November 26, 2011 . ‘The main determinants of the demand for housing are demographic. Population size and population growth are the core demographic variables.’ As we can see when the population increase, the demand for housing will also increase in a particular area.

For example , in the  city center Kuala Lumpur  the demand for housing is higher compare to in the suburban area such as in Kelantan because more people tend to live in the city center due to better facilities than the suburban area. Housing can be classified as necessities than normal goods or inferior goods. Even though the person income is high or low , house is still a necessary place to stay and shelter. When the supply increases or decreases, it will affect the demand in the market or vice- versa. The rate of population growth  in Kuala Lumpur area increasingly positive upwards every month, due to this the demand for house will increase. Therefore to overcome scarcity , supply of housing must be sufficient to reach equilibrium point. Equilibrium means the both demand and supply is stable on each other. We can find the equilibrium point in the graph when the supply and the demand intersect and equal. Thus, everyone is satisfied with the current economic condition. At the given price, land developer (suppliers) are selling all house that they have produced and citizen(consumer) are getting house that they are demanding. Demand is more than supply is usually occur in the most populated area e.g city area while in village area or lesser population area supply while overcome demand .

   ‘The degree of elasticity depends on the elasticity of substitution and supply restrictions. For example, the use of capital intensive technology has been employed to reduce the rising labour cost, thus having less impact on the supply of housing’ . The relation in this situation is substitute and complement or also in elasticity in chapter 3 –Elasticity demand and supply of microeconomics I learnt. Complements means ;either of two parts or things needed to complete the whole. When the labor cost rising , it will also affect the housing supply because without labor house cannot be build. Substitute can be also be alternatives in the house type term. Consumer can buy a more cheaper house such as terrace  compare to a bungalow due to higher price for the house type. In the graph ,it move positive to the right while complement will move negatively to the left. In term of price elasticity of demand, at prices above the mid-point of the demand curve, demand is elastic and  at prices below the mid-point of the demand  curve, demand is inelastic. I can apply this when the price of house rises up , the consumer will buy a good deal less of it while when the price houses decreases , the consumer will buy  a good deal more. We can know whether the demand elastic ,inelastic  or unit by using the formula percentage in quantity demand over the percentage change of price.

  ‘This brief analysis gives an indication that the total number of units coming into the market needs to be in line not only with the level of affordability of potential buyers in the area the projects are to be launched but also the demographics of Malaysian population’. This statement clearly shows for law of demand and supply that supplier or land developer will produce house unit depends on the demand of the consumer or population to avoid overproduce of housing unit that name surplus if over produce to avoid ‘market failure’ that means markets don’t achieve efficient outcome , we can refer it also in chapter 4- Government action in markets.  ‘Due to continuous movement in the factors affecting supply and demand for housing, policy intervention is necessary to ensure that the majority of the population has equal access to own homes’. In addition, to avoid this problem, government introduced ceiling price and floor price to avoid surplus or shortage of housing unit. Shortage of housing creates a ‘black market’. In the chapter 9  – Market structure and price :monopolistic and chapter 10, Oligopoly we relate this similar situation in the statement ‘By centralising its public housing effort under a single authority, Housing Development Board, Singapore has circumvented the typical problems of duplication and fragmentation of duties, and bureaucratic rivalries associated with multi-agency implementation. ‘ Monopoly means ‘A monopoly is exclusive control of the market by one business because there is no other group selling the product or offering the service’ and Oligopoly means is ‘a small group of businesses, two or more, that control the market for a certain product or service’. We can relate this in antitrust laws that regulate oligopoly.

   In a nutshell , there are a lot of microeconomics topics that can relate in the daily life situation. 

Affan