House is a necessity good for human, necessity good in economic means that everyone needs it, without it everyone will hard to survive. For example, house is the one of the necessity good for human, without a house it is extremely hard to survive nowadays. Therefore, the demand of the house and the supply of the house should merge to form the market equilibrium, at the market equilibrium the supplier are able to sell more house and able to get profit and the consumer are affordable to buy the house as well. But nowadays it is very hard to form the equilibrium in the market. There got one of the main factor might affect the demand and supplies for housing are demographic. For example, non family household formation, the number of children, net migration, the age composition of the family and the family size. Other than that, there got a couple of factor that affect the demand of the house, which are household income, price of the housing, availability and the price of substitutes and the factor that affect the supply of house are cost of the house, available of credit, which type or which area of house the consumer preference to buy at and which type or area of the house the investor prefer to invest the house at.
From my opinion, I think that the income, confident of the consumer and availability credit is the important factors that affect the demand of the house. This is because, when the income increase it shows that during the period the economic growing so more people are affordable to spend more on buying house, so that during the period the demands of house tend to be a luxury good as well, so those cause a huge percentage increase in demand due to the increase in income. For example, it shows a study that conducted by De Leeuw in 1971 showed that the demand of the house elasticity by the income in North America ranging from 0.5 to 0.9, meaning that the income rose drive the demand of the house grew as well. However, confident of consumer also stand a very important role that affect the demand of house, the demand of house can shows that how confident the people toward the house in the future economic and housing market. If the majority of people expect the price of specific area of the house will rise so the demand for the house will be increase, therefore people can get the wealth from house. Hence, the availability credit is extremely important factor that affect the demand of the house. Availability credit means that how many percent of the loan you able borrow from the bank to buy the house, it is very important normally the buyer will be able to borrow ninety percent of the loan from the bank to buy the house, so it is affordable for the buyer to make a ten percent down payment to buy the house, they just need to pay for the periodic payment every month, therefore the demand of the house will be increase. If the government change the loan from ninety percent to seventy percent, so it is very hard for a person to pay the thirty percent of down payment to buy the house, even thought for the person who are able to pay such big amount of down payment they will not willing to pay also, it is because if they buy something with a large amount of cash they will be suspect by the income tax, so they will try to avoid it.
In addition, from my opinion typically the cost will influence the upcoming supply of the house due to the fluctuated price of the raw material. For example, company A is a construction company, they got a project but it needs one year to complete it. Before they start the construction they will buy the raw material with the present market price, but after one year the market price of raw material might be different, if the price of the raw material drop so they would not get the maximum profit and the price of the house will be very elastic, so the supply of the house will be lower because of increase in cost of the construction. Therefore, nowadays a lot of company prefer supple in short run, because if the supply increase the cost of the construction, the price of the house will be very inelastic and does not has effect on supply.
From another perspective, the number of the construction companies in the market also the one of the factor that affects the house supply in the market. As we know construction business is a kind of business that very profitable, that caused the number of the construction companies in the market increase, but the more companies come in the more house will be build and also increase the house supply as well. Therefore, the competitors in the construction companies market increase, it is very hard for a company to sell off their house if the competitors in the market increase and when the competitors increase the consumer has a lot of alternative to choose the house, they will compare the house price with different company. Hence, the construction company will create a lot of promotion to lower the price of the house to benefit the consumer, so the price of the house in the market will drop eventually. In conclusion, it is very hard to reach an market equilibrium price of the house, it is because human has a unlimited desire they will tend to the way which can help them to earn big amount of money
Khew Sze Wei
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