Economic Effects On The Home Building Industry

1862 words - 7 pages

The manufacturing of homes has been going on for thousands of years and has gradually evolved into a large market for those looking to entertain a wide variety of interests ranging from a steady paycheck to large real estate income, or from those looking for their first place to live, to those becoming a landlord of a rental property. Home building is one of the strongest fields to examine when studying the overall economy of a nation. The designs and shapes of homes have changed many times since man decided that it was time to step out of the cave and make a sturdier, safer home for his family, thus making the industry more diverse than it ever was in the past. Each surrounding town or city housing market has always had an astounding affect on the home building market. This includes the rise and fall of the average income, increased or decreased annual spending, as well as fluctuations in mortgage interest rates. Making the home building endeavor a lucrative opportunity for inspired entrepreneurs to flourish is not as easy as one might think. The home building process has many time-consuming steps and can be complicated when considering all the external factors such as; elasticity of the demand curve, positive and negative externalities, wage inequalities, and monetary and fiscal policies. All these factors should be considered when building ones future home.Unlike other countries most Americans consider housing not just a necessity, but also a luxury, going above and beyond the basic necessities. Since "always wanting more" is part of human nature, price demands are inelastic and prices will rise no matter what is done above or beyond the basic four walls and a roof. This is not as bad as it may seem, the want for more amenities provides suppliers with more demand, and the higher the demand the heavier the work load. This makes construction employment easier to provide, and strengthens the economy of the town and the surrounding communities. Supply price elasticity depends on elasticity of substitution and supply restrictors. There is significant substitutability both between land and materials as well as labor and materials. Housing supply is produced using land, labor, and various inputs such as electricity and building materials. The quantity of supply is determined by the cost of these inputs, the stock of existing houses, and the technology of production (Rate Empire, 2008). When prices for homes are increased, and builders increase production, the price of homes would eventually decrease and possibly bottom out as a result, as the supply would surpass the demand. Price elasticity of supply is determined by both the interest rate as well as the current demand for housing in the given price range. In other words, if the mortgage interest rate drops, the demand would then increase, which in turn would increase or decrease the supply of home building products depending on the prices (Rate Empire, 2008).The home building industry can have an...

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