Housing Industry Essay

2000 words - 8 pages

IntroductionSince the beginning of time man has had a roof over his head to endure bad weather and to stay away from other creatures that live on this planet. Everyone needs a place to call home, and one thing we can not live without is a roof over our heads. This is where the housing industry comes into play. The housing industry is a monopoly and has been affected by economic periods of inflation, recession, and government regulation.Shifts and Price Elasticity of Supply and DemandDemand is an effective desire backed up by adequate purchasing power and at a particular price, time and in particular quantity. In the housing industry, demand includes the number of people who want to buy home and those who can afford to buy a home. This calculation includes investors and is based on jobs and population growth. Demand for second homes is also included in it. Supply, on the other hand, is the quantity of the commodity offered for sale at a given price, in a given market and at a given time. In the housing industry, it is the number of homes (both new and second homes) available for sale at the buyer's preferred location and must be within the buyer's price range. (Burns, 2006)Shifts in demand and supply refers to either increase or decrease in demand and supply. When there is either increase or decrease in demand and supply due to factors other than price, there is a shift in the demand and supply of the commodity. In the housing industry, the main determinants of demand are price, income, cost and availability of credit, consumer and investor preferences, price of substitutes and complements and the last but not the least demographic factors. In the housing industry, it is the households not the individuals, which demand the houses. Shifts in demand forced the industry to change its capital vs. labor ratio. (Clark, 1992)A positive shift in demand or supply will result in the increase in the number of the supply or construction firms, a high capital vs. labor ratio and increased contribution of this industry in GDP and vice-versa. The industry requires balancing the increased demand by either increasing the supply or reducing the demand. An increase in the supply also increases the industry's demand for raw materials, equipments, labor and other materials and tools. This will also increase the competition in the industry. As a result of increasing demand and supply, new and inexperience labor had joined the industry. (Clark, 1992)Price elasticity of demand refers to the degree of responsiveness of the quantity demanded to change in the prices in other words, it is degree of change in demand due to change in the prices of that commodity. Price elasticity of supply refers to the degree of responsiveness of the quantity supplied to the change in the prices. The elasticity of demand and supply varies according to the situation and the type of the commodity. In the housing industry, the elasticity of demand and supply is relatively inelastic, i.e. changes...

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