Chapter 8: Housing market

Factors affecting demand for houses

Substitutes- renting

Average pay increase

Interest rate

Affordability

Unemployment rate

The state of the economy

Expectations/speculation

Government policies

Factors affecting the supply of houses

Costs of production

Number of construction companies

Whether property builders achieve economies of scale

Amount of innovation in the industry

Government taxation and subsidy

Government spending on new social housing

Why is supply of houses inelastic in the short run

The production time frame is long

Limited spare capacity and low stock levels

Market failure in the housing market

Information gaps between buyers and sellers

Homelessness

Inequalities of wealth

Externalities from building homes

Labour immobility due to house prices

Under-supply of houses

Government intervention in the housing market

Rent controls

Funding training for construction workers

Subsidies for builders

Housing regulations to improve building standards

Provide social house building

Housing market bubble

When home prices rapidly increase due to high demand and then suddenly drop when demand falls and supply increases

Consequences of a housing market bubble

Homeowners owe more more on their mortgage than the actual value of their homes leading to foreclosed

How does the government control private sector rent prices

It sets a rent ceiling to make renting more affordable

What can a introduction of a rent ceiling cause

Creates excess demand for rented housing and shortage of supply as landlords don’t see renting as profitable.

Illegal market may develop