How Macroeconomic Issues Affect the Housing Industry
Housing Industry
The housing industry has been around for many years. It is an important industry and one that will always have a necessity to exist since it creates a product that is one of the essentials of human life, housing. Economics play an important role in the housing industry along with all other industries.
There are several factors that can influence the housing industry economically. Supply and demand coupled with price elasticity can affect the housing industry. Negative and positive externalities, wage inequality, and the monetary and fiscal policies can all have substantial affect the industry of new homes. It must also be determined exactly how the economy affects the industry in both positive and negative ways.
Price Elasticity
The price elasticity of supply and demand is defined as the measure of how much the quantity demanded of a good responds to a changing the price of that good and the measure of how much the quantity supplied of a good responds to a change in price of that good (Mankiw, 2004). There are several factors that must be examined while researching price elasticity of supply and demand in the housing industry. What affect does multiple-home owners have on the price elasticity? Are the prices associated with supply and demand elastic or inelastic for the housing industry?
The demand of housing is extremely elastic while the supply is inelastic. When the prices are right, homeowners often buy second or even third homes. Demand for housing is an embodiment of a consumers’ decision of how much housing to actually consume. In the case of multiple-home owners, the consumer has decided that it is necessary to own multiple homes. This decision may be based on personal reasons, such as recreational uses, or on their wealth and income status (Belsky, 2006).
The standard demand model in equation generates price and income elasticities of housing demand based on the utility of housing consumption relative to all other goods.
The housing industry has been around for many years. It is an important industry and one that will always have a necessity to exist since it creates a product that is one of the essentials of human life, housing. Economics play an important role in the housing industry along with all other industries.
There are several factors that can influence the housing industry economically. Supply and demand coupled with price elasticity can affect the housing industry. Negative and positive externalities, wage inequality, and the monetary and fiscal policies can all have substantial affect the industry of new homes. It must also be determined exactly how the economy affects the industry in both positive and negative ways.
Price Elasticity
The price elasticity of supply and demand is defined as the measure of how much the quantity demanded of a good responds to a changing the price of that good and the measure of how much the quantity supplied of a good responds to a change in price of that good (Mankiw, 2004). There are several factors that must be examined while researching price elasticity of supply and demand in the housing industry. What affect does multiple-home owners have on the price elasticity? Are the prices associated with supply and demand elastic or inelastic for the housing industry?
The demand of housing is extremely elastic while the supply is inelastic. When the prices are right, homeowners often buy second or even third homes. Demand for housing is an embodiment of a consumers’ decision of how much housing to actually consume. In the case of multiple-home owners, the consumer has decided that it is necessary to own multiple homes. This decision may be based on personal reasons, such as recreational uses, or on their wealth and income status (Belsky, 2006).
The standard demand model in equation generates price and income elasticities of housing demand based on the utility of housing consumption relative to all other goods.
References: Australia’s housing industry backs the Bill on Fair Pay Commission. (November 24, 2006). Chartered Institute of Building. Retrieved on February 15, 2007, from http://iconreview.org/en/news/319 Belsky, Eric. (October 2006). Multiple-home ownership and the income elasticity of housing demand. Retrieved on January 8, 2007, from www.jchs.harvard.edu/publications/homeownership/w06-5.pdf Fallis, George. (1999). Real estate economics. Retrieved on January, 8, 2007, from http://www.edinformatics.com/real_estate/real_estate_economics.htm Gavilan, Angel. (2006). Wage inequality, segregation by skill and the price of capital in an assignment model. Retrieved on February 5, 2007, from www.bde.es/informes/be/docs/dt0613.pdf Glaeser, Edward. (May 2006). The economic impact of restricting housing supply. Retrieved on January 23, 2007, from www.ksg.harvard.edu/rappaport/policybriefs/glaeserhousing_final.pdf Homes may be “taken” fro private projects. (2006) Retrieved January 23, 2007, from www.msnbc.msn.com/8331097 Mankiw, N.G. (2004). Prinicples of economics (3rd ed). Chicago, IL: Thomson South-Western Meyer, Laurence. (1998). The Federal Reserve Board. Retrieved on February 20, 2007, from www.federalreserve.gov/boardDocs/speeches/1998/19980430.htm Selders, David. (October 18, 2006). Housing Economics.com. Retrieved on February 20, 2007, from www.nbnnews.com/houseecon/issues/2006-10-18.html