The above graph shows that the
intersection between the quantity demanded and the quantity supply. The area
that is shaded B occurs when the demand of a goods are low and the supply of
the goods are high. This is what we called a surplus. Meanwhile, the area that
is shaded A occurs when the demand of a goods are high and the supply of that
goods are low. For this situation we called it a shortage. The blue colour line
is what we call the equilibrium because of the quantity demanded is equal to
quantity supplied.
Is there any equilibrium point in housing
market, considering the many factors influencing demand and supply?
The main factors of the demand for housing
are demographic. Population size and population growth are the main demographic
variables. However, family size, the age composition of the family, the number
of children, net migration, non-family household formation, the number of
double family households, death rates, divorce rates, and marriages are other
demographic variables that would influence demand for housing. Other factors
such as household income, price of housing, cost, consumer preferences,
investor preferences, price of substitutes and price of complements all are
important determining demand for housing.
Income is an important cause of housing
demand that showed positive income elasticity of demand in North America
ranging from 0.5 to 0.9, meaning the demand for housing grew when the income
increases. The price of housing is also an important variable influencing
demand for housing, where in terms of elasticity just like any normal goods it
is negative which when the price increases, the demand will decreases.
As for supply, the quantity of incoming
supply is typically influenced by cost, price of existing stock of houses, and
the technology used in the construction, where material costs tend to
contribute the largest share of the construction cost, about 30% to 40%. In the
short run, supply tends to be very price inelastic which meant when the cost increases,
the supply decreases a bit. However, over a longer period, it tends to be very price
elastic which meant when the cost increases, the supply decreases.
Based on a study conducted by Fallis in
1985 showed price elasticity of supply was estimated at 8.2, which indicate when
the price increases, the supply will drastically decreases. The degree of
elasticity depends on the elasticity of substitution and supply restrictions.
For example, the use of capital intensive technology has been employed to reduce
the rising labour cost, but having less impact on the supply of housing.
At first half of 2011, Malaysia had
4,466,062 units of housing, an increase of 1.7% from the total of supply in the
first half of 2010. About 24,709 units were completed in the first half of
2011, a lower number compared to 50,611 units completed in the first half of
2010. Kuala Lumpur and Selangor accounted for 6,567 units or 27% of the total
new stock. Kuala Lumpur and Selangor had 414,436 and 1,285,192 homes, reflecting
an increase of 2.0% and 1.7% respectively from the total as of first half of
2010.
Besides that, other states which showed
significant number of units completed are Sarawak 2,612, Penang 2,507 and Perak
2,184. The incoming supply in the country was recorded at 560,636 units, where
Selangor is the largest contributor which is 134,143 units or 24% of the total
followed by Johor which is 76,429 units or 14% and Negeri Sembilan 65,227 units.
Kuala Lumpur has 39,656 units coming on stream.
In terms of transactions recorded as of
first half of 2011 for the country, there were 133,984 transactions in the
residential category, out of which the largest transacted numbers were priced
in the range of RM100,000 to RM150,000, which accounted for 22,857 units,
followed by units priced between RM250,000 and RM500,000, which accounted for
21,559 units.
Selangor recorded the highest number of
transactions at 38,424 units, followed by Johor 15,015 units, Penang 13,832
units, and Kuala Lumpur 11,522 units. The most popular units transacted in
Selangor, Kuala Lumpur, and Penang were for units priced between RM250,000 and
RM500,000, while in Johor, the highest transactions recorded were for units
priced between RM100,000 and RM150,000.
This brief analysis gives an indication
that the total number of units coming into the market needs to be in line not
only with the level of affordability of potential buyers in the area the
projects are to be launched but also the demographics of Malaysian population. As
of July 2010, total population was estimated to be 28.25 million and the
population is expected to grow at a rate of 2.4% per annum, where about 65% of
the population is urban population. Today, less than 4% of Malaysians live in
poverty and it is estimated that about 2.0% of the total urban population in
Malaysia lives below the poverty line, earning monthly household income of
equal or less than RM750. Low income households which are earning income equal
or less than RM2,000 per month represents 75% of the median income in Malaysia.
The national average household income is estimated at RM4,000 per month. It
should also be noted that about 65% of Malaysia’s population is below the age
of 35, thus there would definitely be strong demand for housing.
Due to continuous movement in the factors
affecting supply and demand for housing, policy intervention is necessary to
ensure that the majority of the population has equal access to own homes.
Furthermore, Malaysian government is taking incentive to help those who are
facing this problem by increasing the eligibility for My First Home Scheme for
those who are earning less than RM3000 gross income per month to RM5000 in the
Budget of 2013. Besides that, our Prime Minister Datuk Seri Najib Razak
announced that a subsidy of 1.9 million will be allocated to build 123,000
affordable homes around the country.
In conclusion, it is hoped that the
provision of affordable homes as announced in Budget 2013 would achieve its
main objective of increasing home ownership among the majority of the
population.
Posted by Muhammad Faizzullah
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