Demand and Supply for housing

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Economics/AS/Unit 1        Housing market        Paul Ibram

                04/05/2007

Demand and Supply for housing

The determination of prices in local and regional housing markets is a classic example of microeconomics in action! We are seeing the interaction between buyer and seller with prices being offered and agreed before a final transaction is made. In this section we focus on the demand and supply side factors that determine the value of properties in a market.

Each housing transaction in the UK depends on

(a) The price that the seller is willing to agree for their property with the prospective buyer

(b) The actual price that the buyer is willing and able to pay.

Buyers place offers for a property that the seller can either accept or reject

A Sellers Market 

When the market demand for properties in a particular area is high and when there is a shortage of good quality properties (i.e. supply is scarce) then the balance of power in the market shifts towards the seller. This is because there is likely to be excess demand in the market for good properties. Sellers can wait for offers on their property to reach (or exceed) their minimum selling price.

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A Buyers Market

Conversely when demand both for new and older housing is weak and when there is a glut of properties available on the market, then the power switches to potential buyers. They have a much wider choice of housing available and they should be able to negotiate a price that is lower than the published price.

When the demand for houses in a particular area increases (perhaps because of an inflow of population into the area, or a rise in incomes following a fall in unemployment), there is upward pressure on market prices.

Often ...

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Here's what a star student thought of this essay

The essay is structured well, first showing knowledge of the housing market and then going onto diagrammatical analysis. Clear subheadings and diagrams allow for focussed and strong analysis. Punctuation, spelling and grammar is faultless and the style flows well. A strong essay!

The analysis in this essay is strong. I liked how the essay tackles changes of demand and supply separately. Sometimes diagrams in Economics essays can get ridiculously crowded, and its best to look at them separately. I was pleased to see a shift in each diagram, which shows good analysis skills. However, to strengthen the analysis, I think the shifts needed to be explained. For example "A shift of demand from D1 to D2 may have been caused by increased income, which has resulted in an increase in equilibrium price from P1 to P2 and quantity from Q1 to Q2". In exams and coursework, it is not enough to simply show the changes on a diagram and it would surprise most people to know that a simple sentence can gain a number of marks. The concept of elasticity is used well, but I would've liked a simple definition regarding the responsiveness of supply to a change in price. Key determinants of housing prices are mentioned, and these are well explained. If I were doing this essay, I would've made a judgement to which has been the most important determinant in recent years, and why it has been most significant.

This essay responds to the question superbly, offering insight into how market forces and microeconomic concepts can be applied to the housing market. I liked how other factors are considered, as this shows strong evaluating skills. If this essay wanted to go further, a discussion of the extent to which factors are most significant would've been useful.