Housing Market

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....