1.0 INTRODUCTION

Economics define the choices we make when there is scarcity

which it is all about trade-offs and it can be classified into

two major sub category which we called it as microeconomic and

macroeconomic. The basic theory in economic is the

microeconomic which is the study of the choices made by

households, firms, and government and how these choices affect

the markets for goods and services. Supply and Demand is one

of the most popular and useful subtopic in microeconomic field

that it helps reveal the basic truth of economic and explain

how the prices and quantity of economic goods react towards

economic factors.

The Demand and Supply of Housing is the best suit subject

to explain the theory of demand and supply. The determinations

prices in local housing are merely depend on the interaction

between buyer and seller with the price being offered and

agree before the final transaction is made of. The housing

transaction is rely on

I) the price that the seller willing to agree for their

property with the prospective buyer.

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ii) The actual price that the buyer willing and able to

pay.

iii) Buyer place offers for a property in the market that

whether the seller accept or reject. Vice versa the

seller place price on a property in the market that

whether buyer accept or revised their offers.

Article for the assignment

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(davidtan@thestar.com.my)

2.0 LAW OF DEMAND HOUSING

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The law of demand is a negative relationship between the price

and quantity demand. The higher the price of the housing, the

smaller the quantity demanded. And vice versa when the price

decrease, the quantity demand for the housing will increase.

Therefore, the demand curve of the housing is negatively

sloped.

2.1 Factor that affects the demand of housing

a) Population size and population growth

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When the size of population increase, the demand for the house

will increase as well because each member of the population

need to be filled.

b) Household income

Income is the flow of cash that can be received from work such

as wages or salary, capital interest or profit, rental and

other form of earning in a period of time.

An individual have to sacrifice the second alternative goods

based on the principle of opportunity cost due to the limited

of the income. This situation had made the demand for the

houses will increase if they choose to buy houses rather than

other goods and vice versa.

c) Price of the house

Due to the real-nominal principle, consumer will more

interested in the power of their money can purchase. So, when

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the price of the house increased, they will decrease the

demand for house because they can use the amount of money in

purchasing others good and vice versa.

d) Price of substitute

If the price of a house on rural area is lower than the house

in the cities, the demand for the house on rural area will be

more compare to the house in cities. This is because the

houses in cities have many facilities compare to rural area

which made the house in cities have a higher price. But this

is also depending on the income and preference of a consumer.

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Based on the graph, the original equilibrium point is achieved

at E1 when the curve of demand D1 cross with the curve of

supply. The increasing of income will cause the demand curve

shift to right side which is from D1 to D2. The new

equilibrium point E2 will achieve when the demand curve D2

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cross with supply curve S1. This will lead the price of the

house increase and the demand for house also increase. Hence,

increasing of income will affect the demand of the house.

Based on the graph above, it shows an inelastic demand curve

for house. For example, an increase of 30% of price from P1 to

P2, decrease the quantity by 10% of quantity demand from Q1 to

Q2.

3.0 LAW OF SUPPLY HOUSING

There is direct relationship between the price of houses and

its quantity offered for sale. When the

price of the house rise, its

quantity offered for sale

increases. Thus, when the price of

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the houses falls, the quantity offered for sales decreases.

This relationship between price and the quantities which

suppliers are prepared to offer for sale is called the law of

supply.

3.1 Excess Supply

Excess supply or surplus occurs when the equilibrium price of

the market is less than the price that the houses are supplied

at. However, excess of supply cannot maintained when a free

market operates. The price must be reduced to the equilibrium

price, at which time; there is no longer excess supply. A

large surplus is known as a "glut".

In cases of excess supply:

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price is too high to be at equilibrium

suppliers find that inventories increase

suppliers react by lowering prices

this continues until price falls to equilibrium

3.2 The factors that affect the supply of housing estate.

Factors that affect the supply of housing estate which is the

cost of production. The cost of building houses includes

employee wages, land purchasing and building materials. The

higher the cost of constructing a house the less the supply.

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Next, government taxation and subsidy of new housing

developments. Grant aid and other forms of public funding for

housing developers and financial support for other forms of

social housing. This may reduce cost and the supply of housing

for sale will increase. Besides, the principle of voluntary

exchange had affected the decision of suppliers to increase

their supplies only if they received the money for their

production.

3.3 Price of inputs affects the supply of housing estate

If the prices of inputs increase the sellers are less willing

to sell goods at existing prices. Houses are very important to

everyone. People need a house as their home, a place for

living. To build a house, a land is needed. As the land in our

country is getting fewer and fewer, the price of lands

increases rapidly. Secondly, rising of labour costs push up

construction costs. Labour costs are rising continuously as

time goes on. This reflects the shortage of skilled or semi-

skilled construction workers and causes many building firms

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are relying on migrant workers to overcome labour shortages.

Lastly, the costly material for building houses. As what

causes by inflation, the prices of raw materials have risen

sharply and cause the building cost increase. To maintain the

quality of the houses, the firm are force to bear the high

cost of the materials.

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4.0 PREDICTION

4.1 Prediction demand of the house in year 2013

Table 4.1.1 Total Population in Malaysia for 2010(Previous) and

2011(Last)

Table 4.1.1 is a report that published on 2012 from World

Bank. The figure in red indicated shown that the increased in

total of population from 2011 to 2012 and it is predicted to

continually increasing from year to year. This is because

Malaysia’s economy is rapidly developing in this few years

which attracted more and more immigrants.

The demand of the houses for the year 2013 can be predict

as it will keep increasing since the population increased.

Assume that the price of the houses increasing due to its

prices for complementary goods increased, the demand of houses

will only decreasing in small quantity. This is because houses

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are inelastic as it is necessity good for human’s life. There

will be only small quantity of people will choose to rent

house instead of buy house due to the limited monthly income.

Furthermore, “My First Home Scheme” which was mentioned

under Budget 2013, will be improved by increasing the income

limit for individual loans from RM3,000 to RM5,000 per month

or joint loans of husband and wife of up to RM10, 000 per

month. These will increase the demand for purchasing houses

even when the price for a house is high.

4.2 Prediction supply of the house in year 2013

Housing Properties CostPrevious(2011

)

CostLast(2012)

Cement(per 50kgbag)

RM16.50 RM 17.50

Sand(per cu yard) RM38-40 RM40-43

Aggregate(pertonne)

RM20 RM21

Labour(per day) RM35 RM45

Transportation(pertruck)

RM400 RM450

Table 4.2.1 Cost of Housing Properties for Year 2011 and

Year 2012.

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The above table showed the cost for the housing

properties for both years 2011 and 2012. According to the

housing developers, the cost of building a house is high due

to the price of sources is increased. In this case, housing

developers normally will decrease the construction for cutting

down their cost.

However, in Budget 2013, Prime Minister has announced

that a total of 80,000 houses will be built in major locations

nationwide. This action had help on reduce the burden of

housing developers on afford the cost. So they will keep

continue their construction in 2013 with smaller quantity of

houses compared to 2012.

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5.0 CHALLENGES OF HOUSING

A) EXPENSIVE IN TRANSPORTATION COSTS

Malaysians spend a lot in their transportation costs every

month. In a family, husband and wife, each of them have their

own car, splurging over RM3000 per month on hire-purchase

repayments, petrol, parking and toll costs. They spend a big

portion of their income on transportation, rather than being

invested in housing. Where a single person is able to spend an

average of RM1500 per month, this same money is good enough to

be comfortably invested in property valued at RM300K. Most of

the citizens face this problem of transportation expenditure

and from there that they say housing prices are expensive.

B) PLENTY OF AFFORDABLE HOMES

In the Budget 2013, Prime Minister has announced government

will spent RM500 million to build 80,000 houses in major

locations nationwide. The price of the houses between RM100,

000 and RM400, 000 per unit.

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These prices are still affordable to the average wage earner,

and that comes with a more relaxed quality of life. People who

work within the city do not need to stay at expensive areas at

the city limits if the infrastructure is smooth and efficient.

A good infrastructure eases the burden of the citizens and

reduces congestion in the city as well.

C) EXPENSIVE PRICE PERCEPTION DUE TO COMMERCIAL RENTALS

The increase in commercial property demand and price will

cause the large increase in price. Commercial properties

always adjust themselves in the market through business

profitability so it will pushing property prices up.

The rise of commercial prices will not affect the

affordability of housing properties. Unlike Residential

property, commercial properties are sensitive to business

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viability and condition. Commercial property prices will

adjust and respond immediately to the rise or drop of rent.

The public are mixed-up with the hike of commercial property

and fear that “Housing is expensive”, which is not the actual

situation. In fact, the costs of high-end condominiums in

Malaysia are too low compared with countries like Singapore

City where it is 10 times higher.

6.0 CONCLUSION

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As a conclusion, the demand of housing in Malaysia is very

high. This phenomenon occurs because the populations in

Malaysia are rising every day. All the people in Malaysia hope

to buy a house to live with their families. But with nowadays

the price of the material such as cement, sand and also the

wages of the labour are increasing every year, the cost to

build a house also increases. Therefore, the developers have

to cut down the supply of constructions to save the cost.

Besides even if the developers keep on construct more houses,

with the raw materials price increases ,the developers will

set the price of the houses higher , this will causes the

citizens in Malaysia cannot afford to buy the house and the

demand of house will drop. For this, the government has come

out with ways to help the developers and the citizens to

balanced the equilibrium of the housing market, such as the

'My First Home Scheme' for the citizens and government also

give fund to PRIMA to build more houses in order to reduce the

burden of the housing developers.

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7.0 REFERENCE

1. David Tan. (August 17, 2012). House price hike likely. From

thestar online.

Website:http://biz.thestar.com.my/news/story.asp?file=/20

12/8/17/business/11870222&sec=business

2. P. Gunasegaram. (April 14, 2012). Stopping foreign property

purchases. From thestar online.

Website:http://thestar.com.my/columnists/story.asp?file=

%2F2012%2F4%2F14%2Fcolumnists%2Faquestionofbusiness

%2F11103091&sec=aquestionofbusiness

3. Datuk Abdul Rahim Rahman. (November 26, 2011). Housing

supply and demand – are we nearing equilibrium?. From thestar

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online. Website:http://biz.thestar.com.my/news/story.asp?

file=%2F2011%2F11%2F26%2Fbusiness%2F9974676&sec=business

4. Angie Ng. (August 28, 2010). The need for affordable housing to

meet demand. From Star Property.

Website:http://www.starproperty.my/PropertyScene/TheStarO

nlineHighlightBox/6740/0/0

5. (n.a.). (September 24, 2012). Budget 2013: Housing Prices Are Not

Expensive In Malaysia. From Swheng Tee International.

Website:http://www.swhengtee.com.my/latest-news/swhengtee

-news/budget-2013-housing-prices-are-not-expensive-in-

malaysia

6. (n.a.). (September 29, 2012). Malaysia Budget 2013 on Property.

From PR1MA.Net: Affordable House for Malaysian.

Website: http://pr1ma.net/search/1-malaysia-housing-

programme/

7. Gregory Hamel. (n.d.). 3 Ways That Supply and Demand Affects the

Prices of Houses. From eHow money.

Website:http://biz.thestar.com.my/news/story.asp?file=/20

12/8/17/business/11870222&sec=business

8. (n.a.). (n.d.). Population; Total in Malaysia. From Trading

Economics.

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Website:http://www.tradingeconomics.com/malaysia/populati

on-total-wb-data.html

9. Brian Coil. (January 13, 2009). Elasticity of Demand. From

slideshare: Present Yourself.

Website: http://www.slideshare.net/Geckos/elasticity-of-

demand-presentation-913173

10.Dr. Peter Achutha. (February 13, 2012). Malaysian population

growth and Malaysian property prices. From Dr YES Peter

Publishing.

Website: http://drpetersnews.com/malaysian-population-

growth-and-malaysian-property-prices.html

11. O’Sullivan, A., Sheffrin, S., Perez, S. (2011).

Microeconomics: Principles, Applications and Tools, 7th Edition, New

Jersey: Prentice-Hall International.

12. Besanko, D., Braeutigam, R. (2011). Microeconomics,

4th Edition, USA:John Wiley & Sons, Inc.

13. Case, K. E., Fair, R. C., Oster, S. C. (2011).

Principles of Microeconomics, 10th Edition, New Jersey:

Prentice-Hall International.

14. Pindyck, R., Rubinfeld, D. (2008). Microeconomics, 7th

Edition, Prentice Hall.

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15. Sexton, R. L. (2010). Exploring Microeconomics, 5th

Edition, South-Western College Publishing.

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