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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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
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