Chapter 2: Supply and Demand
New house prices go up David Freeman, the Leader- Post September 13, 2006
http://www.canada.com/reginaleaderpost/news/story.html?id=93a81211-5a82-4323-acf2-a2926fe32367&k=61203
Summary
The prices of houses in Saskatchewan continue to skyrocket causing many concerns. According to Statistics Canada, report shows that new houses in Regina rose by 9.3 percent in July. David Hepburn, the president of Saskatchewan Home Builder’s Association claims the shortage of construction materials and labour is responsible for the dramatic increase in prices. As wages are increasing, there are more demands for houses. The trades and suppliers are very busy, which affected prices greatly. Materials such as concrete, pipes, petroleum products and drywalls have all put pressure on the prices of new houses. With a shortage of labour in the 47 different trades involved in housing, the prices climb higher. Shipping cost of fuels and other limited supplies like trusses together just worsen the situation. Currently the truss suppliers and engineered floor system suppliers have a shortage of supply available and because they are up to their maximum capacity, they cannot produce more products. The pressure on sale of existing houses is also a factor affecting the prices of new houses. Also, due to the fact that there is a shortage in labour and supplies are scarce, it requires more time to complete the construction of a house, which costs builders and ultimately consumers more.
Relationship and Reflection
The article addresses the supply and demand concepts studied in this chapter. As wages increases for consumers, the demand for houses goes up as well. This is an example of the factor, income affecting demand. The change in complementary products prices such as constructions materials make house prices drive up as well. These are examples of supplies affecting prices. These supplies are inelastic as these materials are necessary to construct a house and there aren't any substitutes. Supplies also respond to prices slowly because it takes a long process to use them to build houses. As mentioned above, the shortage of labour, trades and suppliers affect prices as well because they are all scarce. Also, the article described the pressure on sales of existing houses affects the prices of new houses. This is an example of change in price of substitute products. As we all know, old houses are always a good alternative to new houses, however there aren't many old houses being sold at this moment. Therefore altnernative choices are limited. Houses may be considered inelastic at this moment but if prices continue to increase, it will become more elastic because there are other substitutes like apratments. However, this depends on whehter prices of houses exceed the prices of their substitutes.
Generally, I think the market does not have full control over the prices of products. It is based on the concepts of supply and demand. If there is a shortage of supply, then of course competition for these products will occur, which ultimately makes prices increase. Likely, if there is an increase in demand, there will also be an increase in prices. So, in other words if you want the product, you must be able to compete for it using lots of money. Being a resident of Vancouver, I witness the high costs of houses here. In fact prices of houses are much more expensive in Vancouver than it is in Saskatchewan. Mainly, it is supplies that are affecting the prices in Saskatchewan, but in Vancouver it is actually the high demand. Most people consider Vancouver being one of the best places to live in. Therefore many people choose to live in Vancouver, and as a result demand for a shelter increases. But like i've said before, old houses are not for sale, so many people will turn to new houses if they have the money to purchase one. So, with a high demand, high prcies follow. However if house prices continue to increase, and the supplies to build houses are used up and no one is willing to sell their houses, apartments etc, what will people live in? Will this affect the amount of people choosing to live in Vancouver? If this really happens then in the long run, fewer people will be living in Vancouver and our economy will also be affected. Then, maybe at that moment house prices will go back down, and the cycle just repeats!
posted by wini_lao @ 6:37 PM
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