Supply And Demand Model

1382 Words6 Pages
Use the supply/demand model to examine the possible effects of different interventions in the housing market.
Introduction
To determine prices in microeconomics, the supply and demand model is used, it establishes a relationship between the two forces in a competitive market. The key determinants of housing demand include the price of housing to rent or buy, disposable income, the credit/mortgage available, the interest rate on the mortgage payments, type of housing and other relevant demographic factors such as household composition, age and so on, location relative to work/travel to work costs. In this assignment, I will discuss how different interventions will affect the supply or demand of property in the housing market.
Supply and Demand
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Per classical and neo-classical economic theories, from this meeting of supply and demand, in situations of perfect competition between suppliers, the price should settle at a level of equilibrium, i.e. at a point where the price being paid equates with efficient production and fairness. Where supply exceeds demand, then the price will fall back to a level where it becomes unprofitable for producers. These will then withdraw from production until shortages cause the price to increase to profitable levels again. Of course, in modern urban areas people largely have no choice but to enter the housing market to secure accommodation, thereby creating or increasing demand.
The supply and demand model is a useful tool to identify the possible impact different interventions will have on the housing market. In all the interventions over the years, none have come close to reaching market equilibrium. Most interventions in this sector have a major impact on the supply more so than demand, as demand levels have always remained at high levels. A strong increase in prices is a clear sign that demand exceeds supply. However, increasing prices should also result in increased supply.
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It has become the largest company focusing on the short term rental market in the world. Studies have shown that there is a link between Airbnb and the reduction of supply and price increase in rent in major cities like Berlin, Dublin and New York. The city government in Berlin have placed a ban on short term letting (less than 30 days) through websites like Airbnb. Berlin's head of urban development, Andreas Geise, said the law was "a necessary and sensible instrument against the housing shortage in Berlin" and that "I am absolutely determined to return such misappropriated apartments to the people of
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