Housing Supply And Housing Bubbles Essay

1016 words - 5 pages

In this article the authors examine the nature of housing bubbles and how housing prices are affected by the elasticity of housing supply. They begin by citing from literature to show that price movements of assets, including markets, include an irrational exuberance element as well as their fundamental valuations; this leads to the difficulty in explaining the significant variations in housing prices between 1999 and 2005. As a result, instead of developing a test to detect the presence of a housing bubble, the authors propose to analyze the nature of this bubble; this is especially in light of the fact that housing supply and pricing influence construction activities as well as population ...view middle of the document...

An open city model is assumed, implying a uniform flow rate of new buyers into a city, with a purchase occurring if the buyer’s perceived utility in staying within a city combined with his expected resale value exceeds the price of the house. Based on these and some other assumptions, five propositions are outlines and proved. The propositions test various aspects of the model, such as: (i) for elastic supply and a finite number of buyers, equilibrium in the market does not exist – this analyzes irrational housing bubbles; (ii) change in housing price becomes slower as a bubble progresses, but stock supply increases – this analyzes the impact of a bubble on housing process, investment and supply; (iii) the effect of the bubble on housing stock supply – this analyzes price fall to levels lower than the pre-bubble values; (iv) the role of inelastic supply in sustaining the bubble; and (iv) the relationship between inelasticity and housing produced by a bubble. All the propositions are proved and examined logically, and the consequences are clearly defined. While the methodology seems adequate, the authors also point out that the model makes two empirical predictions, but is vague on a few other issues.
Empirical analysis and data presentation
In addition to the theoretical model, the authors also carry out an empirical survey and analysis of housing market data – once again, they examine the implications of the bubble, rather than testing its existence, in accordance with their stated objectives. Data for this study is obtained from the Office of Federal Housing Enterprise Oversight (OFHEO), and their indices for metropolitan area-level indices from 2000 onwards are used. A detailed analysis is performed to obtain the ratio of housing prices to their Minimum Profitable Production Cost (MPCC) for 79 metropolitan cities from 1982 to 2007; these mean ratios are then plotted graphically to illustrate the fact that prices increased dramatically above their MPCC levels during the housing boom post 2000. Similarly, another analysis is performed for the 1982-1996 cycle, and an extended...

Other Papers Like Housing Supply and Housing Bubbles

Housing Development And Water Shortages Essay

1348 words - 6 pages supply of it. 40% of Americans rely on aquifers, so the issue becomes, what will happen when the aquifers run dry, what will those 40% of people do? Communities are being constantly built up, with endless amount of roads, and the rain water is going straight into the sewers instead of where it needs to be, in the ground. This will be a continuing controversy as housing developments and communities are being built up, with roads, and people start

Housing Challange Essay

326 words - 2 pages middle income Middle income Lower middle income Low income Supply actors Real estate developers, privately developed, Capital development Authority ,NHA National Housing Authority (plot and Flat), Private rental Private land owners (private rental), NHA(?), Private rental (illegal occupation of Govt land and private property) Resettlement/rehabilitatio n camps, govt employee colonies, NGO, local authority approaches Apartment, serviced plots

Great Recession

650 words - 3 pages crisis is based on some factors, worth to be emphasized, such as easy credit conditions that encouraged high risk lending and borrowing practices; international trade imbalances; the housing bubbles; the fiscal policy choices by the governments, related to their revenues and expenses or the position taken by some federal reserve banks, especially on the bailing out process of financial institutions. The first cause we can appoint it’s

Macau Housing Market

3804 words - 16 pages , in this part we will cover the aspects about the situation of the units transacted, housing transaction price, people’s income level, houses supply, and the economic growth to analysis and discuss the problem and situation of house market. a) Transaction Prices * Figure 2.1 The average transaction price per square for houses in different districts from 2004 to 2011 (Source: DSEC) Figure 2.1 obvious shows that the average

Economics - Property Bubbles and Inflation Issue in Hong Kong

4148 words - 17 pages have many issues and challenges threatening Hong Kong economy recently, we analysis and evaluate two important problems, (1) Property bubbles in Hong Kong (2) Inflation that impacting Hong Kong economy in the short and middle-term. . PROPERTY BUBBLES IN HONG KONG The current situation of property market in Hong Kong The housing is a fundamental human need. However, owning a residential property in densely populated

Urban Housing

792 words - 4 pages comes from The Census Profile Data from the US Census bureau, This report shows housing supply for Sunnyside. This report these numbers answer the first question I asked; even though the housing units supplied for the two decades mentioned were enough to accommodate the population, it represents a shortage in housing with 95% of housing units being occupied for year 1990 and 2000, while 94.6% in 2010 shows that almost all the units had been

Microeconomics for Business

1035 words - 5 pages . The development of the real estate market depends on many factors, among which in the first place there are supply and demand. But as every market, real estate one cannot be perfect. Most disastrous situation is appeared at the Honk Kong. The Hong Kong government is trying to curb the price of the houses rise that already counts to 42% by the last 1.5 year. Just this year, home prices rose by 10,5%. It is assumed that by the end of 2012, prices

Reflective Paper

650 words - 3 pages Caused the Mortgage Crisis?” About.com. 6 Jun 2011. http://banking.about.com/od/mortgages/a/mortgagecrisis.htm Alessandroon, Bill D. “Overview of the Subprime Mortgage Crisis” Finance and Economics.com. 31 Mar 2010. http://www.billda.com/overview-of-the-subprime-mortgage-crisis Dill, Patrick “Thoughts on Mortgage Risk, Housing Bubbles and Market Perceptions” HSH.com. 9 Dec 2011. http://library.hsh.com/articles/more-tools-resources

The Housing Market in Australia

921 words - 4 pages lot of money and with limited supply for housing and increased demand for housing will lead to a climb in prices. Economists argued that the Australian market for housing has created a property bubble which means that people are buying a house because they see an opportunity of making money because the demand is so high, some people don’t need to sell their houses but realises that with limited supply and high demand they can make lots of money

Managerial Economics

3137 words - 13 pages house prices had been primarily caused by the changes in demand for housing. Being a big open economy, UK is not really affected by external shocks caused by changes in international prices and currencies but by various internal and associated factors. Money supply and government policies are believed to be important factors behind the booms. The primary reason behind the increase of money supply was continuing high economic growth during the

Individual Assignment

2508 words - 11 pages effective. According to (Khan, Thurman, 2001, p. 4) “These measures include the Mortgage Indemnity Fund, Servcon Housing Solutions and the National Homebuilders Registration Council.” Therefore, by instituting this contract the policy implantation process was strengthened. 3.3. COMMITMENT 3.3.1. POLICY WEAKNESS Due to government shifting to the supply approach it decreased commitment from stakeholders. This approach is dependent on housing

Related Essays

Housing Supply And Demand Essay

989 words - 4 pages Housing Supply and DemandThere are two factors needed for a market to exist. These factors are buyers and sellers. The buyers and sellers of the housing market have a voluntary exchange of a house and/or property where the outcome will produce a conclusion where the buyer and the seller are both better off as a result of their exchange. Does this one transaction affecting the buyer and the seller have an equal outcome for a third party, with

Demand And Supply Of Housing Essay

4214 words - 17 pages DEMAND AND SUPPLY FOR HOUSING The determination of prices in local and regional housing markets is a classic example of microeconomics in action! We are seeing the interaction between buyer and seller with prices being offered and agreed before a final transaction is made. In this section we focus on the demand and supply side factors that determine the value of properties in a market. Each housing transaction in the UK depends on a) The

Taking Examples From Either The Housing Market Or The Commercial Property Market, Outline And Discuss The Economic Factors Influencing Supply And Demand For Your Chosen Property Type

1004 words - 5 pages The housing market in UK has been effected in many different ways, from immigration to shortages of homes I am looking to discuss these factors in depth. The demand of houses depends on what the interest rates are, as this will decide whether the buyer will be able to get a mortgage at a cheaper rate. The lower the interest rate the more demand of houses and the more demand in houses the higher the price. The supply will depend on what the

Traffic And Housing Problems Essay

587 words - 3 pages my concern is how this would be done, by policy force or marketing force? It is a plausible approach to lessen traffic burden and control housing problems in cities because both problems are the adverse side effects of overpopulation to some extent. After relocating big manufacturers and companies to countryside, some of their workers may choose to live in the countryside near the working places. (It's also possible that others want to stay in