Supply and demand for Real Estate Markets

SUPPLY AND DEMAND
FOR REAL ESTATE
MARKETS

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................3
1.1................................................................................................................................................3
1.2................................................................................................................................................3
QUESTION 2...................................................................................................................................3
2.1................................................................................................................................................3
2.2................................................................................................................................................3
2.3................................................................................................................................................4
QUESTION 3...................................................................................................................................5
3.1................................................................................................................................................5
3.2................................................................................................................................................5
3.3................................................................................................................................................6
REFERENCES................................................................................................................................7

QUESTION 1
1.1
From the figure given for both cities, it has been identified that City A has more constrained
supply than City B as evidence from the diagram which depicts that increase in demand would
cause prices to be risen rather than increase in output or employment.
1.2
Constrained supply implies that with the increase in demand, there would be rise in prices of the
property or housing stock in the area or city where supply constraints are imposed from physical
and regulatory perspectives (Valentinov and Thompson, 2019). The reason behind increasing
prices in the condition of constraint supply is to cope with the increased demand. When demand
rises, the prices of property are raised rather than output or employment to increase supply. Such
a condition depicts that when there are regulatory or physical constraints present, then the supply
can't be raised more and accordingly, trade off between supply and demand is done through
raising prices.
The concept can also be explained through supply elasticity, where it can be said that when the
other factors are regulating the supply, then the price elasticity of supply is low indicating
constrained supply and rising prices conditions.
QUESTION 2
2.1
2.1.1 Option D (a and b) population size and real income are determinants of demand.
2.1.2 Option C - Housing stock is the determinant of supply.
2.2
2.2.1 The reason behind fall in prices of property due to increase in supply is that when supply
rises without the change in demand, then this leads to oversupply of property or houses in the
market (Laibman, 2019). Accordingly, there exists competition among the sellers or suppliers
where they aim to sell more and more property at a competitive prices and results in reduction of
prices to generate more sales of property. This situation can be seen in figure 4 where at constant
demand the increase in supply depicted from shift in supply curve indicates the reduction in
prices of property below the first equilibrium point.