Introduction
The housing market is an integral part of any economy across the globe, encompassing a wide range of activities, including construction, buying, selling, and renting of houses. Over the last five years, the housing market has experienced significant changes, particularly in demand and supply. Such changes can be attributed to many factors, such as population growth, economic performance, government policies, and technological advancements. The essay explores the changes in demand and supply in the housing market over the past half-decade, focusing on why the demand for housing has remained high compared to its supply.
The Demand for Housing
Over the past five years, the demand for housing has been on an upward trajectory. The growing demand can be attributed to population growth, urbanization, and rising income levels. With population growth, housing is needed to accommodate the rising numbers (Berger et al., 2020). Conversely, urbanization has resulted in a surge of individuals migrating to urban regions to pursue improved employment prospects, education, and lifestyle, thereby increasing the demand for housing in such areas. Furthermore, the demand for better and quality housing increases as income levels rise.
Another factor influencing the high housing demand over the past five years is many economies’ low mortgage interest rates. Reduced interest rates have made it more affordable for individuals to take out loans for housing, thereby fostering demand (Berger et al., 2020). Additionally, changing lifestyle preferences, particularly among millennials who favor homeownership, have increased demand.
The Supply of Housing
Despite the increasing need, housing provision has failed to match pace. Elements including land accessibility, construction expenditures, governmental directives, and economic steadiness shape the housing market’s inventory. Throughout the last five years, these elements have collectively resulted in a sluggish expansion of the housing supply. Increasing land prices and construction costs have made it more expensive to build new houses, thereby limiting supply (Been et al., 2019). Moreover, stringent government regulations and policies about land use and building codes have also impeded the housing supply, making it difficult for builders to respond swiftly to increasing demand. Economic instability, characterized by fluctuations in the real estate market, has discouraged investors, further limiting housing supply.
Market Equilibrium Changes
The disparity between the high demand and limited supply in the housing market has led to significant changes in market equilibrium over the past five years. The high demand and low supply have resulted in upward pressure on house prices, leading to a shift in the equilibrium price (Epple et al., 2020). Thus, an imbalance has led to housing affordability issues, with many potential homeowners being priced out of the market. Finally, the supply constraints have resulted in a shift in the equilibrium quantity, with fewer houses being bought and sold in the market than in a balanced market. This has emerged in a seller’s market, where sellers have the upper hand due to the scarcity of houses.
Conclusion
In conclusion, the housing market dynamics over the past five years have been characterized by a high demand for housing and a slow supply growth. The situation has resulted in significant changes in the market equilibrium, with rising house prices and reduced transactions. For the housing market to achieve balance, supply-side constraints must be addressed. This will require concerted efforts from all stakeholders, including government, private sector, and individuals, to increase housing supply and ensure housing affordability.
References
Been, V., Ellen, I. G., & O’Regan, K. (2019). Supply skepticism: Housing supply and affordability. Housing Policy Debate, 29(1), 25-40.
Berger, D., Turner, N., & Zwick, E. (2020). Stimulating housing markets. The Journal of Finance, 75(1), 277-321.
Epple, D., Quintero, L., & Sieg, H. (2020). A new approach to estimating equilibrium models for metropolitan housing markets. Journal of Political Economy, 128(3), 948-983.