Discuss About The Property Fluctuates In A Great Way In Every?
Demand and supply of property fluctuates in a great way in every pace. However, such fluctuation in the demand and supply of property is due to various factors that influence it directly or indirectly. The affect of these factors are on the price of the property and also other redentials that brings down its supply and demand (Patrick and Mothorpe 2016). The essay will discuss about the some of the crucial factors that affect the demand and supply of property such as law of diminishing returns, production frontiers, use capacity, multiplier effect and many more. The affect discussed in this paper will show both a fall and increase in demand and supply of property affected by these factors.
The first factor that may put an effect on the supply of property in a region is law of diminishing return to land. This is because land is a fixed factor and its supply cannot be increased. Properties are made on land and initially the supply of property will increase, as the large number of land is available in a region. However, the property makers will have a lot of lnd available to them initially and supply increases drastically. As time passes the availability of the land reduces and property makers does not have much land to build any property (Cunningham et al 2014). Thus, gradually the supply of property increases nut at a diminishing rate than before. On the other hand, the law of diminishing returns also affect the demand for property because the consumers in a region will demand more in the beginning as they want to invest a lot in properties initially. However, as the time passes their need for property reduces and thus the demands for property falls (Mankiw 2014).
Other factor that affects the supply for property is the production frontier that shows the increase in supply of one thing with a reduction in supply for others. For example, if there are agricultural land available in the region the supply of property will depend on the forgone decision to reduce the availability of agriculture to increase the supply of property. Thus if some agriculture land is forgone in order to build properties then the supply for property will increase. However, the decision of forgoing the number of properties and increasing the availability of property will reduce the supply of property (Chen, Decu and Verstraelen 2014). Multiplier effect is yet another factor that affects the demand for property in a region. Multiplier effect shows the influence of some other factor on the increasing or decreasing demand of property. For example, the property has been build in a region having a lot of hospitals or colleges then the demand for property will automatically increase as there will be students or doctors of the hospital which would prefer those property for convenience. Due to these reasons, the supply of property also increases in these regions as property makers would want to build property in areas offering them high demand (Olsson 2013).
Cost and availability of capital also affects the demand and supply for property because the capital here is the availability of funds such as the property loans that the people will take for buying the property. Hence, unavailability of such funds in a region will automatically reduce the demand for property as people will not be able to pay such a high price fo the properties. On the other hand, the builders also need some amount of loan from the bank in order to invest in property building. Difficulty in getting such funds and absence of proper banking system in a region will negatively influence the supply of property. Thus, in order to keep a good supply and demand of property it is necessary that the region have good availability of funding institutions. However, availability of funding institution is not enough in a region if there is high interest rate on the loan amount. Thus, interest rate is also a crucial factor that affects the demand of property in a region. A decline in the interest rate over standard home loan amount will reduce the price of property and increase its demand as more and more people will take home loan at a reduced interest rate. An increase in the interest rate will increase the price of property and reduce its demand. This is because people will be unwilling to take home loan from the bank with such a high rate of interest (Rios, McConnell and Brue 2013).
Supply a demand of property is also affected by other factors such as highest and best use, inflation, fiscal policy, population growth and public policy. Inflation has a huge impact on the demand and supply for property. This is because inflation in a region increases the price of everything in that region including property prices. High property rice reduces the incentive in the people to buy property, as it will hamper their normal standard of life. On the other hand, a region having low inflation rate will comparatively have high demand for property because of less price in relation to other regions. Inflation also affect the supply of property because during high inflation property owners will face a high price of property and thus has the incentive to build more properties and land owners will also be ready to sell their lands in that price (Gal? 2015).
Fiscal policy also influences the supply and demand for property because of the taxation rate and changes in government spending. Contractionary fiscal policy is one in which the taxes are increased and there is a decrease in the government spending. In such a condition with an increase in taxes, the price of property will increase and has a negative impact on the consumers. This reduces the demand for property as the property owners put the burden of the tax on the consumers and this increases the price (Mertens and Ravn 2014). On the other hand, expansionary fiscal policy in which taxes reduce and there is an increase in government spending reduces the price of property. This will in turn increases the demand for property and in the supply of property because the property owners will not have the incentive to offer their property at low prices (Hansen 2013). Public policies such as property tax and tenants act also affect the demand for property, which is similar to that of affects of fiscal policy. This is because property tax also puts a impact on the price of the property.
One of the most important factors that affects the demand and supply of property is the changes in demography such as population. Demographic projections are of various categories and it has an impact on the demand and supply of property. For example in today’s world people are separating from joint families and preferring a neutral family for themselves and their are increasing number of divorce. This has increased the demand for property by such people. Another change in demographic projection is the large number of people immigrating into a economically advanced region because to increasing job opportunities. The demand for property increases by these immigrants as they need house to stay while searching for a job or while working in that region (Gonzalez and Ortega 2013). Another reason of increase in demand for property is the population explosion in some regions. The faster rate of population growth is putting a great burden on the need of property. However, changes in demographic projection also on the supply of property because with the increase in population and demand more and more buildings and complex are being made in various regions in order to offer adequate living space to everyone (Alkan et al 2014).
Lastly, the supply of land is influenced by the highest and best use of the available land. The regions where the property owners make the best use of the land help them to increase the supply of houses and properties. On the other hand, lack of usage of land or wastage of land leads to a decrease in the availability of housing property. Thus, the supply of land depends largely on the usage of the landowners to build their property on it for sale. This is because a vacant land has no value of its own (Leonardi 2015).
From the above analysis it can be deduced that demand and supply of property are influenced y a number of factors. The impact is both direct and indirect depending on the factor. The factors discussed above that affects the availability and desire for owning a property are interest rate, funds, demographic changes, inflation rate, fiscal policy and others. Changes in any one of the factors either increase the demand and supply of the property or reduce the demand and supply. Thus, in order to put a positive impact on the supply and demand of property these factors needs to be considered by the property owner. It will help them to keep a pace about the demand in the economy and the factors that are affecting the demand.
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