Housing 5

Introduction  Housing cost take up to 30%-35% of personal income.  Housing is a product that has unique characteristics:  First: it stays in one place. Thus the value of housing is effected by its location.  Second: housing is a very durable good, often lasting 50 years or more.  Third: housing is a bulky commodity that requires on-site construction, in the open, which means weather can hamper the production.  Finally: housing is expensive in relation to average income.

Housing Market  There are two market in the housing sector:  The Market for housing services (consumer market).  The Market for the stock of housing structures (Investor market).  Home owner in both markets.  The two markets are related, in that the variation in the stock will lead to change in level of housing services consumed.  Change in the stock occure not only through building a new housing but also by expanding or depreciation the existing stock.

Demand  The demanded for housing services is related to:  The price of those housing services,  Income,  Formation of new household,  One’s spatial relation to the city center.  The demand for stock is derived from the demand for housing services.

Price of Housing Services  The price of housing per year reflect the cost and expenses of using a given unit of housing for that year:  Depreciation.  Maintenance.  Repair.  Net return.

The Short Run The Short Run  In the short run:  The housing stock is given.  Changes in quantity of housing services demanded will be reflected by changes in price of housing services.

Long Run  Changes occur in housing stock.  Any long run analysis of housing services must also consider changes in housing stock.  What are the signals that change the stock of housing in the long run, and thus the available quantity of housing services?

Long Run Equilibrium  If market operate efficiently:  The desired stock of housing will equal the actual stock of housing.  At this equilibrium point: Ph/PH = The sum of expenses/PH.  The marginal rate of return of housing unit (MR = Ph/PH) is equal marginal rate of expenses MC = The sum of expenses/PH (MR=MC).

Housing Under Increased Demand D (h)` MC(H) MR(H) PH` PH S (h) D (h) P (h)` P(h) QhQh`H H`H StockService

Housing Under Decreased Cost P(H) MC(H)` MC(H) H`H MR (H) P (h)` P (h) S (h)` S (h) D (h)StockService Q (h)`Q (h)

The Concept of filetring  Change in real value of an existing unit of the housing stock.  Filtering down: the real value of a given unit of housing declines over time. Thus lower-income groups will be able to afford that unit.  Filtering up: the real value of a unit to increase

Housing Policy Tools  Building and Housing Codes.  Subsidies  Rent control.  Public housing