Individual 2- Analysis for Home Prices in China

Home Price Gains in China

According to the article, Home Price Gains in China Cool, 7 September 2012 taken from the Star newspaper, it mentions that prices for newly construct homes in China rose in fewer cities in August than the previous month. It also mentions the policymakers will not make any policies to hold back the price of the house which indicate that they will let the price of the houses continue to increase. In order to build more houses, China has to find many resources to build houses but resources are never enough for everyone which will cause scarcity. There is not enough land to build many houses, so land has become a scarce resource. In order to overcome this problem, China might build more high-rise buildings such as apartments and condominiums. Apartment and condominiums used fewer spaces to build and it can save a lot of space and many people can stay in it. The suppliers will build more this kind of houses which save space and maximize profit. This will solve the scarcity of resources but will cause changes to the demand and supply market.

Because of the scarcity of the land, the buildings will be charged in a higher price. This leads to the law of demand. When other things remain the same, the higher the price of a good, the smaller is the quantity demanded for the goods whereas the lower price of a good, the larger the quantity demanded for it. As I know, this is common situation for everyone in the world which no one is willing to buy high price product due to different reasons, so when the price of a product is getting higher, the lesser the consumer purchase the product. In this case, China’s house price has risen; the demand for the houses will decrease. This is because the people in China might not have the ability to afford the houses with high prices. When the price of the good or service rises relative to income, people cannot afford all the things they previously bought, so the quantity demanded will decrease and this known as income effect. People might be able to afford a house in China with the income they have, but the price of the house has risen recently, so many people cannot afford it anymore. People’s demand for the houses has decrease. Although the demand for the houses in China now is decreasing, but there are some other factors that might change the demand such as expected future prices and income. If consumers expect future price will goes up, the demand for the current housing will be increased. If it is not, then the demand will remain decreasing. Demand for the houses is also influence by people’s income. When income has increases, people can afford the housing prices and they will buy the houses which will cause the demand for houses increased.

Besides the change in demand, supply will be affect too. The law of supply is about the higher the price of a good, the greater is the quality supplied. Suppliers of the houses in China will supply more houses because they can maximize their profits by selling the houses. Every supplier wants to maximize their profit, so when the price is higher they will supply more of the goods. There are also some factor will affect the changes in supply. For example, expected future prices will decrease the current supply of the house if the future price of the houses rises. Another factor will influence the supply is advanced in technology. Nowadays, technologies are getting advanced that increased the supply. Many suppliers will use high technology to produce their product and it lower the cost of producing existing products, so suppliers will increase the supply and sell in it a high price.

In addition, as China’s home price getting higher it will cause the problems such as surplus of the house and also housing shortage. If the price is too high, there will be a surplus which is the quantity supply exceeds the quantity demanded for the houses. There will be too many houses in the market but consumers cannot afford it and it will become waste resources. In other hand, there will be a housing shortage if the price is low. The quantity demanded for houses will exceeds the quantity supply by suppliers. There are many people want to buy houses if the housing price is lower than previous month, but this will cause shortage because there are too many people but the houses are just supplied a few by suppliers. Suppliers cannot maximize their profit in the lower price, so they will not supply more houses to the people. In order to solve this problem, China should make price adjustment. They should set the price where the buyer’s plans and sellers’ plans agree and the price does not change until some event changes either demand or supply. This is known as market equilibrium. In equilibrium, demand equals to supply and everyone is happy with it. This will totally solve all the problems that mention above.

I believe that if the housing prices keep decreasing and the investment in it is steady, all the negative effect will not happened. In my opinion, government should set a price ceiling or also known as rent ceiling when applied to housing market. Price ceiling is a regulation that makes it illegal to charger a price higher than a specific level. Government should set the price lower which meets the equilibrium so that it can benefits the suppliers and also benefits the poor. While in equilibrium, all the buyers and sellers are happy with the business and it is suitable to do business.

In conclusion, there are many economics problem in this world. If all parties corporate with each other, problems will be solve easily. In China, there are many people who are poor; the policymakers should make some policies to control the housing price, so that it still can benefits the poor and the suppliers also can maximize their profit. Furthermore, with government intervention people who live in China can get their houses easily and the suppliers can supply the houses at the same time the suppliers also can maximize their profit.

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