Introduction
This report is aiming to convey the message of supply and demand issues of housing in Malaysia. Topics on affordable housing supply in Malaysia is always a hot topic for the local. Numerical information indicates that there are enough supply of housing in Malaysia, precisely, supply of housing is even more than the rate of population growth in Malaysia. In short, rising numbers of unsold properties are indicators that there is no shortage of houses in Malaysia. In contrast, malaysia is facing excess supply in this particular goods ( houses ). The scenario of excess supply of houses are extremely obvious in several states which include Kuala Lumpur, Selangor, Johor and Pulau Pinang. Therefore, malaysia does not need to build more houses in future but government should help provides more affordable prices for houses in order to solve the problem of excess supply. Two of the simplest way to solve this problem is by reduce the cost of houses and loosen lending rules in banks. However, these are just short-term solutions. Citizens and developers actually seek alternative ways in supporting smaller houses and by renting rooms but there are certain limits and disadvantages if applied. In part 2, economic concepts involved are Supply&demand , factors of production and excess supply.
The first economic concept to be mentioned is law of supply and law of demand and also the determinants of both supply and demand.
Law of demand indicates the negative / inverse relationship between price and quantity demanded of the goods assuming other factors unchanged. Law of demand also shows that the relationship between price and quantity demanded of goods are inverse-related. That means as the prices of goods increases, quantity demanded decreases. As the prices of the goods decreases, quantity demanded increases. This is always a general human psychology and behaviour when it comes to prices and quantity demanded in history. In Malaysia, there are enough demand for houses according to the research which is being stated in the article. But since the price of the houses keep increasing over the years, people who actually own houses or willing and able to purchase houses decreases over time. This conform to the law of demand, as the prices of the houses rises, quantity demanded decreases. There are also determinants of demand, which are the factors that influence or shift the demand curve besides price factor . The determinant of demands in houses which is related to the article is demographic / population / number of buyers in the market. As the number of buyers increases, the demand rises and demand curve shift to the right. Malaysia population in 2019 is 32.45 million and its only 29.7 million in 2013. This shows increases in population, hence this indirectly will increases the demand for houses. Besides population size and population growth, other demographic variables will also have an impact on demand such as age , family size, death rate or divorce rate. There is about 65% of Malaysia’s population is below the age of 35, hence strong demand for housing existed. Other determinants of demand are expectation of future prices, prices of related goods and preferences.
Law of supply indicates positive relationship between price and quantity supplied of the goods, ceteris paribus. It shows that the relationship between price and quantity supplied is positive, which means, when price increases, quantity supplied increases, vice versa. In Malaysia, there are excess supply which means supply exceeds demand which will be discussed in the next concept. The price of malaysia houses increases by 0.7 % compared to the last quarter in November 2018. This means there will be increases supply. This conform to the law of supply, as the prices increases, quantity supplied increases, because suppliers are willing to produce more in order to earn more profits. Other than prices, determinants of supply will affect or shift the supply curve. One of the determinants of supply that is related to this article is the cost of production / input prices. In 2018, April, price of aluminium in Malaysia had dropped for 9%. This reduced the cost of input for firms to produce houses in Malaysia. Hence, there will be an increase in supply of houses. This also shows that when cost of input decreases, supply increases or shift to the right.
The second economic concept related to this article is excess supply. When supply and demand curves intersect, an equilibrium exist. Equilibrium means there will not be any incentive for price to changes and shows the psychology sides of buyers and sellers. However, it is not a rare scenario when the market is not in equilibrium-that is quantity supplied doesn’t match quantity demanded. This indicates surplus or shortage occurs. For this article, it is a surplus or excess supply.
Excess supply means that when quantity supplied exceed quantity demanded. It occurs when market prices are above equilibrium price. This is related to the article where houses above rm250,000 are hard to sell off in Malaysia because of affordability issue. According to National Property Information Centre, number of unsold houses had been rising since 2011, and is specially concerned in the year of 2016 to 2017. The situation of excess supply can be observed in Kuala Lumpur , selangor and Pulau Pinang. In most of the cases, producers will try to lower the prices of goods because they won’t be selling any of it if they do not do so. This can be seen when 2.5 % of houses price had dropped in October 2018 in the third quarter. However, the prices rebounds back to the original due to the other external factors in the following months said property guru Fernandez. Two things that we can observe if price falls are that decreases in quantity supplied and increase in quantity demanded. These movements totally conform to the law of supply and demand – price factors. Customers will be more willing to buy since the price falls, while it will be another way around for the producer. As these movements occur, the market will eventually moves back to the equilibrium which there will be no more incentive to change.
In addition, government regulations will also create excess supply in the market. For instance, price floor. Price floor is the minimum prices which is imposed by government. This is government intervention in order to prevent prices going too low. For example, minimum wages or alcoholic beverages.
The last economic concept that is related to the article is factors of production. Factors of production refers to the various inputs that are being used in the production of goods or services in order to earn incomes. In economic references, factors of production could be divided into land, labour, capital and enterprise.
First of all, land has a very wide and broad meaning in economics. It means the natural resources that are being extracted from the land or it can be the land itself. For this case, land is the most important asset and investment for building houses in Malaysia. This is because the value of houses appreciates along with the land value as well.
Next, labour is also one of the factors of production. Labour can refers to the workers in a layman understanding. In economics, labour refers to the work of an individual to make the products to the market. Same as land, labour can be interpreted in various forms. For instance, construction worker is a form of labour, manager managing an organization is another form and bell boy serving in a hotel is also one of them. For this case, construction workers working to build the houses are the main form of labour in producing houses. Production workers are paid in wages depending on their various skill sets or amount of work / even dangerousness involved in the process of working.
After that, third factor of production is called capital. Capital is actually the purchasing of goods which facilitates the process of production a good or service. In layman term, capital may mean money. However, money is not considered as capital because it is not directly related to the production of goods or services. For instance, in this article, tractors purchased for production of houses are considered as capital. There are 2 types of capital, which are private and personal capital. Personal capital for instance is a personal transportation for family usage while private capital is used for official usage for the production of goods and services. Research had shown that when there’s recession / when the economy of a country has an obdurate downward trend, companies would cut back capital expenditure in order to cut cost to earn more profits or prevent further losses. However, when economy is doing well, country will usually invests in new machinery to produce new products in the market. For example, China had invested in robots to improve productivity to meet the demanding market, while America after facing recession & financial crisis had reduce investment on related production due to tepid demand.
Last but not least, entrepreneurship is the last factor of production. Entrepreneurship actually means when an entrepreneur decides to take the risk and start producing goods and services to launch in the market. This is the first initial step for the production of goods and services. For instance, Mark Zuckerberg creates Facebook and slowly expanded his business by renting offices, hiring workers and also buying in computers ( capital ) for business purposes.
The last economic concept that is related to the article is factors of production. Factors of production refers to the various inputs that are being used in the production of goods or services in order to earn incomes. In economic references, factors of production could be divided into land, labour, capital and enterprise.
The main issue from this article is excess supply of houses. As mentioned before, excess supply is when quantity supplied exceed quantity demanded. The exact amount of excess supply can be derived from the graph above by minus Qs and Qd. Excess supply of houses on Malaysia happened because of high prices of houses above equilibrium price. This can be illustrated in the graph as P2 is the current price sold and P* is the equilibrium price. Moreover, the supply and demand curves are both affected by other factors in the economy such as price of related goods and number of buyers and sellers in the market. In order to solve the affordability issue of houses in Malaysia, government can apply some intervention such as building cheaper houses. This step will affect demand. Since a substitute appears in the market, demand curve will shift to the right hence decreasing excess supply. The same effect will happen if government loosen the lending regulations so more citizens are qualified for the loan in order to purchase the houses. Moreover, sellers should also lower the prices of the houses from P2 to P* in order to sell off the remaining unsold goods. Excess supply is not good for sellers since it will create losses for their businesses.
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