goldbug9999 Posted March 16, 2015 Share Posted March 16, 2015 (edited) Nope. Demand grows if the availability of credit gives people the idea prices will inflate with time, even if they dont need something. Vast numbers of condo's in places like Vegas and Florida were never lived in, people still bought. There isnt just demand to live in something, there is speculative demand. I don't see many people speculating on new cars (except for certain marques like limited edition Ferraris and Porches) I wonder why - oh yes, its because its pointless when supply is elastic. And credit is inflating the price of cars...why else do you think dealers are so hellbent on offering it! Because the overall income they get is higher! Of course everyone prefers to sell on credit because of the commission. 10 years ago I could pick up a 5 year old family car, low miles, FSH for a little over a grand. Now I cant even find an astra for less than £3500. Certainly not a shortage of new cars built in the last few years. So this one anecdotal observation is the pretty much your sole evidence ? - my own observation is that nothing much has changed other than broadly inline with general RPI. Edited March 16, 2015 by goldbug9999 Quote Link to comment Share on other sites More sharing options...
goldbug9999 Posted March 16, 2015 Share Posted March 16, 2015 (edited) Many markets in goods and services have little to no barrier to entry, meaning supply is elastic (responds to price) so cost determines price as suppliers compete. Land is a cartel/monopoly, meaning supply of housing and housing services (rents) is inelastic and affordability determines price (demand, not cost). The price a buyer or renter pays is often higher than the cost of provision. So in what way is "inelastic supply" different to "shortage" ?. Edited March 16, 2015 by goldbug9999 Quote Link to comment Share on other sites More sharing options...
Guest_northshore_* Posted March 16, 2015 Share Posted March 16, 2015 (edited) So in what way is "inelastic supply" different to "shortage" ?. "Shortage" - not enough in absolute terms. "Inelastic supply" - Elastic means that as the price goes up supply increases (competition - within limits of production/operating costs and profit margin). Inelastic means supply doesn't respond that way, or as with property the rate of increase may even fall as prices rise. This doesn't automatically infer any absolute shortage, only a shortage of cheaper properties (b/c the prices are so damn high, not b/c the properties don't exist) As said before, the shortage issue is a valid concern. Particularly in terms of distribution and/or whether the housing mix is tailored to people who live in places or those who 'invest' in them, but not the answer to why prices are high. The only way building more houses would bring down prices is if it's government led, financed and effected - with a willingness to undercut and basically put private developers and banks out of business. I'd like to see that but given how the State pretty much underwrites developers, banks, landlords and landowners, and out economy seems founded on printing money from housing credit, that's not going to happen within the realms of main party policies. Edit: clarifying point. Edited March 16, 2015 by northshore Quote Link to comment Share on other sites More sharing options...
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