Housing Market: Supply and Demand Factors

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Questions and Answers

What economic condition typically leads to a rise in housing demand?

Decreasing income levels

Weak demand for luxury goods

Low interest rates (correct)

High unemployment rates

How does rising income affect demand for housing?

It restricts demand for affordable housing.

It allows people to buy more luxury homes. (correct)

It has no effect on the housing market.

It decreases demand due to increased savings.

What is a significant challenge in the provision of affordable housing?

Reluctance of private developers due to lower margins. (correct)

Availability of adequate funding for construction.

High commercial returns from affordable housing projects.

Excess supply of housing units in urban areas.

What percentage of total project cost must private developers allocate to socialised housing?

20% Signup and view all the answers

Which factor greatly influences consumer confidence regarding demand for housing?

Future expectations of the economy. Signup and view all the answers

What is a potential government intervention to support affordable housing?

Offering tax exemptions to participating developers. Signup and view all the answers

What does the chronic shortage of affordable housing suggest about current production levels?

They are only meeting the incremental demand. Signup and view all the answers

What can cause housing prices to fall, besides economic downturns?

Excess inventory of housing units. Signup and view all the answers

What does recent research indicate about the elasticity of housing supply?

It accounts for variations in new construction volatility. Signup and view all the answers

What percentage of residential units under PD 957 is allocated for low-cost housing?

30% Signup and view all the answers

According to the allocation of residential units, which segment receives the highest percentage?

Mid-end housing Signup and view all the answers

What factor increases the necessity to understand housing-market fundamentals?

The unique nature of the recent market boom. Signup and view all the answers

What was the percentage of registered residential units in the BOI from 2003 to 2010?

34% Signup and view all the answers

What happens to demand when people expect prices to rise?

Demand rises to capitalize on expected wealth gains Signup and view all the answers

How do interest rates affect the housing market?

Lower interest rates reduce the cost of mortgage repayments Signup and view all the answers

What demographic changes are influencing housing demand?

Growing number of single people living alone Signup and view all the answers

What is a key effect of the credit crisis of 2008 on mortgage availability?

Withdrawal of certain mortgage products Signup and view all the answers

Which factor is usually not directly related to housing demand?

Fashion trends in home decoration Signup and view all the answers

What has influenced the mass market for housing in the Philippines?

Record low mortgage rates and a growing middle class Signup and view all the answers

How can the demographic shift towards more single-parent families affect housing demand?

Increase in demand for smaller homes suitable for one parent and children Signup and view all the answers

What is one effect of banks tightening mortgage lending criteria?

A decline in effective housing demand Signup and view all the answers

What happens to the price of a good or service when there is high demand for it?

The price rises. Signup and view all the answers

What does the law of supply state about higher prices?

It induces producers to supply a higher quantity. Signup and view all the answers

What typically occurs when there is a low supply of housing inventory?

Bidding wars may result. Signup and view all the answers

At what point is the equilibrium price achieved in the market?

When supply is equal to demand. Signup and view all the answers

How does a rise in prices affect consumer demand according to the law of demand?

Consumer demand decreases. Signup and view all the answers

What is the effect of oversupply in the market?

Prices fall due to excess inventory. Signup and view all the answers

Which factor can lead to a rise in housing prices in a specific location?

High demand combined with low supply. Signup and view all the answers

What role does market equilibrium play in supply and demand?

It indicates a balance where quantity supplied meets quantity demanded. Signup and view all the answers

What type of housing do fresh graduates often transition to after living at home?

Condominium units Signup and view all the answers

What percentage of all Filipinos are estimated to be employed abroad as OFWs?

10% Signup and view all the answers

What impact do rising incomes have on housing demand?

They encourage demand for housing Signup and view all the answers

What does a high price/rent ratio typically indicate?

A housing market is overvalued Signup and view all the answers

What is the estimated average annual housing unit production needed to address demand up to 2030?

305,412 units Signup and view all the answers

How is housing supply commonly understood in relation to urban areas?

As the total stock of units in an urban area Signup and view all the answers

What percentage of remittances is estimated to go towards supporting family members in purchasing homes?

60% Signup and view all the answers

What is the term used to describe the inability of some segments of the population to afford housing?

Cannot afford segment Signup and view all the answers

Study Notes

Factors Affecting Housing Supply and Demand

Supply and demand are fundamental concepts in economics that determine the equilibrium price of goods and services. In the housing market, these forces dictate the price at which a property is bought and sold.
Demand factors influencing housing prices:
- Affordability: Rising incomes increase purchasing power, driving demand for housing, particularly as housing is often considered a luxury good.
- Consumer Confidence: Demand for housing is strongly tied to consumer confidence about the economy and the housing market itself. Positive expectations about future price increases can fuel demand.
- Interest Rates: Interest rates play a significant role in the cost of mortgage repayments, impacting the affordability of homeownership.
- Population Growth and Demographics: The size of the population and demographic shifts, such as the increasing number of single-person households, affect demand for housing.
- Mortgage Availability: The willingness of banks to lend mortgages influences effective demand for housing. Access to mortgage products and the cost of borrowing can significantly impact affordability.
- Economic Growth and Real Incomes: As incomes rise, people can afford larger mortgages, leading to increased demand for housing.
- Rental Costs: High rental costs can incentivize people to buy homes, as mortgage repayments may become relatively more attractive.
Supply Factors:
- Housing Stock: Total units available in an urban area represent the supply of housing, while demand is determined by the number of households.
- Land Use Regulations: Local regulations can impact the availability of land for development, influencing housing supply.
- Construction Costs: Rising construction costs can make it more expensive to build new homes, impacting supply.
- Government Policies: Policies like tax incentives can encourage or discourage residential construction, impacting supply.
Housing Market Dynamics:
- Bidding Wars: In a low-supply housing market, multiple buyers vying for the same property can lead to bidding wars, driving up prices.
- Supply Shortages: When demand exceeds supply, prices tend to rise.
- Oversupply: Conversely, an oversupply of properties can cause prices to fall due to low demand.
- Equilibrium Price: Supply and demand forces interact until an equilibrium price is reached, where supply equals demand.

Housing Demand in the Philippines

The Philippine housing industry faces a substantial backlog of affordable housing units, estimated to reach 5.8 million units by 2016.
The demand for affordable housing is significant, with demand for economic housing almost equaling the demand for socialized housing and the “cannot afford” segment combined.
Government policies and incentives are aimed at encouraging private developers to participate in affordable housing projects.
The growth of the middle class, fueled by the Business Process Outsourcing (BPO) industry, is driving demand for mid-market housing.
Remittances from Overseas Filipino Workers (OFWs) contribute to demand for housing, often used to support family members in purchasing homes.

Supply of Housing in the Philippines

Estimating Housing Supply: In the absence of segmented residential construction data, a model assumes that 30% of units are allocated to low-cost housing, 30% to high-end, and 40% to mid-end.
Industry Production: The industry currently produces less than 200,000 affordable housing units per year, which only addresses incremental demand but fails to tackle the backlog.
Challenges in Affordable Housing: The challenge of delivering low-cost housing is a major obstacle to addressing the affordability crisis in the Philippines.

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Description

Explore the various factors that influence housing supply and demand in the market. This quiz covers crucial economic concepts such as affordability, consumer confidence, interest rates, and demographic changes. Test your understanding of how these elements interact to shape the housing landscape.