Lecture 2 Demand and supply of land.pptx

REAL ESTATE ECONOMICS Prof. Anthony Owusu-Ansah Department of Land Economy Faculty of Built Environmet, CABE  LECTURE 2 SUPPLY AND DEMAND OF LAND  Supply of Land LAND CHARACTERISTICS POPULATION Finite Incre...

REAL ESTATE ECONOMICS Prof. Anthony Owusu-Ansah Department of Land Economy Faculty of Built Environmet, CABE  LECTURE 2 SUPPLY AND DEMAND OF LAND  Supply of Land LAND CHARACTERISTICS POPULATION Finite Increasing in numbers Immobility Increasing in its aspirations Varied productive potentials Potential conflict ? 3  Supply of Land Several concerns have been expressed about the future adequacy of our land resource base. How sufficient is our land resource base to do all that we expect to support the increasing aspirations and growing population. In practice, these concerns involve three questions: 1. How much land is available for economic use? 2. How much demand is there for its use? 3. Do we have sufficient land resource to care for our emerging use? 4  Supply of Land-Definition  Supply is the quantity of goods or resources available for use.  The overall supply of land resources is limited to the total amount of resources that are provided by the earth’s surface.  The amount of land resources available for use by individual operators, nations and human–kind as a whole, vary with changing circumstances.  It is important to distinguish between the physical and economic concepts of supply 5  Physical Supply of Land  The physical supply refers to the physical existence of land resources.  E.g. Unit of land available to village community, a country, world or the sum total of the land resources found in individual ownership units.  Physical supply of land is fixed. 6  Economic Supply of Land  The economic supply of land refers to only that portion of the total physical supply that people want and use.  The economic supply of land is rarely fixed.  The economic supply of land can increase or decrease (demand and technological changes can affect economic SS of land)  Economic SS is limited by the total physical supply of land. 7  Factors that Affect the Economic Supply of Land 1. NATURAL FACTORS These include:  Sunlight and temperature;  Precipitation and access to water supplies;  Topography and drainage;  Soil conditions, surface strata and presence of minerals;  Physical location with respect to markets and transportation facilities. 8  Economic Supply Of Land Cont. 2. ECONOMIC FACTORS  The economic factors are based on demand, cost, price and competition concepts  Competitions among individuals and among land uses have effects on the land resource supply.  Competition for land, drives up land price. 9  Economic Supply Of Land Cont. 2. ECONOMIC FACTORS  Intensive use of land in turn increases the economic supply of land.  When there is competition, there is bidding and counter - bidding for land.  It is the bidding and counter-bidding that determines the use of land. 10  Economic Supply Of Land Cont. 3. PLANNING CONTROL: Planning is the most important single factor restricting the supply of land and buildings at present time. Planners have powers to restrict change of use of buildings and the intensity of use of land. 11  Economic Supply Of Land Cont. 3. PLANNING CONTROL CONT. When demand for office accommodation increase for instance, supply can be met in three ways: 1. Suitable building at present used for other purposes might be converted for use as offices; 2. Suitable bare sites might be developed by the erection of office blocks; 3. Buildings which are not fully utilizing their sites might be demolished so that larger office blocks; could be erected. But planning may affect all these three possibilities. 12  Economic Supply Of Land Cont. 4. INSTITUTIONAL FACTORS These factors involve the several aspects of our culture and group action such as custom, government action, law, public opinion, etc.  Customs and traditions of people can significantly affect the use of land.  Governments actions (laws, zoning regulation, credit facilities) can affect SS of land.  Public opinion (interest in environmental quality and resources conservation programmes) affects SS of land.  The concept of property rights is another factor that can enhance or diminish the supply of land.  Land tenure system 13  Economic Supply Of Land Cont. 5. TECHNOLOGICAL FACTORS Economic supplies of land always reflect the current levels of technological development (ability to use the land for useful purpose). Primitive man had no conception of the worth of iron, oil & gas exploration and gold deposits etc hence placed little economic value on them. Restriction and natural limitations on land use are removed or reduced through technology. Improvement in transportation network, construction technology, farming machinery have positively affected SS of land for man. 14  Demand for Land Demand is the amount of a commodity people want and willing to buy. Physical demand: The desires, needs and wants for commodities and services.  Resource requirements may include the amounts needed to provide average diet, housing facilities, and education or recreation opportunities of a given level of adequacy. Effective demand : The willingness and ability of people to buy. 15  Demand for Land Demand for land resources usually involves a derived type of demand. People rarely desire real estate (land) for its own sake. They want it because of what it produces. 16  Demand for Land  Our overall demand for land resources finds its roots in the needs and aspirations of the many individuals who make up society.  Rising global population is increasing aspirations and resultant demand on land.  World population = 1billion in 1800 (millions yrs)  World population = 2 billion 1930 (130yrs)  World population = 3 billion 1960 (30yrs)  World population = 4 billion 1985 (25yrs)  World population = 6 billion 2000 (14yrs)  World population = 7 billion 2012 (12yrs)  World population = 8 billion 2021 (9yrs) 17  Demand for Land Factors affecting demand for land  Technological advancement  Educational background/ individual goals  Income levels  Traditions and customs  Population/demographic pressures  State of the economy 18  Demand for Land Population Density It measures the relationship between population numbers and land resources in a quantitative way. It gives only the number of persons per square mile or area or per hectare e.g. persons / square km. It doesn’t measure population distribution vis-a-vis the carrying capacity of land in terms of resources. It gives a wrong impression of population distribution. 19  Population Density of Ghana (GSS Demand for Land 2012) 20  Demand for Land Man - Land Ratio  It is used to express the qualitative relationship between people and their land resource base. This ratio deals with specified total population and the supplies of particular types of land resources on which they depend.  It often provides a more realistic measure of the relative dependence of people on the carrying capacity of their resource base than do simple measures of population density. 21  Demand for Land Man - Land Ratio Cont.  Man- land ratio can be used to describe the areas of cropland per farmer or the average areas of cropland equivalent per person.  It thus measures human demand for biologically productive land and sea to produce the consumable resources and to store waste generated by human activity. 22  Demand for Land Man - Land Ratio  In 2008, the world total productive bio-capacity (supply) was 12.0 billion global hectares (gha) or 1.8 gha per person.  The total global land demand (ecological footprint) was assessed at 18.2 billion gha or 2.7 gha per person (Living Planet Report, 2008) DEPARTMENT OF LAND ECONOMY, KNUST 23  Demand for Land Future demand on land (Ecological Footprint). Living Planet Report; 2012 24  THE CONCEPT OF PROPORTIONALITY Meaning:  It deals with the optimal combination of the various factors of production by an operator to maximise profits in a production process. Land + Labour + Capital (including inputs) + Management = Outputs or Yields.  Producer normally wants to secure the most profitable combination of their productive factors.  This calls for awareness and appreciation of the Law of Diminishing Returns. 25  THE CONCEPT OF PROPORTIONALITY The Use of the Concept in Managerial Decisions  Farmers  Industrialist  Real estate investors The success of the concept is contingent upon: Clarity of the reasoning Response to problem of uncertainty and imperfect knowledge 26  THE CONCEPT OF PROPORTIONALITY The Use of the Concept in Managerial Decisions Application of the Concept is beset with problems:  Difficulties in determining the optimum combination of factors  Lack of perfect knowledge and foresight concerning the cost, price and yield situations. 27  THE CONCEPT OF PROPORTIONALITY The Use of the Concept in Managerial Decisions In view of the problems, the concept can be best considered in terms of a) Working within the zone of rational action b) Acceptance of the equi-marginal principle in two or more enterprises c) Adjusting to dynamic conditions d) Response to the problem of multiple production functions. 28  THE CONCEPT OF PROPORTIONALITY Equi-Marginal Principle Every rational producer seeks to maximise profit and push production to the point of diminishing economic returns (Marginal Factor Cost=Marginal Value Product) The law of diminishing returns assumes;  One production enterprise  Abundant supply of variable input factors  A fixed factor (land)  In practice, there is limited SS of productive factors and these factors have alternative uses. 29  THE CONCEPT OF PROPORTIONALITY Equi-Marginal Principle The principle states that maximum profit can be achieved only when each input of land, capital, labour and management are used in such a way as to add the most to total return and when these resources used in any one enterprise produce a marginal value product which is at least equal to what could be secured from their best alternative use. The principle calls for reallocation or shifting of inputs to enterprises promising highest net returns. 30  THE CONCEPT OF PROPORTIONALITY Adjustments to Dynamic Conditions Due to the problem of uncertainties and lack of full knowledge of future scenarios; when circumstances change, the operator must make necessary adjustments to accommodate the changes. 31  THE CONCEPT OF PROPORTIONALITY Multiple Production Functions  In real world, production involves combination of a variety of non-homogeneous inputs to a fixed factor.  These inputs could be complementary, surrogates, indivisible and must be applied wholly or piecemeal at different times.  Each factor input use in the production process has its own production function.  Optimum use of the various inputs calls for different levels of production function.  Different production functions needs to be experimented. 32  THE CONCEPT OF PROPORTIONALITY  The Intensity of Land Use Intensive land use Extensive land use  Intensive and Extensive margins of land use o Intensive margin is breakeven point o Extensive margin occurs at the no-rent margin or below rent earning point. Marginal lands/poor quality lands. 33 END END OF LECTURE. QUESTIONS??? 1-34