The Impact of Management Policies on Demand and Supply Equilibrium

The construction firms are responsible for the supply of housing. The participants willing to buy the properties for occupancy or for investment purposes form the market. There are two categories of property buyers; owner- occupiers or investors. The demand curves for these two types of property buyers respond differently to the changes in property prices.

a) A demand curve for owner-occupiers of housing properties

Figure 1: Demand curve for owner-occupiers of housing properties

Source: (Lardbucket.org). "Housing Supply and Demand". 2012 Books.

The above demand curves show the households choices in the property market. The slope in the graph is curved and slants from top left to bottom right. The housing demand for occupation purpose is basic and therefore cannot be zero. For this matter, the house quantity demanded cannot be zero. The slope in the graph cannot touch the X and Y axes.

b) The demand curve for those buying housing properties for investment.

Figure 2: Demand curve for investors in housing properties

Source: (Lardbucket.org). "Housing Supply and Demand". 2012 Books.

The line in the graph is a straight-line slanting from the top left to the bottom right corner. Investment is not basic when compared to own occupation. For instance, investors can choose not to invest when the prices tremendously increase as a result of an increased interest rate. The slope can, therefore, stretch and touch both X and Y axes.

ii). The policy measures proposed by the British Colombian government

In 2017, citizens voted in for B.C. Democratic party to lead the new government. The previous government, which the B.C. Liberal party led, failed to garner votes because of the cost of housing after their 16 years in leadership (Dougherty). The new government has tried to manage housing demand in various ways. First, the government has increased the housing supply to meet the demand. As a result of the increased supply, it means that the competitive demand in housing depends on other factors other than a shortage in supply. Secondly, the government proposed some measures that it will use to curb the housing demand and discourage foreign buyers.

The government raised the foreign-buyer tax to 20 percent and also raised the purchase price for homes to 15 percent (Dougherty). The government also has plans to levy higher taxation on properties on second homes. The families who earn from foreign countries are the most likely to feel the tax effect. In addition to this, homes that cost more than 2.3 million dollars are also targets for higher property tax levy. Empty homes shall also attract taxed as one of the measures to manage demand. According to Carol James, the finance minister, the measures put in place by the government are very critical in dealing with the housing demand crisis.

These measures are likely to affect the buyers of housing properties for occupation. The fact that two-thirds of Canadians who are homeowners expect to generate some money income from their investments, the burden of taxation will be transferred to house occupants. Given that metropolitan residents of more than two-thirds as well as half of the homeowners wanted the price reduction in houses, it means that owner-occupiers are the most affected by the new government measures on housing. Therefore, the owner-occupier’s ability to access the housing markets is drastically affected by these measures that the new government has imposed on controlling housing demand.

The new government policies aim to rectify the property market problems because it will reduce the number of overseas buyers who are willing to buy at expensive prices. According to statistics, foreign buyers account for about 5 percent of the housing stock in the city’s metropolitan areas. The strict laws will help in preserving the city land for family homes. The real estate owners in Vancouver will, therefore, be allowed to buy but not to make a living.  

iii). The combined impact of management policies on the property market equilibrium

Figure: 3 Taxation policies on demand and supply equilibrium

Source: (Casey). "How Changes in Supply and Demand Affects Real Estate Prices". Loan Guide, 2017

4. The influence of elasticity of supply on demand management policies.

Figure 4: Elasticity of supply

Source: (Economicshelp.org). Price Elasticity of Supply

The interaction of demand and supply shapes the housing market just like any other market. The elasticity of supply indicates how many houses constructors are willing to build as a result of the increased price. For instance, 1-unit elasticity in supply can show the unresponsiveness of developers to the increased demand. The government policies are the reasons for price change for housing. If the supply is relatively inelastic, the housing stock will have to struggle to meet the growing demand. The supply elasticity of housing depends on various factors including the government regulations and policies on the construction land in the city. The elasticity of supply determines the house price levels and variability in cases of shock in demand. When the government policies fail to influence the supply elasticity, the speculations in the real estate are likely to occur from buyers and sellers.

5. The impact of taxation on empty homes on the rental market in Vancouver

 The taxation of empty homes in Vancouver led to the generation of millions in revenue. The taxation however affected the property owners and made them to either sell or rent their properties. It caused uncertainty among to the property owners since they had to incur taxation cost on houses, not in use. The reason for introducing empty home taxation was to reduce pressure on the housing market. Homeowners who could not manage to pay the required taxes had to rent or sell their houses. However, the owners maintained paying the required taxes over the year. Therefore, it led to the availability of more houses due to low rates of vacancy. Even though more rental properties entered into the market, the affordability aspect of it did not change. The owners who could keep their empty homes for a lager time period over the year maintained the higher increase in rent. Generally, taxation on empty homes did not lead to affordable houses for the willing buyers. Figure 3 in question three indicates the shift of the supply curve from S1 to S2. This indicates a reduced supply with increased taxation. However, this condition reverses in case of empty home taxation. The shift in supply curves also reverses.

Works Cited

Dougherty, C 2018, “In Vancouver, a housing frenzy that even homeowners want to reign in”, The Age, 3 June, retrieved 3 June 2018 https://www.theage.com.au/world/north-america/invancouver-a-housing-frenzy-that-even-homeowners-want-to-rein-in-20180603-p4zj62.html

Economicshelp.org. "Price Elasticity of Supply". Economicshelp.Org, https://www.economicshelp.org/microessays/equilibrium/elasticity-supply/. Accessed 21 Aug 2018.

Fleming, Casey. "How Changes In Supply And Demand Affects Real Estate Prices". Loan Guide, 2017, http://loanguide.com/2017/07/13/supply-demand-affects-real-estate/. Accessed 21 Aug 2018.

Lardbucket.org. "Housing Supply and Demand". 2012 Books. Lardbucket.Org, 2012, https://2012books.lardbucket.org/books/theory-and-applications-of-economics/s23-01-housing-supply-and-demand.html. Accessed 21 Aug 2018.