Demand_and_Housing_Supply

NAME: THANDEKA SURNAME: MSEBENZI STUDENT NUMBER: 209524778 COARSE: HOUSING THEORY AND PRACTICE 2B ASSIGNMENT: ONE TOPIC: It is generally argued that demand for housing among the poor is given (is always there) but the problem is supply. Discuss this assertion and establish the extent to which demand and supply factors affect housing provision. DATE: 27 AUGUST 2010 Demand for housing among the poor is given but the problem is supply. Around the world there is a problem of housing affordability crisis. The existence of poor people who cannot afford housing is a major social problem which cannot be denied. This essay will look at the factors affecting housing market in terms of supply and demand. Land for housing is a package of services, when providing land for housing there must be infrastructure. Housing sponsors have confused the role of housing prices with the role of poverty. The government lead organization of providing social housing is not making enough numbers to meet the demand. Complains from builders is that there is no feasible land to carry on with building houses. Financial institutions that used to provide finance have lost together with banks because they made risk assessments and the house building has been hit badly. Kivell argues that there are three features that need to be considered when looking at the supply factors affecting housing production. Demand for housing continues to grow rapidly. In relation to migration to urban areas, which is urbanisation the increase in the number of people migrating to urban areas also increases the demand for housing provision. Supply factors Land for housing is a package of services, when providing land for housing there must be infrastructure: water, roads, sewer and electricity. “Investment in urban housing involves purchase of land, construction of dwellings, and the provision of associated physical and social services” (Grimes 56 1976). This then brings in the cost of land, because all these services increase the value of the land. Water supply has its own costs because in order for it to be supplied it is first treated and then delivered to houses clean without any health hazard. For a place to be accessible it needs roads, proper roads that can connect to other places like towns and cities. Provision of roads is also costly, because roads need to be planned and constructed by engineers who have to allocate it perfectly for transportation of goods and services and also people by vehicles; heavy and light vehicles. Sewer also needs a special attention because this is a waste product and it needs to be carried away from houses in a safe way and that has its own costs, because there must be sewer pipes that connect to the site and the ones that connect from house to house. Nowadays we use electricity, almost 50% of household appliances function with electricity because of technology, connections of power lines and supply of electricity depends on costs and affordability (Madhu et al. 2001). Location can be a barrier to housing provision, because land cannot be moved or be created again it is then difficult to allocate residential areas in accordance to accessibility of all these services and to supply all these services to each and every place because they are for daily basis and land cannot stretch or shrink. Land suitability affects housing supply because not all the available land is suitable for housing development; there are areas whereby it is impossible to build houses around them. And also there are areas that are suitable for housing development but it is difficult to access them. The supply of well located land is very limited. Land ownership is a barrier to housing supply, because private owners prefer the most gainful use of land which can be between industrial, commercial, administrative, recreational and residential land use (Kivell 1993). Grimes argue that some land owners hold vacant land and this results in restriction of supply for development and it increases land prices. There are land shortages, many delays in relation to land survey and recognition, town planning and building control (Grimes. 1976). Housing sponsors have confused the role of housing prices with the role of poverty. “Investment in urban housing involves purchase of land, construction of dwellings, and the provision of associated physical and social services” (Grimes.56 1976). Finance can be a barrier to housing supply, if one does not have a collateral security it becomes difficult to get finance for housing because many finance institutions do not offer loans to people who have nothing to promise with if they end up not paying their debt. If a company does not have initial funds to start a housing project housing supply can be affected. Financial institutions often have difficulties in trying to increase their markets by helping the poor because they do not have information, understand and trust the poor people. This clearly shows itself in two ways the poor are scared by the majestic buildings, the smartly dressed and unapproachable staff, and the unfamiliarity with what is expected of them. Also, the isolation of bank branches and the limited opening hours make it difficult for the poor to use usual banking facilities. For the banks part, they are not confident that people whose incomes are low and often irregular can repay loans (Richard et al 2008). The government lead organization of providing social housing is not making enough numbers to meet the demand. Resources for housing supply are limited yet the demand is high. There is not enough skilled labour in the housing industry which makes the imbalance of demand and supply. In as much as the money and resources can be available, but when there is no skill there are always problems, for example if there is no one to identify suitable land or someone who can do site analysis, the whole process of housing delivery ends up being a problem. Because when there is no site analysis, location will never be proper, topography will never be considered, vegetation will not be considered. Because housing development needs proper identification of land, thorough site analysis; good preparation of layout therefore land surveyors, architects, planners and housing professionals are needed in housing provision but the recognition of these people is not considered because the housing market especially the low income house market has no profit and these professionals look at the salaries that are available at the end of the day and they decide to take the private markets because private markets are profitable. And also the other factor is that when professionals are involved the process of delivery takes time because the professionals follow procedures and regulations to maintain sustainability and environment, but consumers cannot wait too long for these processes to take place, they want fast and speedy production because they are in need which becomes a problem when it comes to quality of the product produced (Richard et al 2008). Complains from builders is that there is no feasible land to carry on with building houses. This is partly due to changed market situations, whereby feasible developments are no longer profitable. The original cause however is a continuing scarcity of residential land being sent in the course of the planning system. Finance is the major problem in various firms: either in raising mortgage finance or in terms of the development finance, firms need to sustain and expand their own companies. The decrease in the industry supply brings in fear that it will continue decreasing till it stops because resources are scarce and the population continues to increase while the space for development is fixed (Joan 2005). Financial institutions that used to provide finance have lost together with banks because they made risk assessments and the house building has been hit badly. Small and medium sized builders are mainly forced to leave the market , because they do not have the finance to rebuild their business. It is also very challenging for new entrants and most occasional developers in house building to raise finance for new developments. This has important implications for housing supply because around half of all new housing is provided by such enterprises. Sustained recovery in house building will not take place until smaller and medium enterprises can freely operate again. Controlling supply leads to a good economic failure. Restricting supply means that resources which would have been used for housing are instead used for other potentially less beneficial purpose or not used at all. This leads to a wasteful allocation of resources creating too much loss (Richard et al 2008). Kivell argues that there are three features that need to be considered when looking at the supply factors affecting housing production: first is planning, which he argues that it has an effect upon supply through the way in which decisions are taken to permit or deny development. Planning is not used to its maximum effect in housing delivery, land is not used as it must be used and there are houses that are not well designed, energy is not efficiently used and the delivery is not sustainable. Planning needs partnership, people that work together and use their skills to come out with the best product that is sustainable and energy efficient. There must be partnership between local authorities and stakeholders. Challenges for planning that leads to supply effects are: declining affordability which gives negative cost for individuals, land supply restrictions; if there is no land provision for housing supply the provision delays and sometimes stops. Releasing more land leads to increased levels of house building, responding to the housing market; if the planners do not gather enough or proper information about the housing market, like how it operates and when do they need to supply houses, where to supply them and for whom must they supply them, the supply drops (Joan 2005). Second feature is that there are physical constraints in the form of land quality or presents of a major barrier which may limit urban activity. Physical constraints include topography, slope and gradient, soil type and climate. Physical features determine the possibility of allocating type of development in each part of land. The lay of the land can be a barrier to housing supply for example if there are lakes and rivers. If land has many heels and the gradient is steep there can be no housing development. Soil type can also be a barrier to housing development for example clay soil is not suitable for housing development. Presents can be gold, silver and coal and these features can prevent housing development, for example in Gauteng, Welkom there is coal and gold mines and there are other places that have natural wealth housing development is restricted to those parts because land has natural presents and these presents need to be abstracted and sold for the economy of the country (Kate 2003). Third feature is that the supply price may also be affected by local tax conditions with suppliers adding development taxes to their selling prices, and by the costs of clearance and reclamation involved in bringing derelict land into marketable state. The results of the way in which the housing market operates should be a concern for everyone. The reason for prices to rise rapidly is the weak response of housing supply to changes in demand. Higher demand therefore tends to be translated into higher house prices rather than increased output of houses. This poor supply reaction is also one of the factors which have resulted in noticeable instability house prices (Edward. 2003). Demand factors Demand for housing continues to grow rapidly. Population growth, changing patterns of household formation and rising incomes are all sources of demand for homes. Willingness to have a house and the ability to pay for it determines demand for housing. Poor population group cannot afford formal housing and regular payments. Housing loan interest rates are high, which makes housing unaffordable for low income earners and hardly affordable for middle earners. Affordability crisis means that housing is expensive relative to its original costs of production, not that all people are poor but the land prices are high. Madhu et al argue that it is common to experience housing shortages, in squatter settlements everyone has experienced the shortage because most of the people there do not have enough funds to build their own houses. This means that line up times for social housing can be very long because the population of people who cannot afford is rapidly increasing especially in urban areas. Affordable housing shortage is always available it does not end because there is not enough land for more development in the cities. This means that there is a great demand for housing but shortage in supply, which makes the rental price increase and many people cannot afford. In some cases there are houses, which means supply for housing is enough but because the housing cost is high and they cannot afford, supply decreases leaving demand high (Kate. 2003). In relation to migration to urban areas, which is urbanisation the increase in the number of people migrating to urban areas also increases the demand for housing provision. Population increases because of migration or naturally. Drakakis argues that migration is the main cause of population increase in urban areas, and this increase is encouraged by job opportunities and accessibility to services like schools, hospitals and shopping centres. Drakakis further discusses that migration helps people to move from poor regions to better regions, but this movement never ends it continues to increase and the migrants are always ready to resist tough times. People migrate to inner cities to be near their jobs while others search for them. Better quality of education pull people from their places of origin to urban areas. Poor health conditions in rural areas push people from rural areas to urban areas. As the population increases the need for housing also increases and in most cases the people who migrate from rural areas to cities are unskilled labour or uneducated people, which make it difficult for them to find jobs and get accommodation. Because land cost are high in urban areas these people cannot afford they decide to form squatter communities near the city, so that they will not travel long distances to their jobs. In squatter settlements there are no basic services like; clean water, proper sanitation, electricity, schools and roads (Drakakis. 1981). Kivell argues that the slightest features that cause disagreement of land ownership is the purchase of land for the provision of various public services such as roads, schools, hospitals and parks. There are those who can afford to buy their own houses or pay rent, but because there are many people who need houses, housing supply is affected because land that is suitable for housing development is not enough to accommodate everyone who needs it (Kivell. 1993). Population also affects the demand for houses for example the different types of the human population; like the maturing group, aging population and immigrant. The maturing group secures more of the active housing supply, because most of these people are able to finance themselves and can apply for loans to finance themselves in housing. Immigrants increase demand of housing because these people come to urban areas with no place to stay, and they increase the demand for housing. For example in Durban at the Point, the place is overcrowded because of people moving from rural areas to urban areas there is high demand of houses because people are always arriving in search of jobs and places to stay(Drakakis, 1981). Many married and aging people acquire for housing finance to protect their families. Age also affects housing demand, research studies show that individuals between the ages of 30-50 years are mostly likely to be homeowners, because most of the people at that age have completed school and are working and some of them are prepared to settle down and raise families. The demand sets prices for land, urban land use in a market economy is determined by the decision made by individuals, firms, household and regards to other bodies with regard to jobs, housing, shopping and many other urban activities. Each of these requires land and other activities. Some existing stock fails to meet the needs and aspiration of today’s households. Existing housing production is insufficient to meet new demand. There is also need to replace housing stock that has lived longer than its useful life, these houses need to be demolished because they occupy space that can be useful to develop housing development as there is too much demand for houses (Edward. 2003). Housing is the most important thing in ones quality of life. Having an adequate house in a good environment is a basic need to human wellbeing. An inadequate housing supply, or a poorly functioning housing market, limits economic growth. There is a great shortage of housing, but the nature of this shortage is difficult to analyse. References 1. Drakakis D.S. (1981). Third world cities. Canada 2. Edward L. and Joseph G. (2003). The impact of building restrictions on housing affordability. New York 3. Grimes F. (1976). Housing for low income urban families. John Hopkins university press 4. Joan B. (2005). Planning for housing provision: consultation paper. London 5. Kate B. (2003). Review of housing supply: Securing our future housing needs. London 6. Kivell P. (1993). Land and the city patterns and processes of urban change. United state of America 7. Madhu S., Marilyn H., Hal P., Glen B. and Cathy S. (2001). Factors affecting land supply for affordable housing in rural areas. Edinburgh college of art/ Herriot-watt university 8. Richard J. and Ashna S. (2008). Housing finance for the poor in morocco: Programs, policies and institutions