Land economics is a branch of economics which targets the uses and the role of land in the country's monetary. It is said that land is essential in shaping how well a city functions and who gets the benefits from urban expansion. Before, land economics is thought to concentrate on ecological sustainability but in recent decades, a fresh branch of economics which is environmental economics was created to replace it. However, land use still has a high impact on health insurance and environment and thus one of its fields of focus is still on environmentally friendly ramifications.
Land economics is often related to resources as the source of land is scarce and limited. With this in mind, land speculation occurs all over all around the world and this caused situations in which supply cannot meet the demand. This is because the supply curve of land is stagnant and will not be influenced by the change popular. The resources available on the land such as vitamins, forest products, land resources and drinking water are also regarded as important in economics as they are the raw materials needed. Thus land is important in land economics as it provides recycleables for the working of the marketplace and that is why it is classified as one of the factors of economics on par with labour and capital.
Other than this, land economics also focusses on the land use. Different land has different kind of land use which will affect the country's monetary development in a certain way. For instance, in case a land in the hills are created for industrial purposes, the cost of production could have increase as the cost to transfer the products from the manufacturers to the stores could have increase a few collapse and this impacts the efficiency which in changes affect the economic. Thus it is crucial to truly have a well detailed plan on the land use of every land. It is because the land use immediately influences the actions and productivities on the land. Thus we can also say that land economics is targeted on land allocation as land is a scarce learning resource and its own value is well affected by it availability. Which means that the allocation of land resources performs a crucial role how each land is cured. For example, in packed cities, land can be scarce and difficult to obtain, and it has a correspondingly high price. In rural areas, however, land is quite inexpensive scheduled to lowered demand. Thus land economics is focussed on the allocation of resources to control the source and demand of each area.
Neo-classical economist offers very little interest to land as they typically snacks land as one factor of production equal to the factors of economics capital and labour. Keynesian economist also gives very little matter to land because typically their analyses concentrate more on ingestion, saving, investment and other monetary aggregates. However, a georgist (geographical analyst) named Henry George has different ideas on the field of concentrate of land economics and have divided them into a few parts that happen to be urban development, riches inequality, cover affordability, environmental concerns and economical cycles. Henry George's analysis stemmed from both honest and economic concerns. He was generally concerned with exploring the reasons why poverty and destitution coexisted with economical growth, and noticed the primary cause of the problems in the prevailing guidelines towards land and also have deduced that it is as a result of fields of focus of land that caused these cost-effective and ethical problems.
Urban Development
One of the very most concerned fields of land economics is the metropolitan development. Land economics focusses on urbanisation as it is one of the factors that drive development in a country. Using the possession of land, people would learn to develop structures on the land which produces activities and causes output on the land. This is because there are give up rents to be payed for the ownership of any land and without activities that generates income on the land, the land is a responsibility and not a secured asset. This in changes causes urbanisation if organized well. Urbanisation also offers many economic advantages such as production, utilization (demand) and syndication (source). This is what drives the value to group around the marketplace.
Wealth inequality
George firmly emphasis that land is the mark of prosperity as land is scarce. Thus the ownership of your parcel of land symbolizes the riches of a person as private possession of land strips of the community from the advantages of that land. Thus George says that land economics focuses on the prosperity of the community and has implements many policies to suppress price speculation to be able to appeal to the poorer groups who only manage to pay lease for the land.
Environment Concerns
As mentioned recently, environment concerns are one of land economics concerns. It is because the utilization of land and its own resources will deplete the environment of these raw materials. George said that in order to preserve the environment, price mechanism by means of fees should be carried out. The usage of any environment's resources should be taxed consequently to prevent misuse. But he still concerns that price system will be effective enough to curb environment threats. For instance, the creation and maintenance of countrywide parks requires direct legislation of land use such as which area can logging be carried out. He said that the market, even when revised by taxes, cannot absolutely assure the conservation of such vital assets. In other words, security of 'natural capital' or 'land' may commonly require legislation as well as taxation. Thus environmental factor is a field of target of land economics in order to truly have a long and ecological utilization of its resources.
Housing Affordability
Land economics is also worried about the home affordability. Which means that the house price is weighed against the average income each household could make. This determines set up household affords to choose the particular house. Land economics is also concerned of the inflation throughout the years in the true house sector as this is a large hurdle for home possession for younger generations as they might have to pay their lending options for longer years. Thus one of land economics focus is to decrease the inflation rate. The primary determining factor in casing affordability is the resource and demand of land. When there may be increasing demand without increase in land supply, the house costs would increase proportionally. The demand for land entails both use values and exchange values. Use values are values such as security and shelter while exchange beliefs will be the house costing or capital gratitude. With an increase in demand, there will be an increase in price as the supply is bound. Thus, cover affordability is one of land economics' field of emphasis.
Economic Cycles
George has carried out a study and has said that the boom and bust of the house market largely coincides with the fluctuation of the overall country financial performance. It is because the quit hire received from land may be used to commit or offset administration advancements for the contemporary society. This policy means that, by smoothing out cycles in the housing market, a even land tax could help to avoid periodic crises in economies more generally which will produce a more stable countrywide economic. That's the reason he says that economic cycles should be one of the domains of target of land economics.
Question 2
What is the Need for Price Mechanism in the house Market?
Price device is the system of interdependence between way to obtain a good or service with its price. Adam Smith referred to price mechanism as a low profile palm which regulates the economy. Generally, price mechanism sends the price up when there is a shortage and directs the purchase price down when there is a surplus. Price device is also able to increase or lower resource indirectly using price as its control factor. The bottom line is, price device is the regulating of the supply and demand of the market using monetary worth. It plays few important functions that are rationing function, signalling function, allocating function and motivation function. In the house market, price system also performs its tasks and functions as in any other market.
Price Mechanism's signalling function and allocating function in the house market
Figure : Demand curve shifts upwardsSignalling function in cost mechanism means that prices are able to convey sufficient information to the consumers and suppliers in the market for their financial activities. The increase in price of something sends alerts to the suppliers to increase the development and vice versa. This can be shown in the resource and demand curve. When the price tag on a good rises from P1 to P2, this signs the supliers that the demand of the products has increased and the demand curve shifts upwards. This triggers the suppliers to increase their creation from Q1 to Q2 because they are able to generate more profit and to meet up with the demand. These phenomena can also be seen in the property sector. For instance, when the price of Service Apartments rises, the designers know that the demand for service flats have rises and so they start expanding more and more service flats. This also happens vice versa, when the value of a property comes in a certain area, the developers know that the demand for the area is low and so they might not chose that area to develop the sort of property. Price mechanism also has other jobs such as supporting entrepreneurs spend less. For example, when the price tag on creating a terrace house has increased which decreased the marginal earnings of a builder. This functions as a sign to the designer where they will try to find cheaper or alternate resources to be able to cut the price tag on production to achieve maximum revenue. Because of this, price system is helping the coders in allocation of resources.
This also works over time such much like landed properties. When the worthiness of land is constantly on the increase, this alerts the coders that the future generation will not be able to buy such properties. Which means that the demand for landed properties will eventually fall season in the future even if it does not decrease fast, it'll still lower eventually as only a few would have the purchasing electricity and is prepared to buy such properties. Eventually, companies will commence to develop alternatives such as high surge properties and their resources such as land, capital and labour will be allocated accordingly to start developing high rise properties. Thus price mechanism functions as a signalling and allocation function for the developers where the creators make decision based on the relative market price of the property. This helps manufacturers achieve economical and technical efficiency where there is a minimum amount wastage of resources as they are being used to their most effective use.
Price Mechanism's Rationing Function in the house market
When resources are scarce, demand exceeds the supplies and so the purchase price will be motivated up as there is a transfer in the demand curve or shortage. The upsurge in price is to discourage the constant use of the reference without planning and conserve them. The market price of the merchandise would act as a rationing device to equate the demand with supply.
This can again be described using the demand and supply curve. For example, the scarcity of petrol channels in a vicinity is showed by the resource curve. This scarcity took place due to government involvement where petrol stations are limited and managed due to the scarcity of petrol. Presuming the federal government has decreased the quantity of petrol stations in an area, that could shift the source curve from S1 to S. If the marketplace price continues to remain at P1, the demand of petrol stop would be at Q1 while the amount of resource available is only at Q2. This creates lack in amount of petrol train station available. Thus the market price functions as a rationing function where it does increase the price tag on each petrol stop from P1 to P2. This would cause lesser entrepreneurs to endeavor into this field of business as the profit margin has reduced with the increase in cost which in transforms lower the demand for petrol place. Thus the market price is regarded as the rationing agent to equate the demand and supply to accomplish market equilibrium.
Price Mechanism's Incentive Functions in Property Market
An incentive is something that motivates a developer or consumer to follow a plan of action or to change behaviour. Higher prices of a product provides incentive to producers to supply more of the said goods. Savings or other services provided combined with the good also functions as incentives for the consumers. For example, the lower interest rate in home loans for a certain kind of development become an incentive to consumers as now their mortgage loan value would be reduced which would increase the demand for the development. This is one way a price could become an incentive to affect the options of consumers. They can also exist by means of subsidies. Another example is can be shown by Mah Sing's recent special offers on all of its service flats. Mah Sing forecasted that in yr 2014, the demand for service apartment would fall season and thus they are giving out promotions and good bonuses to be able to clear the devices that they are still positioning.
Government Intervention in cost mechanism in the house Market
Government intervention are usually in the form of fees or subsidies. If the rate of your indirect tax such as stamp work increases, the comparative price of a product increases which will cause a decrease in demand of the merchandise. The government is intervening on the market as it wishes to change the price signals of manufacturers and consumers. For instance, many investors are coming to purchase Malaysia due to the cheap price in property which escalates the price of the house as investors will try to market it at maximum profit. Government who would like to prevent this might increase the taxes rate on overseas investors and this would cause the profit margin to lessen and subsequently reduce the demand by foreign investors. The increase in property price for foreign investors sends out a sign telling them that it's not worthwhile to purchase Malaysia now.
Even though federal government also uses price mechanism to control the marketplace, the price system can not work as well in an imperfect market in comparison to a perfect market. This is because there are price ceilings and price floor for certain products. For example is the low cost flats. These apartments can only be sold at no more than RM 40, 000 before. Thus, RM 40, 000 is the price roof for such low priced houses. But what goes on when the prices of properties contunue to increase? The price of all other properties increases while the price of low cost rentals stay stagnant. This would raise the demand of low cost apartments and triggers a scarcity as the builders would not be so prepared to supply so many low priced apartments rentals as the profit margin is lower compared to producing normal houses. But since the price is unable to be adjusted, there may be a major flaw in cost mechanism to prevent such problems. Thus other federal policies would need to be implemented to control the situation such as restricting the folks who can buy low cost rentals or making creators build low cost apartments for each 10 acres of development mandatory.
Question 3
The price of real estate determines the price of residential lands. Would you agree with the fact or disagree? Support your answer.
I concur that the price of housing determines the price tag on domestic land. People often feel that the high price of land is in charge of the high house prices but I believe the home price is what impacts the land value. Dr Ernie Jowsey, Principal lecturer in Applied Economics in Sheffield Hallam University, UK says that their evaluation provides support to how house price influences the land value in an unconstrained market. Regarding to Dr Ernie Jowsey, an increase in the demand for properties will boost the price of old homes. This is because more people are willing to get houses which may cause competition and the bidding price of each house would increase. With this thought, developers could be more inclined to pay higher in order for them to acquire more land to build up them into property estates as their profit margin would have increase with the upsurge in house price. Thus he figured the increase in house prices due to demand has increased the value of the land the houses are built upon rather than vice versa.
For example, a vintage house was built in the entire year 2000 at a cost of building of RM 300, 000. The home was then sold for RM 450, 000 in the same yr. In year 2012, the demand for houses for the reason that area has increased in comparison to other properties such as commercial properties as the region had turn into a commercial hub. Thus the asking price for such a house for the reason that area had risen to RM 800, 000 before 12 years. People assume that the increase in price is due to the upsurge in land value but actually it's because of the upsurge in demand and real estate prices which have caused the upsurge in land value. This is proven when the professional area's land value didn't increase as much as the home areas because the demand for industrial land was not so high in comparison to residential land. The expense of construction with the same house have not changed in the past 12 years and stayed at RM 300, 000. Thus the remaining amount of RM 500, 000 (RM 800, 000 - RM 300, 000) in the year 2012 is regarded as land value. Thus Dr Ernie Jowsey figured the demand for homes in the region has increased the asking price for homes which in becomes increased the land value due to the increase of house prices. The Digest of Building Land Prices (Real estate Gazette, 1974) also helps Dr Ernie Jowsey's evaluation by saying that "land prices are dependant on house prices as opposed to the other way around".
Another explanation where land value is not damaged by the home price was given by Dr Ernie Jowsey to be able to support his prior hypothesis. He explained that 'Since the price tag on land is determined by the demand for housing, controlling its price artificially wouldn't normally cause house price falling'. In my own understanding, Dr Ernie Jowsey is wanting to tell us that even if the land value of an area is altered artificially such as by the owner's own will, the real estate price of that area wouldn't normally decrease or increase. For example, a terrace home with land portion of 2, 000 rectangular feet is worth RM 300, 000 in the region like the land cost. The marketplace value a vacant personal land with such a size would cost RM 100, 000. Presuming the land owner of a vacant land needs to increase their asking price above the marketplace value to be able to get an improved revenue and has increased the price of the land to RM 120, 000. Companies then bought this piece of land to construct an identical terrace house but their value would be at RM 300, 000 as this amount is the amount of which people are prepared to pay for this kind of terrace house in the area regardless how much the service provider had paid for the land. Thus Dr Ernie Jowsey concluded that the increase in house price would improve the land value as the change in value won't bring any impact to the casing price.
Based on my understanding, land value is inspired by house prices. It is because in our regular valuation computation such as contrast method, house prices have been indirectly factored in to the calculations. During the valuation of an land, the most looked into factor of the subject property is its comparables and their location. But what makes the value of the positioning higher and lower? It would be the price of the properties or properties in its encompassing area. For instance, a land with high end residential units could have higher land value when compared to a land located with low priced residential units. It is because its evaluation data would all be top quality units. The location would likewise have a better modification as the view, amenities and facilities in a high end residential area is preferable to an inexpensive area. Thus the price of the casing on the land itself is influencing the land value. Thus it can be said that if the same piece of land is used to develop low cost products, the land value would have been different.
