Growth and Decline: Housing Markets - Coursework Example

A Brief Introduction The topic of discussion in this research paper is the growth and decline of the housing markets. There are numerous factors which govern the housing markets in the society and of the various topics that have been methodically researched and explained, the quality control methods, the market research techniques, the labor productivity theories, the success rate of a new business venture and the customer satisfaction pertaining to the housing developments are by far the most important reasons, which further decide the growth or decline of housing markets. In recent months, the housing sector has seen a sudden decline, which, in accordance to the business laws, is a resultant of a major global meltdown. Well, given below are a few important factors which influence the overall growth and decline of housing markets. (Myers) Air Quality and Housing Societies The air pollution norms set by the state authorities, with specials regards to the United States Air of America, play a vital role in deciding whether a particular housing society is all set to improve or not. The EPA levels, which are in turn dependent on the total suspended particle pollution, indicate whether a place is fit for stay or not. According to the statistical data accumulated in the 1970’s, it was found that the air pollution, with special regards to the TSP levels, were relatively more in undeveloped and developing countries as compared to those detected in the regulated nations. It has been identified that a decrease of 1 ug/m3 in the level of particulates leads to a 0.4% to 0.5% increase in the overall value of homes (McDonald). This clearly states why individuals are willing to pay a higher price for cleaner locales, with special regards to housing societies, as compared to places which are stricken by higher air pollution. The economic benefits in regulated counties, with special regards to the homeowners, are stated to have benefited owning to the Clean Air Act regulations. Hence, countries which have a higher level of pollution are said to loose out when it comes to accumulating profits from building profitable housing societies. (Muth) The Related Controversies Although the studies have been carried out in relation to the Federal air pollution guidelines yet the absence of convincing empirical evidence has placed a big question mark on the costs and benefits of these so called ‘efficient regulations’. The economic viability of clean air has always been of great interest to leading economists and policy makers and they have asserted that the role of clean air is symbolic to the growth of housing societies. The economic benefits of air quality are analyzed through the means of the hedonic approach, which, after a thirty year research and thirty seven cross-sectional studies, has come to conclusion that 1ug/m3 reduction in TSP can lead to a 0.1% increase in property rates. (McDonald) The hedonic method is plagued by two econometric identification problems. The first states that the gradients used for judging the housing price on the basis of air pollution can be biased owing to omitted variables, as the cross sectional analysis may have forgotten to include various unobserved factors that are equally essential for an accurate judgment. Secondly, researchers argue that if there is a level of heterogeneity amongst housing enthusiasts, with regards to the level of clean air, the individualistic selection of houses would be based on numerous unobserved variations. To bridge the differences, we choose to measure the average MWTP across housing enthusiasts while taking the random coefficients model into consideration. (McDonald) Thus, it is fairly clear that if a housing unit is to grow, the surrounding environment needs to be kept neat and tidy. For this, not only is the government responsible but numerous smaller groups like the social societies and the basic civic administrations are stated to have an equal hand. Housing Markets and Market Research Housing is supposed to be a durable commodity and hence the supply of housing is not only dependent on the builders who decide on the number of units built but also on the buyers as well as their agents. It is interesting to note that houses can be divided according to the builders as well as owners. For example, a large Victorian house can be broken up into smaller houses by the house owner whereas two separate floors of a single house can be joined to form a single house. Likewise, owners may either increase the housing delivery by increasing the services supplied to their unit or decrease the delivery by putting a stop to the housing services. If we look at the statistics, we would realize that the maintenance cost pertaining to housing units, which include repairs, improvements and additional constructions, amounted to $117 billion, while the private construction on new structures amounted to $162 billion. (Alonso, Population in an Interacting World ) According to Bayer (1986), housing markets have increased owing to the addition of new buildings. It is interesting to note that housing stocks pertaining to home improvements have increased from 10% in the year 1950 to approximately 27% in the year 1980. Housing services can also attribute their growth owing to the subsidies provided by the government. This is in the form of vouchers and subsidies and the reduction in the overall mortgage rate of interest. The policy of the government, with special regards to the public housing and tax policy, has greatly encouraged the supply side of the housing market and boosted the private construction of new rental housing. (Alonso, Location and Land Use: Toward a General Theory of Land Rent) The supply model, according to Quigly (1979), is plagued by two major issues. The first issue is that while the concept of free flowing housing supply is very pleasing, it is very difficult to measure its development. Secondly, the housing supply is the outcome of a complicated decision making process, which involves the builders as well as the exiting house owners. Here, we lack the micro foundation of the housing supply with special regards to the type of housing services offered, decisions to maintain and improve capital, inability to calculate the average rents and the type of assets. Likewise, the standardization of data which would help in studying the behavior of investors, with regards to rental housing, is grossly amiss. The lack of data on housing supply acts as a hindrance in our overall understanding of the housing supply; nonetheless, it is a deciding factor in the growth and decline of housing markets. (Alonso, Location and Land Use: Toward a General Theory of Land Rent) Labor Productivity and Housing Markets Many a times, we conveniently ignore the importance of urban equilibrium while determining the price and quantity of urban housing. Numerous urban economists such as William Alonso(1964), John Kain(1962, 1968), Edward Mills(1967) and Richard Muth(1969), have tried to link housing markets with the urban economy but in recent years housing societies and urban economics have become separate subjects that need to be studies as two distinct entities. According to a recent research by Glaeser and Gyourko (2004), housing is durable in nature and the supply would remain inelastic if treated with downward shocks. This statement is supported by the American Housing Survey, which states that the loss from housing stocks in all major American cities does not amount to over 0.5% per annum and hence, the net loss from a city’s stock, studied over a decade, has never really exceeded 1%. (Brady) Urban success is directly proportional to the housing supply. Factors such as increased assets, higher wages, increased population in lieu with the elasticity of supply, would definitely play a major role in determining the growth or decline of housing markets. Inelastic supply and density has a major role to play in this scenario and hence, supply needs to be inelastic in denser places. In simple words, when densely populated areas become more productive through an increase in wages and a relatively smaller increase in population, the housing markets are bound to grow in an appropriate manner and vice versa. The level of skills has a direct impact on the population growth with regards to lowly populated areas whereas in the highly populated areas, it leads to a sharp increase in wages. (McDonald) With regards to house regressions, the coefficients are rather difficult to estimate and there seems to be a lack of interaction or interdependence between skills and density. If we are to provide shocks to areas which are blessed with greater inelastic housing supplies, the impact would be a higher house price growth and increased wages, while the population would be more or less left as it is. The primary function of this formula is to integrate the heterogeneity of housing supply with the studies relating to urban growth. (Brady) Following the studies by Saks(2003) and Glaeser and then by Gyourko and Saks (2004), we can conclude that the inelasticity of the housing supply has greatly increased since the 1990s due to the restrictive land use regulation parameters set about by the governing authorities. The response to population and housing societies is much stronger in areas where the regulation of land use policies is less severe and vice versa. Strong enforcement of land use regulations tend to control the population from exploding and ensures that the prices of housing units as well as the wages are kept high at all times. Hence, changes in population levels and wages are directly proportional to the growth or decline of housing markets. (Alonso, Population in an Interacting World ) New Businesses and Housing Markets The HUD’s HOPE VI program emphasizes the need for mixed income housing and with the aid of bipartism consensus; it aims at putting an end to the conflux of low income people residing in public housing complexes. Research categorically states that if you have to create a need within prospective housing consumers by offering them a suitable choice, you need to ensure that a fruitful mixed income housings needs to be well allocated and perfect in terms of design and management. A model which is affluent in terms of a suitable management would be sure to lure suitable renters, thereby helping in the development of the housing markets. The concept of mixed income housing is known to work best when a majority of its units are aiming to attract the higher paying income renters so as to bridge the gap which arises due to the diverse paying capacities of various rent owners. In this manner, the critical mass of housing units would have no difference when we compare them in terms of nature of units and the quality offered. In case you are looking to attract low paying rent groups, you need to ensure that there are several parallel campaigns running simultaneously which create the much needed monetary requirements for individuals, besides of course, setting up mixed income housing units (Mills). One of the biggest challenges which need to be met is to integrate the income in neighborhood settings wherein property management is yet to establish the desired behavioral norms. (Alonso, Population in an Interacting World ) The bipartisan consensus was first introduced during the Clinton reign wherein ‘the need of the hour’ was to end the existing norms of public housing. Numerous obsolete and troubled housing structures were raised to the ground under the supervision of the former secretary of hosing and development, Henry. G. Cisneros. The basic aim was to merge the poor population with the average income groups. This had an inverse affect on the averaging housing income of the resends which went on a steady decline as these unsafe projects, which were aided to perfection by the Federal rules of the 1970s, ran into stiff trouble from the public housing agencies. As one HUD document clearly stated, “The concentration of the poorest families creates problems that predictably become unmanageable, and the larger the public housing development, the more complex the problems” (Mills) This program had a mysterious effect on the growth of housing societies wherein although the societies saw drastic growth in terms of more physical structures, the quality of life and the complexity of income groups became even more diverse. Nonetheless, this kind of plan did state that the housing societies, with special regards to the growth of housing units as a whole, saw a tremendous hike although the same might not have been felt by the residents who stayed in those societies. Growth of Housing Societies and Customer Satisfaction It is interesting to note that customer satisfaction plays a major role in deciding the overall growth or decline of housing markets. If we cite the example of Cambridge Housing Society Ltd, we would realize that the aim of this society was to attract prospective customers through the means of a positive and conducive work and living environment. The mission statement of the society is, “to work with our customers and partners to provide high quality, good value, affordable homes, support and care services.” The society, which is also an Industrial and Provident Act Society, governed by the rules of charity, controls five different councils in the districts of Cambridge shire and Uttlesford and is registered since 1975 with the Housing Corporation. The 2,112 homes, which are managed by the housing society, have witnessed numerous growth potentials and include a large chunk of shared ownership properties. Out here, the elderly citizens, people with learning disabilities and teenagers are provided the required care and support. The community also indulges in providing learning skills training; advice on numerous loan schemes, besides running its own pre nursery school. (Muth) It is interesting to note that while Cambridge society is not as posh as some other colonies nearby, it is experiencing significant shortages when it comes to choosing affordable housing. The demand for housing units is so intense that the society management has decided to enhance their potential by perhaps accommodating some more residents in another, relatively new locality. The population of black and minority ethnic people in this society is the highest in Cambridge, which in itself is a clear indicator as to why the properties are in demand here. Well, if the society continues to provide quality services to its customer besides providing value added homes, the demand for its properties would forever be on an all time high. (Myers) Well, the growth and development of housing societies are directly dependent on the levels of customer satisfaction and in order to increase the level of customer satisfaction, the housing societies need to formulate the following plans. (Muth) The first step to enhance the growth of housing markets should be to strengthen the opportunities for customers as they are directly involved in shaping the business. The second step should be to restructure the basic housing services which are conducive to the customers. The third step should ideally be to enable quality homes on high quality estates by becoming an employer of choice. You also need to review, on a periodical basis, the basic range of services, in order to maximize goal oriented outcomes. The next step should involve strengthening the strategic relations which are conducive to the growth of various sub regions and the society as a whole. Finally, the existing financial control and management needs to be reinforced with additional capital to implement these consumer centric plans with ease. (Kain and Quigley) The above society was a mere example for clarifying the undeniable relationships between consumer satisfaction and the growth of housing markets. Well, it is interesting to note that if the customers are kept happy, with regards to the basic amenities and services provided by the housing society owners, the growth of housing units is bound to rise but if there is a problem with the basic infrastructure, or if the ideal conditions are amiss and there is an absence in the overall improvement of the housing management, the growth rate, with special regards to the housing structures, is bound to suffer terrible losses. (Muth) Conclusion In the above passages, we have discussed various factors which directly or indirectly influence the growth or decline of the basic housing units thereby forcing the housing market to either nose dive or soar high in the air. Well, housing markets unlike stock markets, are known for their stability and do not crash or boom like the bears and the bulls. Nonetheless, numerous factors such as quality control measures, adequate market research, the overall productivity of labor, the success rate of a new business venture and the customer satisfaction scores, play a major role in deciding whether the housing markets are in for some growth or not. Notwithstanding these basic factures, there are numerous other reasons which may or may not influence the overall growth of housing markets. A few such factors include a sudden terror attack, a country plagued by civil war, insistent rioting and a sudden dip in the consumer markets. The recent global meltdown, caused primarily by providing housing loans to debtors who were not in a position to pay back, is also a major cause for affecting the overall growth of the housing markets. Nonetheless, if a nation is to enhance its growth potential by improving the overall positions of its housing markets, it needs to analyze and improvise on its housing plans, besides of course, implementing them with equal enthusiasm. (Kain and Quigley) Works Cited Alonso, William. Location and Land Use: Toward a General Theory of Land Rent. Harvard University Press, 1964. —. Population in an Interacting World . Harvard University Press, 1987. Brady, Peter J. The Role of Local Labor and Housing Markets in Regional Economic Adjustment. Madison: University of Wisconsin , 1996. Kain, John F. and John M. Quigley. Housing Markets and Racial Discrimination: A Microeconomic Analysis. Washington: National Bureau of Economic Research , 1975. McDonald, John F. Economic Analysis of an Urban Housing Market. Academic Press, 1979. Mills, Edward David. Factory Building. Leonard Hills, 1967. Muth, Richard F. Cities and Housing: The Spatial Pattern of Urban Residential Land Use. Chicago: Chicago Press, 1969. Myers, Dowell. Housing Demography: Linking Demographic Structure and Housing Markets. University of Wisconsin Press, 1990. Read More