U.S economiy - Term Paper Example

Introduction The housing sector is a major sector in every country in influencing economic performance. The current trends in the US economy comprise of increased private renting practices especially for the young households, which are relatively mobile. However, concerns are that the renting programs fail to meet long-term security need for the general population of the country and in particular the family members. Private sector renting has been acknowledged to provide alternative to housing problems within the country especially to young who are limited in financial power. Discussion Price instabilities have also been a common feature in the housing sector of the country as caused by such factors as poor government policies and the periodic boom and bust cycles in the economy. The current prevailing housing model therefore suffers over stretching by the need to address the raising instabilities within prices of the house facilities. The model is characterized of adverse shortages, which has passed on the effect even to the social rented housing facilities besides having implications to the private sector of housing market. The private sector therefore suffers shortage and fails to meet the ever-increasing housing needs for the surging population. In fact, according to a report on WSJ by Timiraos, the market of houses has seen a rise in the last years and this is currently witnessed by very high prices today (Timiraos, para 1). Over years, the governments in the international scene have been subjects of discussion in their role in intervening in the housing market with critical analysis of the same revealing different arguments. The supporters of the initiatives of government in policy to intervene in the housing market cite accompanying benefits while the critics question the authority and benefits resultant from such interventions. Concerns raised in the past have cited government’s intervention to lead to undesirable outcomes in the end as compared to the little benefits that are accrued to specific target groups/persons. Governments intervene in the housing market through different mechanisms, which include offering subsidies to the developers, injecting credit facilities into the market to support potential homebuyers to access the required amounts as well as through designing and implementation of government policies to address the issue. Besides the introduction of ‘temporal home purchase’ credit facilities within the economy, the government equally uses policy tools for asymmetric tax treatment of rental houses as well as to owner occupied housing. However, the application of these different policy instruments has accompanying advantages as well as disadvantages in the overall outcome to the economy. Intervention in the US has often focused on lowering or operating the house prices in order to target the majority residents who are potential homeowners but due to financial constraints, they are not in a position. Many questions therefore arise on the implications and strategic necessity to have the government intervene in the housing sector. Questions revolve around the implications of the intervention in that government intervention would alter the free market price balance while on the other hand; intervention would reduce the risk of price crash in the housing market. Recession has the potential to decline the consumer wealth as well as negative equity in the sector (Dougherty, Timiraos and Shah, para 1). Moreover, the intervention by the government has the capacity to reduce the price volatility of houses which if not addressed has the potential to lead to a price crash within the economy. The critics reasons that house price fall have no empirical justification to cause recession within the economy. This therefore refutes the position by the arguments of the supporter of government intervention to reduce the risks of price recession. According to the critics, government intervention would not lead to control of price volatility, which is likely to be the cause to the recession. Moreover, government intervention in the housing market leads to price speculation, which often leads to price rise. The effects of price rise in the housing market have extreme adverse effects when considered to the regulated prices of houses. Therefore, it is clear that the US government continues to play an active role in intervention within the housing market in the economy. Literature and facts have it that globally, the UK has the most volatile housing market, which has suffered at least four boom as well as bust cycles over the period spanning the period since 1970 to today. These have caused distortion of housing choices, hiked the rates of repossession and arrears, raised inequalities in wealth within the country as well as inhibited the process of building houses within the country. The current housing capacity and affordability levels face a constraint and requires a substantial increase in housing supply. Moreover, the current day safety nets for those who own homes are inadequate. A three-tier replacement system comprising of safety net, insurance partnership as well as sound lending and borrowing framework would reinstate the confidence and sanity in the industry (Stephens, 1-6). Factors that affect US housing market Despite the factors that are favorable to the development of housing sector within the United States, there are those, which have stood to have great implications to the sector. They include such factors as land supply, penetration and establishment of construction companies, housing prices, time used for construction of houses and the approval by the government as well as government policies. The availability of land for construction of housing facility forms the most fundamental consideration in considering the factors that have influence to housing market. In general, land is a limited factor of production and through government policies; the available land must be shared between the agricultural uses as well as development of houses. Government land equally has many uses to which it is often subjected to hence the limitation in the supply of land for construction of housing facilities. On the other hand, private land is shared between other economic uses such as for agricultural purposes as well as for development of these housing units. Government policies are instrumental in providing frameworks, which dictate these into which the available private and public land is to be put into. The government is guided by such factors as the population increase rate as well as the availability of resources to be committed to housing market as against being committed to other uses for public utility in determining the uses of land. Land supply is fixed in supply despite the fact that population of people keep raising hence the need to balance between food/agricultural production and the commitment of the available land to provide housing facilities. Government policies need be designed and developed to address the concerns n increasing levels of houses built and control population increase within the country. Financial incentives would equally be appropriate mechanism to address the issue through encouraging rapid house build up at local level (CentrePiece Winter, 1-5). The housing market obeys the normal market forces of demand and supply where shortage in supply raises the prices of houses and consequently lowers the demand. On the contrary, excess supply leads to lower prices and consequently higher demand for the houses. (Supply-demand curve showing the responsiveness of house demand and prices to the adjustments of houses supply within any economy) Conclusion Government intervention in the housing market in the United States dates back to many decades especially after the periodic boom-busts which has characterized the economy since mid twentieth century. Recession has the potential to decline the consumer wealth as well as negative equity in the sector. Moreover, the intervention by the government has the capacity to reduce the price volatility of houses which if not addressed has the potential to lead to a price crash within the economy. The housing market obeys the normal market forces of demand and supply where shortage in supply raises the prices of houses and consequently lowers the demand. On the contrary, excess supply leads to lower prices and consequently higher demand for the houses. Therefore, the forces of demand and supply are influential in the market and government intervention is solely explained to intervene in the natural course of the market through the interplay of these forces. Works cited CentrePiece Winter, “The UK’s housing crises” 2012. Print. 7 December 2013 Dougherty Conor, Timiraos Nick and Shah Neil. “Now, Homes Fuel Economy. Real Estate, Once a Drag on Growth, Reverses Course as Other Sectors Tail Off” 2012. Web. 7 December 2013 Stephens Mark. “Tackling housing market volatility in the UK” 2011. Print. 7 December 2013 Timiraos Nick. “Housing Market Accelerates” 2013. Web. 7 December 2013 Read More