3.
FACTOR INFLUENCED THE SUPPLY AND DEMAND OF HOUSING
INDUSTRY IN MALAYSIA
The supply and demand is a basic economic principle that explains the
relationship between supply and demand and how that interaction affects the price of
housing. For example, when there is a high demand of house, its price rises. If there
is a large supply or too many houses but not enough demand for it, the price falls.
Supply and demand work against each other until the point at which the equilibrium
price is achieved.
There are many factors that can influenced or affected the supply and demand of
housing industry in Malaysia:
- Housing price determinants
- Population
- Interest rate
- Force labour
- Economic growth
- Location
3.1. Housing Price Determinants
The housing prices can be explained mostly by fundamental determinants, which
affect the demand and supply. The rise and fall in the housing price has outstanding
impacts on the economic conditions of the society. Moreover, the demand for
housing is increasing in the market day by day. So, the housing price is expected to
rise due to the imbalance between buyers and sellers. However, when more buyers
than sellers, the housing price will increase and continued. Then, an economic
activity increases the demand for space and since the housing stock cannot change
in the short period, that will cause rents increases which leads to higher housing
prices. This factor can influence the supply and demand if the buyers and sellers still
not in imbalance.
3.2. Population
Nowadays, the population in Malaysia is continuing to increase, all people need
more houses to live in, but the production of housing is slow due to the many laws,
regulations and procedures related to the building of houses. Other than that, people
will move to another place where houses are built, but houses are not necessarily
built in the place where people would want to live. This is because of job transfers or
needs. Normally, people will buy or rental a house in a place where they work there
for easier their affairs.
In Malaysia, lack of affordable options to own house forces many Malaysians into the
rental market, which is drastically increasing due to population growth. In the
economy world, perhaps there are a lot more factors that affect housing industry and
facts that one of the dominant factors might be growing population.
This is the statistic population in Malaysia from 2016 to 2026:
Source:
[Link]
3.3. Interest rate
Economic factors are not limited to population. Interest rates are one factor that
can significantly impact property market since higher interest rates can make lending
unaffordable for many. Bank lending may affect the housing industry through various
liquidity effects. The property price is just like the price other assets and it can be
determined by the discounted expected future stream of cash flows. If the financial
banks increase the availability of credit, it means that the bank will give lower lending
rates.
In fact, the better availability of credit will cause the demand for housing to increase
when the buyers are borrowing constrained. The growth in demand will lead higher
housing prices. The relationship between housing prices and buyers borrowing is
two-sided. When the housing interest rate is low, people will be enabled to make
some investments.
However, interest rates also affect the demand and supply in housing industry.
Also, they affect property prices.
This is the interest rate from bank of Malaysia from 2004 to 2020:
Source:
[Link]
3.4. Force labour
Usually in construction, the contractor will employ many workers to speed up the
project. If a large amount of the labour force is involved in construction project, the
cost of housing will increase. Besides, construction that need a lot of professional
workers with a high level of education compared with workers who are less educated
and will cause the property price to increase because the cost of building per one-
unit increases. The developer without doubt will charge the cost to the buyers.
Because of that, the buyers are forced to buy at a higher price. This is one of the
factors that can cause demand and supply in imbalance.
3.5. Economic growth
This factor also effect the supply and demand on housing market. Usually, the
demand for housing is dependent upon people’s income. When the economic growth
and the incomes will rise, people will be able to spend more on houses and this will
increase demand and push up prices continuously. In fact, demand for housing is
often noted to be income elastic which mean rising incomes leading to a bigger
percentage (%) of income being spent on houses or property. However, falling
incomes will cause people cannot afford to buy property and those who lose their job
may fall behind and end up with their home repossessed.
Next, this also related to economic growth which is unemployment. When
unemployment is increase, only fewer people will be able to afford a house. This
factor may discourage people from entering the property market. Unfortunately, by
the year 2020, the unemployment increase drastically because of the pandemic
Covid 19.
The statistic for unemployment from 1982 to 2021:
Source: [Link]
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3.6. Location
Location is an important thing that can affect the buyers and investors in decision
making, as well as contributing to the desirability of a particular housing. While the
location of an existing property is outside people control, buyers can make smart
decisions about where to buy new property that substantially impacts house prices.
Usually, the people will choose trendy areas with good reputations, low crime rates,
and ample amenities make for a great area to live. That means they are popular with
buyers, which going back to our supply and demand. Because of that, the property
prices in these areas will tend to be higher and continue day by day.
