Market profit. Investors that are purchasing these house

Market failure is a result of mismanaged resources resulting in an equilibrium that is not socially desired equilibrium. In the context of the auckland housing market, which resulted from high demand but lack of supply, has resulted in soaring house prices on average 10 times the net annual income of families who are trying to buy them1. The housing market is failing in and around auckland this forces people to seek cheaper lower quality living accommodation, as they cant afford a reasonable standard of living.    investment speculation around the market for houses in Auckland, has forced the prices to skyrocket. Investors purchase houses at market price and anticipate that the price will increase till they can sell and, collect the profit. Investors that are purchasing these house are do not consider the wider negative social and economic effects caused by rising house prices. In March 2017 44% of Auckland houses were owned by investors2. This restricts first home buyers and families looking to purchase houses.  From society’s point of view Auckland houses are overpriced and under consumed. This can be seen at the market equilibrium (Pe,Qe) where not enough houses being purchased due to the high price. This is poor allocation of scarce resources which creates deadweight loss (DWL). Deadweight loss creates negative consumption externality, consumers will stop paying the higher house prices and look for cheaper alternatives, such as renting older houses more rundown. If consumers did purchase older homes it might result in more illness due to dampness, maily in older people and children. In the long run this will affect children’s education, due to sickness not allowing them to attend school as much so miss out on opportunities to learn, leading to lower standard of living. A possible second negative externality is overcrowding, this is due to the high house prices forcing families to live under one roof with more than one generation or family sharing a house. The most extreme externality is homelessness, from people not being able to afford a large mortgage or high rent.   A solution government might implement is increasing government housing. By introducing this government will create higher supply of houses (Qe to Qs) and provide short term relief to the housing market, with affordable, safe housing. This will lower the amount of sickness related to unfit houses as well as reduce the overcrowding problem, this si due to more families having access to the affordable housing. In the long run it the long run house peices will lower, this is because home owners will have to lower their prices to compete with the government prices. 1 “Mainfreight founder and chairman Bruce Plested calls on … – NZ Herald.” 28 Jun. 2017, Accessed 23 Jan. 2018. 2 “House investors hit record in Auckland, first home buyers fall –” 26 Mar. 2017, Accessed 24 Jan. 2018. The resulting price drop will cause all house prices to decrease (Pe to Ps) in turn this will realign the market closer to the socially desired equilibrium. The negative effect of government provision of building houses is it reduces funding for other areas of government, i.e health care, education this creates an opportunity cost. Secondly another negative to building homes is access to cheap land, in Auckland this is not possible in the inner or wider city as most is already to built up to expand anymore. This will force government to build on the outskirts of the city which means that there will be higher transport cost for commuters that have to work in the city.    A second option could be to deregulate the housing market in order to lower the prices, more specifically making it easier for homeowners to build their own homes. The short term effects of this is a reduction in the compliance cost of building companies to build. Meaning they can produce houses at lower prices (Pe to Ps), and sell at lower prices while still maintaining reasonable profit margins. In the long run, less regulation cost would make more profitable for firms. Also making the market more enticing for other firms to join. Supply would increase of more firms enter (Qe to Qs), ultimately will help reduce house prices in the national market. Bring the equilibrium closer to the socially desired price and quantity. Less regulation might result in unsafe or unfit homes for families and builders. Homes might be weaker in the event of an emergency, or more injuries may occur while building. A second negative ia local council will not collect as much revenue, because of less consent checks from council.   Out of the two government interventions I have chosen I would recomend governemnt provison to attempt to fix the auckland hpuaing market.  Conor Mckay3:37 PM Jan 23Resolvemaximum price on rentprogressive taxgovernment subsidies/council housingConor Mckay3:48 PM Jan 23Negative externality of production.ExploreToggle screen reader support


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