Question

The Jordanian government is discussing a change in the planning laws to allow the building of one million new houses by 2021. Discuss what this is likely to mean for
(a) the price of houses for first-time buyers
(b) the demand for country houses in areas adjacent to new housing developments.

Answer 1

(a) The official government plan to construct one million new houses by 2021 in Jordan essentially implies that the number of residential units or projects will increase in 2021 in the housing or real estate market. Therefore, everything else constant such as the overall demand for the housing or residential units in the market and other relevant factors, the increase in the overall supply of new residential plots and units would lead to a reduction in the market price of residential units or properties. Considering the demand for the residential properties or units as unchanged, an increase in the overall supply of housing units by 2021 due to the initiative undertaken by the Jordanian government would induce the property sellers and brokers to offer the newly constructed residential plots or units at affordable prices especially to the relatively new and first-time property buyers or consumers in order to attract more potential buyers or customers to fill up the new units as much as possible and enhance their respective profitability in this process. Thus, based on the fundamental principle of demand and supply analysis, an increase in the overall supply of residential units and properties would be positive or good news for potential first-time or new property buyers due to a reduction in the property prices in the market, everything else held constant.

(b) Considering a potential increase in the overall or total supply of residential properties in the market due to the new housing units to be constructed under the new plan undertaken by the Jordanian government, and consequently better affordability of the new residential units, potential property buyers or consumers would be generally attracted towards these newly constructed units or properties. Specifically, due to an increase in the demand for the new residential plots as they are more affordably available now to the potential buyers or customers in conjunction with the overall decrease in housing prices, the demand for the country houses located adjacent to the new housing developments would consequently decrease. The property buyers would be potentially more interested to purchase the newly constructed units due to their lower market price and further assuming that the new units would be relatively more well-designed, better maintained, and have more convenient facilities compared to the existing country houses in the adjacent areas. Hence, better affordability of the new housing units or properties and the qualitative differences between the new units and the existing country houses in adjacent locations would primarily drive the demand for the new residential units higher and decrease the demand for the country houses among the potential buyers or consumers.