Question

Expenditure on housing is one of the major expenses individuals face in their lifetime. However, over the last 20 years, housing prices have fluctuated quite considerably. You have been hired by a consumer affairs think-tank and tasked with producing an economic analysis explaining economic reasons why housing prices fluctuates over time (last 20 years) and its impact on relevant markets in the economy. Finally discuss some of the welfare implications (think of consumer and producer surplus) of changes in housing prices.

Answer 1

lets start with looking at the equilibrium level in the housing market

however the housing market has been fluctuating due to the fluctuations in the price of the assets. his depends on economy to economy as the factors sch as the income level of he consumers , the growth rate of the economy, fiscal and political stability , population and also the cost of construction of houses determines the level of prices. one of the main reasons was the creation of asset price bubble that initially led to the sudden (huge) increase in the prices of houses as the demand increases along side , but when this bubble burst took place , the prices of assets fell enormously. second is the stability of an economy , if the consumers have to keep altering their expenditure on consumption and everything else due to unstable economy, it would vary with the expenditure it has on housing as well. thirdly with an example of India , a policy as strong as demonetisation can shake the entire economy and so the housing market. next is the demography of your country, if you have more people in the working age bracket , the investment in assets increases. last is the interest rate of the economy, if this fluctuates so does the choice of consumers between saving and investment.