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'Housing is both a consumer good and an investment good.' Discuss with reference to the problems of the housing market and policies aimed at solving them.
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Q2a. 'Housing is both a consumer good and an investment good.' Discuss with reference to the problems of the housing market and policies aimed at solving them. In a market economy efficient allocation of resources should be achieved through the process of matching supply with demand. This depends on competition (to bring prices down), good information, the existence of multiple suppliers and the existence of multiple purchasers. However, in the housing market, the dual functions of consumption and investment create differences between the investment demand for housing and that for consumption. In addition, transaction costs, the tax system, public aid policies for home ownership and other market imperfections are inadequately dealt with and the market will have failed. The rationale for government intervention in the housing market is: - * To address problems of market failure * To assist redistribution (equity) * To raise revenue through rates and council tax. Housing markets may be said to have failed...
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