Economics: News Report
2003 - 2004
4B Gladys Li (19)
4B Kitty Ho (11)
The news estimates that the supply of new private residential flats will decrease to 7000 in 2007,
the lowest level in records. This is affected by the following factors:
-The government suspended land sales since 2002.
-Residential construction projects fell significantly during the real estate slump.
As a result, the housings may not be adequate for the people.
The land in Hong Kong is scarce, so government takes over the control of land allocation. Those
developers who are willing and able to pay the highest price can get the land for their own
purposes. This shows that Hong Kong is a mixed economy. There are two types of land: the
natural one is called land and the reclaimed one is termed as capital.
Construction of buildings is classified as secondary production. It turns raw materials, such as
iron, steel and cement into a building, like residential block. Complex specialization is involved.
Designers, surveyors and workers take part in the process
Referring to the issue, the supply of residential flats decreases due to the suspension of land sales.
Also, its supply is inelastic. The construction processes are complicated, developers cannot
increase output easily in a short time. Since they have already cut down the number of
construction projects during the real estate slump, the supply of residential flats will fall steadily
in the coming years.
On the other hand, the demand for private residential flats tends to be elastic. People have
sufficient adjustment time. They can rent a flat or choose public housing instead. Besides, durable
good tends to be elastic in demand because consumers can postpone replacement. A flat takes up
a large proportion of their total expenditure. So percentage change in quantity demanded will be
greater than the percentage change in price.
For the situation in 2007, the demand for flats will remain elastic but its supply will decrease.
Thus, the equilibrium price will be higher and the quantity transacted will be lower. The
percentage decrease in quantity demanded is greater than the percentage increase in price. Loss is
greater than gain. Therefore, the total revenue of developers will decrease. (Illustrated in Fig.1)
In our opinion, the government should lower the price of land, so that the developers can
construct more residential buildings to provide more flats, while this may also help balancing the
property market.
P
S2
S1
P2
P1
GAIN
LOSS
D
Fig.1
Q
Q2
Q1
Private Residential Flats
Q