Stock significantly dominates annual new supply in every category of real property.

Explain and discuss the reasons for and the consequences of such dominance. The OED (2012) describes a real property market as the meeting together of people for the purchase and sale, in this instance, of real property. Real property is explained as being or consisting of immovable property, such as land and anything erected on or attached to this. Warren 1993 explains how the price of a product within the real property market place is determined by the interaction and equilibrium point reached. By sue of horizontal summation the total market supply and total market demand curves can be found, thus producing our point of price equilibrium. In 1996 Harvey expanded stating that as we are dealing with land as a whole, this being the earths service, then we really have a situation where supply is fixed. Such as the supply of land is fixed it is therefore stated that the value of undeveloped or pure land being solely determined by the demand. However small the earnings can be form land the total supply for the land will be constant, therefore it can be said the opportunity cost is zero resulting in the earnings being greater than the opportunity cost. In economic terms the return comes as the supply is not perfectly elastic. Certain points should be noted; a) Land will go to the buyer with the highest and best use. b) The supply of land can not be viewed as fixed as the use can change if a proposed new user values it at a higher price. c) The productivity of land can be increased by capital intensive construction, making better use of land area by building up or down.

d) Pure land supply will still be their no matter how high the taxation is, the supply will still remain fixed with the tax only affecting the relative demand. Thus unless all forms of land are taxed equally then land distribution will not be even. The cost of production will also include that of normal profit. The government may at times modify tax proposals. The commercial rent received for land can be determined by the interaction of supply and demand, this showing the highest and best use. Land being one of the factors of production has its demand inflamed by the firms; productivity, lands price relative to the other factors and the price of the product produced. So far it has been assumed that land is homogenous, this of course in reality is not the case, and land varies considerably in quality and its characteristics key examples being; accessibility, previous use and development restrictions such as planning permission and land zoning. These key factors heavily influence demand and in turn give the market value for either rental or purchase. The price of land is determined by both supply and demand, we allow for time by dividing time in to three main time periods, the supply becoming less elastic after each period (Fig 4.5).

This concept that in the short run period supply is inelastic is supported by Warren (1993) who goes on to explain that this is the case as in the short run resources are fixed and it would take time for new supply to reemerge. Secondly it must be noted that existing stock is so larger a proportion of annual flows of supply that any new input is likely to be significant in relation to the overall supply to the market. Typically new stock makes up roughly one or two percent of the total market per annum. In other words Existing second hand properties dominate the market. (Warren 1993, p.47) However this inelasticity can be improved if the firm is willing to forgo some capital in exchange to increase the potential for short term productivity. For example; a) The purchase and build up of land banks. b) Having ready and available off the shelf plans. c) The use and implementation of technology. The list can go on and include many things, it should be remembered that readiness can be risky as there is a significant opportunity cost associated by having capital tied up, reducing the companies liquidity. Harvey 1996 stresses this point too explaining; houses and property are not consumer durables and existing good (stock) therefore do not have to be replaced on a regular basis. The stocks are allowed to build up over periods of time. The result of this process is that net new annual construction is only a small proportion of existing stock. (Fig. 4.6)

From this it can then be said that for all practical purposes, supply form old stock dominates the market. (Harvey 1996, p. 41) The consequences of this conclusion are that the market price is largely decided by the current demand for a particular type of stock.

Bibliography Harvey, J., 1996. Urban Land Economics. Basingstoke: Macmillan Press. Oxford English Dictionary, 2012. Oxford English Dicitnary [Online]. Oxford: Oxford University Press. Available at: <http://www.oed.com/> [Monday 12th March 2012] Warren, M.., 1993. Economics for the built environment. Oxford: ButterworthHeinemann.