 The behaviour of housing developers and aggregate housing supplyJacek Łaszek () and Krzysztof Olszewski () No 206, NBP Working Papers from Narodowy Bank Polski Abstract: The article presents an theoretical analysis of the developer sector, which bases on the observed functioning of the market. We explain the behaviour of developers in the short and medium run and show why they add to the creation of a real estate bubble instead of mitigating it. The bubbles result from the interactions between housing developers who keep high prices and households, who increase housing demand even if house prices rise. The housing developer, due to the asymmetry of information, is able to take advantage of a local monopoly and differentiate prices. This allows him to sell apartments of a similar construction to each client at a different price, thanks to which he maximizes profits. However, when the developer overestimates demand or the competition gets tougher, his production costs grow and the possibility to differentiate prices is reduced. This has a direct impact on the profits that he can generate. The consequence of this phenomenon is a more flexible ex post curve of developer supply. As a result, there is a tendency to overproduction in the developer sector, which deepens the cyclical nature of the housing market. Keywords: Real and virtual supply curve; monopolistic competition; price discrimination; acceleration of demand; overproduction. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:206 Access Statistics for this paper More papers in NBP Working Papers from Narodowy Bank Polski Contact information at EDIRC. |
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