Introduction
( i ) Price of Cement
According to the announcement from Lararge Malayan Cement, the price of
cement for 50kg per bag had increased from the price of RM16.50 to RM17.50. As 60
percent to 80 percent of the materials used in building a building have
included comprised cement and other cement related materials, it has been told
by the Penang Master Builders & Building Material Dealer Association that
increment price of cement would have a significant impact towards the property
price and also to other manufacturers who need to use cement as one of the
material in their product such as concrete and bricks. Even though the
increasing price of cement is affecting the price of the properties in Pulau
Pinang, but it does not affect the properties in Sabah and Sarawak
(
ii ) Price of Sand
Besides the price of cement, price of other materials such as sand had
also been increasing .There are facts stated that the price of sand had
increased from RM40 to RM43 per yard. If it is compared to the earlier year,
the aggregate price per ton had increased from RM20 to RM21.
In the mean time, price of cement and sand, cost of labor and transportation
charges had also been increased in this year. It was found that the wages of
the labor had increased from RM35 per day to RM45 per day in this year. This is
due to large shortage caused by many of the foreign workers such as the
Indonesians that need to go back to their country and to cover up the shortage;
wages have been increased to retain them here.
( Iii ) Cost Of Labour And
Transportation
Besides, transportation charges for sand have increased from RM400 per
truck load increase to RM450 per truck at the same time.
How The Price Of Production Cost Affect The Price Of Buildings ?
One of the factors that will cause decrease in supply will be the
increment in cost of production. Therefore, the supply of buildings from the
developers had decreased by shifting the supply curve inwards from S0 to S1 when
the price of cement, sand, labor and transportation increases. The quantity of
the buildings developed was at Q0 when the price is at P0. But when the supply
curve had shifted to S1, to meet the equilibrium point at E1, the quantity of supply
had decreased from Q0 to Q1 which cause to price to increase from P0 to P1 to
avoid any shortage in the market.
We could understand more that there is a relationship within the cost of
production and the quantity supply of buildings in the market that would cause
the price of buildings to be increased if the cost of production increases.
Ways to help in
reducing the price of buildings using economic theory
( i ) Imposed subsidies
The graph above shows the effect when government has imposed subsidy
into the cost of production. The subsidy encourages the developers / suppliers
to develop more quantity of buildings when the price of the production cost has
reduced from P0 to P1. It is clearly shown above that the supply curve had shifted
outwards from S0 to S1 when the subsidy is imposed due to the reduction of
production cost. Shifting outward of supply curve means that the quantity of
buildings in the market has actually been increased from Q0 to Q1 when the
subsidy is imposed.
The shift of supply curve from S0 to S1 has caused the quantity of
supply to be increased from Q0 to Q1. Price of buildings will decreased from P0
to P1 when there is more quantity of buildings in the market.
From both of the graphs we could understand that if government would
give subsidies to the suppliers to reduce their burden in developing the
buildings, the quantity of buildings will be increased in the market that will
cause the price of buildings to be decreased.
( ii ) Imposed price ceiling
on cost of production
Price ceiling is a maximum price of an item set by the government. It is
always set below the equilibrium point. The government would impose the price
ceiling whenever they think that the price at the equilibrium point (E) is too
high. Therefore, the price of production cost (materials, labor and
transportation) is not allowed to rise above the price ceiling when it has been
imposed by the government by the supplier or any other person unless there is a
change by the government.
The suppliers will produce at Qs when price ceiling is imposed and while
the demand will be at Qd which cause shortage of materials, labor and
transportation in the market. The shortage may be replaced by importing it from
overseas that sells at a cheaper price.
Lesser cost in production will cause the supply curve to shift outwards
from S0 to S1 as one of the factors that affect the supply is the cost of
production. Less in production cost would cause the supply to increase from Q0
to Q1. Price of building would decrease from P0 to P1 when the quantity of
buildings developed increase in market.
Relationship
within the production cost and the demand on buildings
Lesser cost in production will cause the supply curve to shift outwards
from S0 to S1 as one of the factors that affect the supply is the cost of
production. Less in production cost would cause the supply to increase from Q0
to Q1. Price of building would decrease from P0 to P1 when the quantity of
buildings developed increase in market.
Relationship
within the production cost and the demand on buildings
In my opinion, there is zero
relationship within the price of production cost and the quantity demand of
buildings. As there are many people who wish to purchase properties as
investments, the price of building will not be a “problem” anymore towards the
buyers. And therefore, there is no change of demand and also no shift in demand
curve when the price of building changes.
Conclusion
In short, the price rise of buildings is due to the rise in cost of
production. In order to reduce the price of buildings, in my opinion, several
methods can be used with the help by government such as imposing the subsidies upon
the cost of production to reduce the burden of production or impose the price
ceiling for the suppliers to use the production cost at a lower price. Through
these methods, many buildings can be developed by the developer and therefore
help in reducing the price of buildings.
Reducing of price in buildings will help the poor to have more ability
to purchase their own property or even help people to have a cheaper rent to
stay in.
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