General Factors that Affect Supply and Demand for Housing
Demand and supply of housing in any country depend on several factors. The first factor is the income of citizens. The demand for houses shoots when the income of residents increases (Grace et al. 124). Higher income means that individuals can afford houses. Consequently, the demand rises. The second factor is population trend. A high population growth means more people have to be housed (Dessauer 85). As a result, the demand for housing increases. It is not only the number of people that influences the demand for housing but also changes in the household structure. Demand for housing increase in countries where more people desire to live alone.
Most people buy houses using mortgages. Consequently, the affordability of mortgages is a critical determinant of housing demand. Mortgages tend to be cheap when interest rates are low and expensive when the rates are high. The demand for housing increases when mortgages are affordable (Smith and Beverley 421). Cheap loans attract individuals to take up the facilities and utilize them for purposes of buying homes or houses. Apart from affordability, availability of mortgages also affects demand for housing. The demand for housing increases when more financial institutions are willing to fund home buying plans.
The amount of money people pay as rent in a particular country also has an impact on the demand for housing. People desire to own houses when the rents they are paying are high (Watson 8). However, when rents are low the drive to own houses also declines. Again, the demand for housing also depends on the economic growth and unemployment rates. Higher economic is associated with improvement of personal income which in turn steps up demand for houses. Higher unemployment means not many people can afford to buy houses.
Profitability of real estate sector is a critical determinant of the supply of housing. Investors prefer to invest in the sectors that offer high returns. Consequently, they would build more houses in countries where the real estate industry is highly profitable. More houses or homes are supplied to the market when real estate sector is profitable. The other factor has to do with government policies and regulations. Investors are more likely not supply more housing units if the government imposes high taxation on the income generated from the sale of houses. Again, government’s physical planning restrictions may also hinder the development of housing in specific sections and by extension lower supply (Abdul 55). Some governments also delay in approving development plans, hence, discourage real estate developers and affect the supply of housing units.
Factors that Affect Demand and Supply for Housing in Kuwait
The government controls the housing sector in Kuwait (Almutairi and El-Sakka 250). The State of Kuwait in 1976 formed Public Authority for Housing Welfare (PAHW). This agency is mandated to provide houses to eligible Kuwaiti families after application. The services provided by the authority include buying of land and building of houses. It is also tasked with the responsibility of building infrastructure that includes road network, sewages, water supply, electricity and fixed telephone networks in residential areas. PAHW (1) claims that it has provided housing to 40% of Kuwaiti families. Given that the housing sector in Kuwait is firmly under the control of the government, factors such as availability of credit does not play a significant role in demand and supply. The two most important factors that affect demand and supply of housing in Kuwait are population trends and the economic growth.
Kuwait has one of the highest population growth rates in the world. The United Nations Development Programme, UNDP (1), estimated that Kuwait’s population grew by 4.8% in 2015. The figure 1 below shows the changes in the population growth rate of Kuwait from 2006 to 2015. The data from World Bank (1) shows that the country is among the nations with highest percentages of urbanized population which currently stands at 98%. The population growth rate of Kuwait remains relatively high compared to some of the fastest growing cities in the world such as Mumbai. Figure 2 shows the changes in the population growth rate of Kuwait compared to some cities in the world. Figures from Kuwait Central Statistical Bureau (1) show that divorce rates have been increasing in the country since 2011. The increase in divorce rates means that more Kuwaitis are moving out of their matrimonial homes to settle in new houses.
Figure 1: A Bar Graph of Growth Rate in Kuwait from 2006 to 2015.
(Source Trading Economics 1)
Figure 2: Population Growth Rate of Kuwait Compared with Some Cities
(Source: Alshalfan 6)
The population trend in Kuwait has increased demand for housing beyond the units the Public Authority for Housing Welfare (PAHW) can provide. Data from PAHW indicate that the authority has failed to provide housing to all applicants since early 1980s. Table 1 below summarizes the growth of new housing application and unsatisfied demand from 2005 to 2015. As shown in table 1, the number of unsatisfied demand has been growing every year. Figure 3 further illustrates the units provided by PAHW and number of applicants from 1980 to 2015. The authority has not delivered houses to more than 40,000 families in any given year since its establishment. However, the demand continues to rise. The average waiting time for a house in Kuwait according to Almutairi and El-Sakka (248) is 13 years.
|Year||Number of New Applicants||Unsatisfied Demand|
Table 1: New Housing Application and Unsatisfied Demand from 2005 to 2015.
(Source: Almutairi, H. and El-Sakka 251).
Figure 3: The Units Provided by PAHW and Number of Applicants from 1980 to 2015
(Source: Alshalfan 8)
The Economic Growth
Kuwait is a commodity based economy. The country heavily relies on earnings from oil export of oil to fund critical sectors such as housing. According to the Organization of the Oil Exporting Countries (1), Oil and Gas Oil industry contributes about 60% to the gross domestic product (GDP) of the country. Consequently, when there are problems in the oil sector, the economies suffers. Data from the World Bank (1) show that Kuwait economy has been on downward trend since the recent drop in global prices began in 2013. Figure 4 below shows how global crude oil price affects Kuwait’s fiscal surplus or deficit. The decreasing economic growth slowed activities in real estate sector. Figure 5 below shows that the real estate sales (demand) have been reducing since 2013 because of declining economic growth.
Figure 4: Global Crude Oil Price and Its Effects on Kuwait’s Fiscal Surplus or Deficit
(Source: Institute of Banking Studies Research 13)
Figure 5: Real Estate Sales in Kuwait
(Source: National Bank of Kuwait 3)
The demand for housing in any given nation is generally influenced by factors that include income, population growth, affordability and availability of mortgages, economic growth and employment, rental prices and interest rates. The supply of housing units, on the other hand, is influenced by demand for houses, profitability of real estate sector and government regulations. State exclusively controls Kuwait’s housing sector through Public Authority for Housing Welfare (PAHW). This authority acquires land and constructs houses for households in the country. It also builds the infrastructure such as roads and sewerage in residential areas. Given that the Kuwaiti government is greatly involved in activities of the housing sector in the country, the determinants of demand and supply of housing are unique. The demand and supply of housing in Kuwait is mainly affected by population trend and economic growth. Ballooning population requires more houses for shelter. Besides, economic growth determines government spending on the housing sector.
Abdul, Hamid. An introduction to property marketing. Skudai: Penerbit University of Technology, 2012.
Almutairi, Humoud and El-Sakka, Determinants of Housing Prices in an Oil Based Economy. Asian Economic and Financial Review, vol. 6, no. 5, 2016, pp.247-260.
Alshalfan, Sharifa. “The right to housing in Kuwait: An urban injustice in a socially just system.” LSE, London School of Economics and Political Science, November 2013, http://www.lse.ac.uk/middleEastCentre/kuwait/documents/The-right-to-housing-in-Kuwait.pdf
Dessauer, John. Real Estate H2o: Quenching Your Thirst in a Parched Economy. City: BookBaby, 2015.
Grace, Martin F., et al. Catastrophe Insurance : Consumer Demand, Markets and Regulation. Boston, MA: Springer US, 2003.
Institute of Banking Studies Research. “What is the Impact of Lower Oil Prices in Kuwait and on the Kuwaiti Banks?” KIBS, Research Unit-IBS, April 2017, http://www.kibs.edu.kw/upload/The_Impact_of_Lower_Oil_Prices_in_Kuwait__English_KIBS_1402_2__982.pdf
Kuwait Central Statistical Bureau. “Marriages and Divorce.” CSB, Central Statistical Bureau, 2015, https://www.csb.gov.kw/Socan_Statistic_EN.aspx?ID=12
National Bank of Kuwait. “Kuwait: Projects drive non-oil activity as private consumption slows.” NBK, Economic Update, 7 April 2017, http://www.kuwait.nbk.com/InvestmentAndBrokerage/ResearchandReports/$Document/MonthlyBriefs/en-gb/MainCopy/$UserFiles/NBKKuwaitMacro20161227E.pdf
Organization of the Petroleum Exporting Countries. “Kuwait facts and figures.” OPEC, Organization of the Petroleum Exporting Countries, 2016. http://www.opec.org/opec_web/en/about_us/165.htm
Public Authority for Housing Welfare. “Role of Public Authority for Housing Welfare.” PAHW, Public Authority for Housing Welfare, 2017, http://www.housing.gov.kw/en/AboutPHW.aspx
Smith, Susan, and Beverley A. Searle. The Blackwell companion to the economics of housing : the housing wealth of nations. Chichester, West Sussex, U.K. Malden, MA: Blackwell, 2010.
United Nations Development Programme. “Kuwait.” UN Data, United Nations Statistics Division, 2016, http://data.un.org/CountryProfile.aspx?crName=KUWAIT
Watson, Elizabeth. A closer look at some of the supply and demand factors influencing residential property markets. No. AN2013/11. Reserve Bank of New Zealand, 2013.
World Bank. “Urban population (% of total).” World Bank, World Bank Group, 2016, http://data.worldbank.org/indicator/SP.URB.TOTL.IN.ZS