Definition of "Scarcity"
Scarcity is a fundamental term in economics, mirroring the limited resources and needs gap. The shortage demands consumers to make logical decisions on spending their money efficiently. Often referred to as ‘paucity,’ scarcity, in other words, is the principle of allocating resources to satisfy as many personal needs as possible.
Relative vs. absolute scarcity
In various cases, resources come in limited quantities available on our planet. For instance, oil is accessible in limited supplies, while the demand surpasses the available amount. In short, Earth is running out of this natural resource. We call this relative scarcity. As opposed, absolute scarcity is naturally limited, and we can’t do anything to grow its supply. Still, its quantity won’t disappear. Time, for example, is an absolute scarcity.
Scarcity in real estate
Scarcity pinpoints an inadequate or limited supply for real estate in a particular area. If real estate scarcity occurs, it will lead to a change in the demand-supply relationship. Thus, this event will result in price increases for the property. Indeed, the property’s current owner will become the primary beneficiary of the initial real estate scarcity.
Let’s inspect a real-life example! An explosive growth took place in Orlando, Florida, in June 2021, reaching $315,000! As a result, property values skyrocketed in selected areas. It would be best to reach out to the local real estate agents to find out if this city is experiencing real estate scarcity!
The consequences of real estate scarcity
Scarcity in the US is a real thing and triggers various housing issues. 2021 saw Wall Street big investment firms and real estate investment trusts purchasing single-family homes in bulk and even complete subdivisions in certain US cities. Consequently, house buyers and renters raised their voice in concern that they wouldn’t stand a chance price-wise against big corporates’ unaccountability. Their worries were not unfounded. There is a genuine chance that Investment companies would keep housing prices up high and increasing.
Small-time investors are also prone to property speculation. They intended to buy as many properties as possible in cash (no mortgage) and operate them as rentals. Also, many would hold on to their real estate and wait till development interest in the region grows.
Another worrying consequence of scarcity could lead to long-term rental problems. In other words, landlords could choose to rent their properties for short-term leases, such as Airbnbs, over traditional renting to long-term tenants. In addition, housing scarcity can result in real estate discrimination and a growing trend in evictions. For these reasons, housing market predictions for 2022 are cautious.
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Comments for Scarcity
how does scarcity apply to property in different price ranges?
Aug 03, 2020 12:13:34Hello, Rochelle! Scarcity applies in any area regardless of the price ranges. There are just a few conditions that need to be met. If the demand is higher than the supply of homes, this will drive the prices up regardless of whether you have a neighborhood with a median home value of $250,000 or $600,000. In a seller's market the supply is low and the demand is high, therefore the pricing power is in the seller's hands. Buyers will compete with each other and in many cases, a bidding war might start and the highest offer wins.
Aug 07, 2020 08:53:40What means inadequate supply in a real estate
Apr 13, 2018 06:50:26Hey, Domingos
Apr 13, 2018 10:40:19thanks for reaching out!
The whole real estate industry moves according to its supply-and-demand of properties. An inadequate supply can mean two things: (a) the Real Estate Market is lacking in supply; meaning there are not a lot of houses or land available to sell while there is a lot of demand from people for houses or land - the so-called Seller's Market - and (b) the real estate market has a lot in supply with a bunch of houses and land for sale - AKA Buyer's Market - but underwhelming pool of people in need of those. In both cases, there is an inadequate supply (and demand; it depends on your point of view - like that old glass half-full/half-empty discussion) as the key of this game is balance.
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