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DETERMINANTS OF LAND DEMAND AND LAND SUPPLY

One of the most fundamental concepts of economics is demand and supply. Economists
defined demand as the quantity of goods consumers want and are willing to buy, while supply is
the amount of resources at ones disposal. In land economics, these goods and resources
refers to land and products derived from it. Land economics is concerned with mans economic
use of the surface resources of the earth and the physical and biological, economic, and
institutional factors that affect condition, and control of his resources (Barlowe, 1987). Land can
be defined from different point of views. For the purpose of this discussion, land will be viewed
economically as resource, space, property, factor of production, consumption good, and capital.
Demand for Land
Demand is the amount of good and services consumers are willing to buy at a given
price over a specific period of time. Similarly, land demand refers to the amount of land and/or
land products that individuals or firms are willing to buy at a certain price. However, Barlowe
(1978) pointed out that few people wanted real estate for its own sake; rather man demand for
land mostly because of the products can produce to secure his survival. This makes demand for
land a derived demand as it serves as an intermediate good to mans ultimate demand for
crops, shelter, space for employment, recreation and business.

10 Determinants of Land Demand


The quantity of land demanded by buyers depends on a number of key variables:
Price
Price is the main determinant of demand for land, just like in any other commodity. Price
of land varies depending on numerous factors like location, accessibility, and physical
characteristics among others. Willingness of buyers to purchase land will also depend on the
cost of development needed to fully utilize. (insert highest returns, etc.)
Income
Aside from desire, demand to be effective also requires the buying power of the
consumer. This capacity is being provided by income (after tax); the higher the income of the
consumer, the higher his/her capability to demand for a commodity. Similar with land demand,
those who are in higher salary grade can afford to buy/rent house close or in the central
business district while those under minimum wage stays in dormitory cities or peri-urban areas
that offers cheaper house price/rent. Increase in income on the other hand, will also results to
demand for land in other form like recreation parks and resort, better highways for
transportation, and institutional land uses.

Price of related products


Housing is one of the human's basic need where we spend most our time, aside from
place of employment for the working class or place of education for those under/above the
working age. It is no wonder why Barlowe (1978) stated that housing is an important item and
takes greater part in most families budget. For this reason, head of the families usually
considers alternatives when selecting place of residents. In urban areas, condominiums can be
an alternative to bungalow houses for small families. Working class may also want to settle in
'boarding houses' instead of renting an apartment or an entire house. Another option is to
consider living outside the city like in dormitory cities as discussed previously.
Population
Increasing population has serious impacts on the demand for land. Malthusian theory
states that population is growing geometrically while resources are increasing at arithmetic
phase only. For the case of land which has a fixed supply, an increasing population will have an
impact on overall demand of land.
Proximity
Accessibility of a place is one of the factors people usually consider when deciding
where to reside, apply for a job, go to school, or even when having vacation. A farmer would like
to have a farm that is located near the market; an industrial site may be put outside the central
business district but not too far away from its laborer; while a commercial establishment will not
be located in the middle of a farmland but rather within the core of the city.
Physical characteristics of the site
An eco-tourism site needs to have an attractive view where people can be close to
nature. It can a hilly place where you can have overlooking for the city, a beach front that offers
fresh air and healthy sunlight, or a remote where you can go camping and have bon fire at night
without the worry of adding pollution to the atmosphere. Development of residential areas, on
the hand, requires stable ground structures and flat topography. Land is a scarce resource and
its varying characteristics makes it even scarcer depending on the activities man wants to
perform on it.
Taste and preference
Preference for better quality of education, more job opportunities, and access to
advance science technology are few example why most people chose to reside in urban areas.
Conversely, people who are under the retiring age and has the capability to pay may choose to
reside in rural areas, away from the busy city life. Taste and preference affect how people
demand for land. Usually, this factor is more evident to those who has the means to pay. Those
who have limited finances may opt to choose cheaper options, proving the relationship between
demand and price as discussed earlier.

Multiple Use and Occupancy


The limited supply of land is the driving factor of mans continuous search for means and
technology to address this matter. Of which is utilizing land for multiple uses. However,
government policies may sometimes restrict this. Land that for multiple uses is usually more
expensive; but if the operator can attain returns more than the cost of development, purchase of
the said land is efficient. This type of land is usually found in the city through multiple-story
buildings that has commercial establishments on the lower floors and residential areas on the
upper floors.
Cost and Availability of Finance
The cost of land is so expensive it sometimes require couple of months or years salary.
That is why there are people who loan money to pay or purchase land for housing. Home loan is
monetary assistance acquired from financial institutions, banks or mortgage companies consist
of interest rates and adjustable payment terms. The higher the interest rates will reduce the
amount of borrowings and may depress the demand for housing. On the other hand, a more
flexible home loan encourages more borrowings and more demand for land.
State of the Economy
The price of land like the price of other commodities are always affected by the state of
the economy where employment (and unemployment), affluence of the population, investments
of businessmen are some of the factors.