Economics Tuition – Explain why inflation exists in the housing market.
Given that housing is an asset to home-owners, the rise of the price of assets will cause the individuals to raise the price of their factor services as they peg their factor cost to the price of the housing prices. The price of assets will rise due to the inflow of hot money, which refers to short-term capital inflow by speculators in the housing money. Furthermore, the rise in price of assets will raise the value of mortgage and cost of payment, inducing a rise in rental cost. Consequently, there will be a cyclical increase in price of housing, with inflationary pressures. Hence, there is asset-based inflation.
This article is contributed by Mr. Simon Ng, founder and principal JC Economics Tutor of Economicsfocus, who has 20 years of teaching experience. Currently, Mr. Simon Ng provides specialized Economics Tuition and GP Tuition. To read more articles on Economics issues and skills development, please refer to the JC Economics Essays blog.