Recently, I wrote about the five factors that influence the demand of real estate. If there is a list for demand, you can bet your next commission check that there is a list for supply.
The variables that influences supply are land, labor, lumber, and loans. Let’s go through these one at a time:
Land – it is very difficult to build more house if there isn’t any land. You take a city like Key West. There is very little land left, so there isn’t a lot of building going on. (Well, there wasn’t before Hurricane Irma.)
Labor – this refers to skilled labor: carpenters, roofers, electricians, etc. Speaking of Hurricane Irma… Right after the hurricane, if you needed a roofer, you would get put on a list. The roofer would say, “Can you keep that blue tarp up there for six months because our list is pretty long?” You didn’t have a lot of choices because even the bad roofers were busy.
Lumber – Actually, it’s all material, but I’m saying lumber because it works better with my L list. If builders can’t get material, they can’t build houses. A few years ago, there was a glass houses. If you wanted to construct a building, you have to opt to have zero windows, pay more for the glass (sometimes prohibitively more), or wait until there was more glass. When the supply of buildings materials is low, the supply of new houses is also low.
Loans – This applies to construction loans. If builders can’t get loans (or if they cost too much), they aren’t building as many speculative homes. But as soon as the loans become more available, the builders start building away.
Be sure you know the four factors that influence the supply of real estate. This is something that’s been on the Florida real estate sales associate exam before.
And remember, when you have a list in the book like this, there is a good chance that the question will be phrased like:
Which factor does NOT influence the supply of real estate?
a. availability of land
b. availability of situs
c. availability of construction loans
d. availability of skilled labor
Of course, the answer is B because situs is not on our list of four items.
Be sure to get comfortable with this NOT type of question. It’s pretty common on the Florida state exam.
Please note that neither I, nor anyone in the Climer family, have any affiliation with Climer School of Real Estate. My father, Ron Climer, sold Climer School of Real Estate in 2014. You can find me at Demetree School of Real Estate.