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The demand for housing in Ireland decreased in 2008 - Leaving Cert Economics - Question b - 2008
Question b
The demand for housing in Ireland decreased in 2008. (i) State and explain one possible economic reason for this decrease. (ii) State and explain how this decrease... show full transcript
Worked Solution & Example Answer:The demand for housing in Ireland decreased in 2008 - Leaving Cert Economics - Question b - 2008
Step 1
State and explain one possible economic reason for this decrease.
Answer
One possible economic reason for the decrease in demand for housing in Ireland in 2008 is the rise in interest rates. Higher interest rates often lead to increased borrowing costs for potential homeowners, making mortgages less affordable. As the cost of borrowing increases, fewer people are willing or able to take out loans, leading to reduced demand for housing.
Step 2
State and explain how this decrease could affect employment within the country.
Answer
The decrease in housing demand can lead to reduced employment within the construction sector. As fewer homes are built, jobs related to construction, such as laborers, builders, and ancillary service providers, may decrease. This fall in employment can contribute to an overall rise in unemployment rates within the country.
Step 3
State and explain how this decrease could affect taxation revenue.
Answer
A decrease in housing demand typically results in lower property sales, which directly affects taxation revenue. When fewer homes are sold, associated taxes, such as stamp duty and property taxes, decline. Furthermore, reduced employment in the construction industry leads to lower income tax receipts, further impacting the overall taxation revenue.
Step 4
State and explain how this decrease could affect profits within the construction industry.
Answer
For the construction industry, a decline in housing demand can lead to decreased profits. With fewer construction projects, companies may face reduced income from sales. Additionally, companies may need to lower prices to attract buyers, further squeezing profit margins. This situation can result in financial instability for construction firms.