What is Scarcity?
Scarcity is an economic term for how rare something is. Scarcity answers the question, how much of the product exists?
Scarcity is one of four factors that work together to make something valuable along with desire, utility and purchasing power.
Scarcity is fundamental to the supply side of the equation, and has both a current and future outcome on property prices.
Simply put, if a product has low supply, it has high scarcity. If a product has large supply, it has low scarcity.
Any tangible product must have a degree of scarcity to have any monetary value.
According to Geoscience Australia, mainland Australia consists of 7.65 square kilometres of land. Measuring scarcity is an interesting and important element because this stat suggests land is abundant. The problem is a lot of it holds little utility, and if something has little utility, it has little desire.
A couple of examples include a ball point pen from the local newsagent. It has a small degree of scarcity, however a limited addition handcrafted gold nib engraved pen holds a higher degree of scarcity. Both pens share the same utility, yet they have different price points due to the quality and limited number of pens available.
The air we live and breathe has utility for every living thing, however air has no scarcity and therefore has no economic value. An exception here would be an astronaut or cave diver whose oxygen level is low.
Land is a fixed resource all over the world e.g. we can’t create more. A supply curve for land would be a vertical line (perfectly inelastic). The same applies for locations where no further land is available. The land for these areas remain utilised. Increases in demand have no effect on increasing supply because no further land can be added. This is the key to scarcity and a viable reason why it’s one of the 4 factors that make land valuable.
Having said this, in a market, land is transferable e.g. sold to a buyer, so the amount of scarcity for land at any given time can increase or decrease and therefore so can price.
Scarcity becomes more intriguing when considering the improvements to the land e.g. a dwelling. This is because dwellings are configured differently. Everything adds to scarcity – architecture design, materials, bedrooms, bathrooms, tap finishes etc.
Therefore, whether you’re buying or selling, it’s important to know how much product is out there