Introduction
Supply and demand are two vital aspects in any market economy. Supply refers to the quantity of a product that a market can avail. Another definition can be amount of a product that producers are willing to give out at a given price. Demand on the other hand refers to the quantity of a product that customers are willing to buy at a given price.
The two are key in the determination of a product or service price (Adil, 2006). Usually, a product or service price keeps on varying until a point where the amount of demand at a particular price equals that of the amount supplied at the same price. This point is termed equilibrium. A relationship exists between demand and supply, which is very important in the determination of the amount of resources to be allocated purposes.
Demand law and supply law are applicable in any type of market. The law of demand states that, if the price of a commodity is higher, with all other factors remaining constant, then the demand for the same good is low. This is because people cannot opt for the same good while others of the same value exist at a lower price. The law of supply states that when a products price is higher, then producers readily avail it into the market thus increasing supply (Henderson, 2004).
Applying the two principles, that is, demand and supply to the hotel rooms in Sydney, Australia will be of great help in the determination of whether to increase or retain the same number of rooms in the city. There is a higher demand for accommodation than the supply is in Sydney and for this reason, more rooms for accommodation is required. This is in line with the laws of economy whereby supply and demand should match at a given point in order to reach equilibrium to ensure a stable economy.
State of Supply and Demand for Accommodation in Sydney
Sydney is a major tourist attraction in Australia and as such, visitors frequent the city. This calls for more accommodation facilities. According to Jones Lang LaSallee Hotels (2010), Sydney is a major Gateway to Australia and receives a higher number of visitors at night compared to any other city in the country.
A survey carried out in 1999 on accommodation supply and demand showed that an increase in the number of visitors was to be 7.3% each year in a span of ten years. This gives a suggestion that supply of accommodation should be increased in order to meet the anticipated increase demand. However, this has not been feasible due to higher costs of construction and land purchase, which all along has not been compensated for because of poor market for accommodation (Jones Lang LaSallee Hotels, 2010).
Sydney city has all along not reached the anticipated growth in accommodation market. This is attributed to various factors, major ones being; firstly, in 2001 and 2002 most of accommodation rooms were converted into residential rooms owing to the reason that they are more profitable compared to the former (Jones Lang LaSallee Hotels, 2010).
This fall has not been recovered since then meaning that more accommodation has to be put in place. Secondly, supply of accommodation services has been on the decrease over the last ten year due to their low performance in the market. Thirdly, demand for the same facilities has been low and this has led to many people investing into residential services.
In 2007, supply increased by 1,300 rooms which was a number higher than the projected figure. This increase is due to the distribution of accommodation facilities in all parts of the city compared to the earlier trends where accommodation was only available in the city CBD.
In the same year, demand for accommodation also accelerated. Wiltshire (2008) contends that demand and supply for accommodation in Sydney has over the last ten years been imbalanced; supply being higher between December 2005 and June 2006. Between September 2006 and December 2007, demand was higher than supply. In 2008, supply of accommodation was higher than that of demand. With the above rates of demand and supply, more rooms for accommodation are expected.
According to a survey conducted by Jones Lang LaSalle Hotels (2010a), 89% of the total 9,923 rooms are hotels. They are all in the Central Business District (CBD) and account for 30% of the accommodation rooms in Sydney. According to their report, demand for accommodation was expected to rise as from last year.
This growth is attributed to a number of factors, which include the following; first is the anticipated globe recovery from financial crisis. Once the globe recovers from the crisis, money will be readily available, as the economy will stabilize. This means that many activities such as tourism, sports, and such like activities that calls for accommodation needs will be in place thus accelerating demand.
Mostly, local demand was to be on the higher extreme as compared to international one whose growth was to be medium in 2010. Second is the expected rise in demand for accommodation with a figure of 80% and 82.5% through 2012 to 2014 as compared to that of 2009, which range between 74% and 79% (Jones Lang LaSalle Hotels, 2010a). A steady and strong demand for accommodation has been recorded between 2010 and 2011.
The figures indicate a steady rise in the demand level for occupancy and this clearly indicates the need for construction or conversion of more and more rooms in Sydney city into accommodation rooms. However, achieving this dream is doomed by various reasons such as high profits gained from alternative uses, scarcity of appropriate land for construction, high costs for construction, poor financial status by the stakeholders and low income from these rooms.
Lack of Government recognition of hotels as a source of income that can stimulate a stable economic growth has also a big share in low development in the sector. A realization for this with proper planning will see this problem over thus encouraging more supply for accommodation in order to meet demand.
Jones Lang LaSalle Hotels (2010a) states that Sydney is a major tourist attraction center as compared to the rest of the cities in Australia due to its two attractions. The two key attractions in Sydney are the Sydney Opera House and Sydney Harbour Bridge. In 2008, the highest number of visitor night was recorded with a figure of 68.9 million.
This is the highest number of visitors recorded in Sydney and in the whole of Australia. For the last two decades, the number of international tourists has been on the rise. Sydney has activities all year round and as such, many accommodation facilities are required.
Upcoming events such like Sydney New Year’s celebrations and the Emirates Melbourne cup tour (Sydney tourist guide, 2011), will add to the demand of more rooms for accommodation. Whenever such events take place in a country, a lot of space is required as, different people come to participate or as spectators with all of them in need of a room to provide shelter.
Sydney contributes most to Australian economy and its Central Business District is the biggest in comparison to those of other cities. Large commercial sites such as Parramatta are also in Sydney.
Sydney also has other major roles such as hosting headquarters for both the Australian Stock Exchange and Reserve Bank of Australia (Wilttshire, 2008). A good number of banking industries in Australia is located in Sydney. Having all these major responsibilities, there is need to improve the existing and constructing more other accommodation rooms in order to cater for the current demand.
Under normal circumstance, people living in such a city are expected to lead a cheaper life due to the availability of all the necessary facilities at hand. Contrary to this expectation is that, Sydney is has been ranked 16 in number among the most expensive cities in the world (Wilttshire, 2008). The available rooms are given out at a very high price thus affecting the demand. A better solution to such a problem is the provision for more rooms at an affordable price in order to encourage demand.
Proposed accommodation type
Supply for accommodation in Sydney is low and for this reason, more accommodation rooms are required. Compared to furnished apartments, motels, hotels and other forms of accommodation, hotels are more preferable due to their cost of construction and rent (Jones Lang LaSalle Hotels, 2010a).
The current hotels in Sydney should be upgraded to current standards and new ones put up in order to match the present high demand. Both the government and the private investors are supposed to realize that this type of investment can act as a stable source of income and invest in them. Although due to space, apartments can work best, their cost of construction is high, and this will call for higher prices in order to offset the amount used for construction.
Hotels are a bit cheaper and people from all calibers can afford. A factor also to consider is the conversion or the residential rooms within the city back into their initial purposes of accommodation (Wilttshire, 2008). This has a direct bearing in the reduction of the amount of money that could be used in constructing new rooms. These rooms should be renovated, and upgraded to meet the present accommodation requirement.
Conclusion
As per the report given by the Jones Lang LaSalle Hotels on accommodation supply and demand in Sydney, there has been a steady increase in accommodation demand. The year 2010 recorded a stronger and stable demand level (The Jones Lang LaSalle Hotels, 2010b).
Due to lack of government interest in investing into this kind of business, demand for accommodation has continually increased while supply remains constant. Therefore, more accommodation should be provided and thus meet the demand. Sydney hosts major activities in Australia e.g. major celebrations, state conferences, banking services among others.
The living standards in the city are very high and the cost of construction for accommodation equally high. The key issue when it comes to provision of accommodation in Sydney is planning rather than cost. With proper planning, accommodation can be made more available without constraints. To balance demand and supply, more rooms are needed in order to increase supply.
References
Adil. J., R., 2006. Supply and Demand. Capstone Press, New York.
Henderson, H., D., 2004. Supply and Demand. Kessinger Publishing, London.
Jones Lang LaSalle Hotels., 2010. Accommodation Demand Trend. Web.
Jones Lang LaSalle Hotels., 2010. Accommodation Demand Trend. Web.
Sydney Tourist Guide, 2011. Australia Hotel Investment Market. Web.
Wilttshire, N., 2008. New Hotel Supply Needed to Drive Future Demand Growth. Web.