Quote:
Originally Posted by Colin May
It is a $250,000 unit because the developer believes that is what a willing buyer will pay, nothing to do with the cost.
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You're describing a monopoly situation, but the condo market seems pretty competitive in Halifax (you often argue this indirectly when you say there is a surplus of many builders building condos that are barely selling).
In a competitive industry, profits are driven down and prices approach production costs. If someone were building condos at a cost of $100,000 and selling them for $1,000,000, there would be a huge incentive for more builders to enter the market and offer condos for $900,000 (still making $800,000), then $800,000, and so on.
The price people are willing to pay still matters in that if the production cost is higher than that no condos will get built at all. If the market value is $200,000 and the cost to build is $250,000, builders go out of business.
In a monopoly one producer tries to get as close as possible to the maximum customers will spend, because by definition they can't be undercut by competitors. This is what we have in, say, the cell phone industry in Canada. It's hard for other firms to enter the market so there is nobody to undercut prices and drive them down near the level of costs. I don't think the Halifax condo market is much like this though (it is not perfectly competitive either, but somewhere along the spectrum closer to that end).