Factors Affecting Price of Rental Housing in the UK

This report discusses the supply and demand analysis of private rental housing in the UK and identifies the main factors that determine its price. It also explores government policies that can be used to influence the demand for private rental housing.

Economics for Business

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Supply and demand analysis to identify the main factors in determining the price of...............1
private rental housing in the UK................................................................................................1
TASK 2............................................................................................................................................9
Explaining government policies which can be used to influence the demand of private rental
housing in the UK.......................................................................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES .............................................................................................................................12

INTRODUCTION
The are of research that is related with manufacturing, spending as well consuming
number of product and services over a particular period of time is known as economics. In
modern business era, it is crucial to examine the influence of economics on a particular company
which support in better and appropriate functioning in nearby future (Gillespie, 2013). Supply
and demand are consider to be most important element that support in making various decision
related with economics circumstances.
In this report, the concept of supply and demand are described with their impact over
private rental properties in UK. There can be number of other factors which can influence the
price of private house available for rent in UK.
TASK 1
Supply and demand analysis to identify the main factors in determining the price of
private rental housing in the UK.
In economic term, the concept of supply and demand are the crucial factors that are
strongly interlinked with one another and due to changes in each factors intend to impact the
prices of goods and services.
Law of demand, defines that in case if all other elements are fixed and if price increase
than demand use to decrease or vice versa. Thus the relation among quantity demanded and price
are inversely connected to one another (Law of demand, 2020).
Illustration 1: Demand law
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Law of supply, is describe as the if all factors of microeconomics are constant and if price
rise by certain percent then supply is also going to increase (Law of supply, 2020). Thus, the
relation between quantity supplied by the supplier and price is positive and vice versa.
Illustration 2: Supply law
It is clear from the above graph that both supply and demand have a impact over prices of
any product which is required in market by large number of individual. Thus, it can be stated that
demand and supply can influence the prices and availability of private rental properties in UK.
There are various demand elements that are mainly reasoned when evaluating the price changes
of houses such as population, availability of mortgages, interest rates, economic growth,
affordability of housing, taxation and even more. Similarly some elements of supply have also a
significant affect over the price of house available on rent such as new constructions, availability
of rental houses etc.
Main elements that impact the price of private rental houses in UK.
There are different demand side elements which help to identify the price of houses in
UK marketplace. These are elaborated underneath:
 Economic growth: It is one of the most important demand side determinant that have a
vast influence over the rental cost of houses in UK. The concept of economic
development have a wider scope which is related with growing of various circumstances
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of a country as a whole rather than an industry. In recent time, economy of UK is among
the most develop economy all over the world (John, 2017). According to the problem of
BREXIT, United Kingdom has encountered many problems over the past several years
owing with which this nation's economic prosperity and development has indeed been
adversely affected. As per the Office for national statistics, residential property rates in
the Uk have declined since 2016, and the cause for this decline in values is a decreasing
rate of UK sustainable development.
 Interest rate: This is consider to be the significant elements that have a impact over UK
private housing sectors. This is because the individual use to take mortgage loan in order
to construct new houses so they have to pay a specific interest over that amount. So, it is
determined that higher interest rate over mortgage loan forces people to rent a house
instead in buying a new house. Many homeowners in the UK have flexible mortgage and
interest rate rises or declines impact home rates as well as production. High levels reduce
competition, thus reducing interests rates would increase demand in the housing market.
Actually in the United Kingdom, interest rate would stay the same as it is projected to
rise by 0.25 percent, which is around £ 22 on £ 175,000 mortgage. Many households
should not be impacted and there might be chances of new houses.
 Population: The factor of population is mainly connected to the total households
available in a particular place. UK is consider to be a developed country in recent year
and the population count is also not big due to which total number of house. A region's
population is correlated with four elements that comprise marriages, deaths, international
migration as well as total births (Emily and Chris, 2016). The rates of conception and
mortality in the United Kingdom remain steady thanks to the strong sustained health and
education systems. Even in the United Kingdom the migrant rates have risen
significantly. As per the census estimate, the population change in the UK increase by 4.8
million throughout 1991 and 2016, who was raised within the Rest of the country part.
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Illustration 3: National Statistic.
The above graph shows that in UK there is a immense increase over the prices of private
rental properties in the recent time. It is observed that after the incident of BREXIT in 2016-17
there have been a major fall down in the housing prices which further keeps on decreasing year
by year.
Increases the need for homes in the UK, which drives the demand and supply balance that
produces productivity in the economy. Housing sector drops from 2007 to 2012 owing to the
financial crisis and drop in bank lending. Throughout the bubble era, home prices were
overvalued as sellers were willing to purchase certain homes for the first time. But
unemployment is growing due to recession which also discourages many buyers.
Availability of Mortgage: It is consider to be an crucial factors that influence the price
of house available for rent purpose in respective country. The main principle of this factors is
related with the fact that each individual planning to lease a house on rent need funds. Thus these
funds are primarily procured from mortgaging offered by various financial institute (Harbarth
and et. al, 2015). If housing supply is weak, therefore demand for private residential
accommodation will decline as well as the rates will decline as well. In the United Kingdom, the
purchase of mortgages was also an simple job but owing to the credit crisis in 2007, this
country's government opted to curb the availability of loans as a consequence from which private
rental accommodation demand and prices increase.
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The graph is helpful in defining the facts that Chelsea and Kensington are on top which
have the highest presence of mortgage as compared to other institute (National Statistics, 2019).
On the other side the minimum availability of mortgages is with barking and dagenham.
Taxation: The respective factors is the one which have a greater impact over the price of
house that can be used as rental house by the house owner in UK. In general economic term, tax
is defined as the charge imposed by governance over income and gain paid by individuals. In
privately held rented property. Rising tax increases in United Kingdom are the factor behind the
increase of private residential home prices. People who rent a room don't have to charge any
investment benefit or house value tax but the home owners tend to pay a heavy tax amount.
Landlords demand excessive premiums for their residential properties in order to raise funds. As
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a result, the entire price of house available for rent can be increased due to which number of
people need house on rent can decreased.
Affordability of housing: In recent time is have been determined that market of UK is
quite unstable due to which housing sector have number of issues. Such as due to grater increase
in rental properties the housing market is slowed down. Renting is deemed not generally cheaper
than owning a comparable property owing to which citizens do not want to rent a house in UK.
In the UK, the quality of residential assets has been significantly decreased owing to which the
costs of such assets have also increasing.
There are several other factors which are related with supply side of rental house prices in
UK. These are determined and elaborated underneath:
Construction new houses: This factors is idly related with the supply of rental houses
throughout UK which is furthermore beneficial is defining the price of these houses. Given that
UK is a developing economy, this nation's building sector is also rising at a fast pace.
Throughout this area thousands of extra buildings are established per year. Due to this condition,
the private housing property rates have also increasing year by year.
It have been determined from the above graph that building of new houses in UK is
increasing year to year because of which the overall supply of private house for rental purpose is
also increasing at same pace.
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Supply of housing: These considerations claim that if the stock of residential property in
the UK area decreases then the demand and price of private housing property would also
improve.
As per the chart described, the blue line reflects the constantly that owner occupied
housing property in the UK. The availability of private housing house premises is also growing
as a consequence of this growth (Storey, 2016). This large availability of private leasing
properties often raises the costs of these lands.
Thus, with the support of above discussed overall factors it is assessed that demand and
supply have a greater influence over the private housing prices which are available in UK.
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It has been shown according to the above equilibrium chart that even if the demand curve
changes and output stays stable then prices always rising. The analysis above displays all the
reasons examined that say that due to supply and demand side influences the cost of average
property decreases in the UK.
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TASK 2
Explaining government policies which can be used to influence the demand of private rental
housing in the UK
Policy which are produced by government are related to the laws and regulations that
political officials create to contribute to the functioning within a country. In the sense of private
rental houses in UK, different policy has been introduced by government that have explicitly or
implicitly affect on rental houses demand. There have been number of reforms which can be
implemented to impact the demand of rental properties in UK. Some demand side reforms are
discussed below:
Landlord rights: It is determined in the recent time that any variance in national policy can
not regulate the growing costs of private residential property in the United Kingdom. This often
needs adjustments in tenants and houseowner privileges. When the price rises, demand for rental
assets declines as people seem to choose owning a house instead of leasing. When government
wants to grant renters and landlords some privileges, so there is a risk that the affordable housing
demand can increase. These privileges may provide three month warning until seeking rented
house vacancy, affordable rent and much more.
Interest rates: Such rates apply to the price an person is obligated to pay towards the loan.
Large residential property rates in UK are continuously rising owing for which people have to
take out loans for this reason. Whether the administration reduces loan rates made for the motive
of leasing a residential property throughout the United Kingdom, then there will be a high chance
that demand for private housing properties throughout the United Kingdom may improve, that
will also strengthen the ever-of private rental properties (Gibbons, 2015).
Mortgage policies: The impact of this policy on demand of houses available for rent can
be in both ways that is either increasing or decreasing. In case if governance make a decision to
reduce the availability of housing loan in UK then people does not have sufficient amount to
purchase a new house. This it will impact to increase the demand of rental houses throughout UK
and increasing the number of tenants. On the other side, if UK governance take decision to
enhance the option of housing loan than more and more people will likely to purchase a new
house and as a result demand of house needed on rent will be decreased.
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It is clearly seen from the graph that proportion of mortgage availability keeps on
moving time to time because of number of acts imposed by UK governance. Thus due to these
fluctuation the demand of housing properties keeps on impacting i.e increase or decrease.
Governmental policies: These were the laws that are established by the government to
regulate the price rise in UK private rental housing. As per the Statistics Agency, various
measures will be enforced by the future government, that would boost the market for private
rental property in the United kingdom. This country's government aims to add reliability to the
smoking and smoke detectors program by raising total emissions in the area. Whether the
administration of this nation regulates the renters that it is necessary to carry out electrical wiring
tests then the market for UK rental properties can also be raised (Kemp, 2015).
Aside for the above-mentioned demand-side measures, there are also few supply-side
liberal policies that may affect UK private rented housing demand and costs. These are discussed
underneath:
 Landlords: They are the citizens who rent out their private property to renters. When
policy reforms the laws that limit renters to rent their property. The stock of private
rented assets in the UK will decline, which would inevitably have an adverse effect on
competition and competition for rental homes.
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 Public housing: Such regulations are laws are established by the government that
regulate the private housing operations. When the government changes the regulations on
affordable accommodation in the United Kingdom, the need for a new building in this
country will drop and the need for private residential homes in the United Kingdom
would rise immediately.
 Social housing: It is the last recognized element that affects UK private rented housing
market. When policy sells its affordable housing programs in the UK, so there will be a
decline in the number in individuals purchasing a new property which would inevitably
raise residential property demands.
CONCLUSION
In the end of this report, it has been founded that supply and demand are the main
elements of economy which help to define the prices of product and services available in the
market. There are several other factors such as interest rate, mortgage availability, economic
reforms which have a greater impact over the demand of houses available for rental purpose in
UK.
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REFERENCES
Books and Journals:
Gillespie, A., 2013. Business economics. Oxford University Press.
John K., 2017. [Online]. Available through: <https://www.ft.com/content/d8854b1e-bf08-11e7-
823b-ed31693349d3>
Emily C. and Chris G., 2016. [Online]. Available through:
<http://ig-legacy.ft.com/content/47b31090-3555-11e2-bf77-
00144feabdc0#axzz6FXFNgEeN>
Harbarth, S. and et. al, 2015. Antibiotic research and development: business as usual?. Journal of
antimicrobial chemotherapy. 70(6). pp.1604-1607.
Storey, D. J., 2016. Understanding the small business sector. Routledge.
Gibbons, S., 2015. Gone with the wind: Valuing the visual impacts of wind turbines through
house prices. Journal of Environmental Economics and Management. 72. pp.177-196.
Kemp, P. A., 2015. Private renting after the global financial crisis. Housing Studies. 30(4).
pp.601-620.
Online
Law of demand. 2020. [Online]. Available through:
<https://www.investopedia.com/terms/l/lawofdemand.asp>.
Law of supply. 2020. [Online]. Available through:
<https://www.investopedia.com/terms/l/lawofsupply.asp>.
National Statistics. 2019. [Online]. Available through:
<https://www.ons.gov.uk/economy/inflationandpriceindices/articles/
exploringrecenttrendsinthelondonhousingmarket/2018-09-19>
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