Economics for Business: Factors Affecting Demand and Supply of Private Housing in the UK

This report discusses the factors that influence the demand and supply of private housing in the UK, including affordability, interest rates, population, household income, and cost of renting. It also evaluates government policies aimed at stimulating demand for private housing.

Economics for Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK 1............................................................................................................................................1
1. Identifying the factors which impact price of private housing with the help of Demand &
Supply analysis............................................................................................................................1
TASK 2............................................................................................................................................6
1. Evaluate government policy which formulated to stimulate the demand for private housing
in the UK......................................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Economics for business refer to the economic policies as well as economic theory which
helps the enterprises and some factors contributed in order to diversify the organizational
structure. Basically, economic theory based on consumer's demand as well as commodity
supplied by the producers (Berck, 2018). With the help of applied economics, business able to
understand the relationship between capital, labour or product market. It help the organizations
to analyse market which further provide benefits to the manager at the time of formulating
strategy through analysing demand & supply of goods in the market. This project report cover
various topics such as demand & supply analysis and the factors which influence the demand of
private housing in the UK. In addition, there are various economic policies which required to
implement in order to boost the demand of private housing in the UK.
MAIN BODY
TASK 1
1. Identifying the factors which impact price of private housing with the help of Demand &
Supply analysis
Economics refer to the various assumptions which made for the analysis of demand and
supply of commodity in the market among the consumers. It helps the organization in decision
making process and future strategies. So it is very important to analyse the entire market and
understand the demand as well as supply of the product in the market. So before formulating nay
start for the business, manager understand the market condition, consumer's demand, economic
policy etc.
Law of Demand: It is refer to the behaviour of an individual regarding any product and it
is based of the price as well as quantity demanded by the person. As per the law of demand, there
are inverse relationship between price and quantity. When price increases of an product then
demand of that product decreases and this time all the factors are constant rather than price. On
the other hand, when commodity price reduces then demanded quantity increases (Law of
Demand, 2019). It will will done due to inverse relation and below mention demand curve will
provide better understanding of law of demand. In context of private housing, high price reduce
the demand and low property price will increase the demand. So there are various factors which
impact the demand of private housing in the UK.
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Illustration 1: Demand Curve, 2019.
(Source: Demand Curve, 2019)
From the above mention demand curve, it represented that Q is the quantity which
demanded by consumers and P is the price of private housing in the UK. In context of private
housing, when price of private housing increases then its demand will reduces as mention in the
graph. Raise in the price from £200,000 to £250,000 will reduce the demand from Q to Q1.
At higher prices, demand will reduce because of low income of individual so consumer
prefer to choose alternatives such as renting building because it provide low cost (Dirican, 2015).
Similarly, when renting house prices increase then demand of private housing also increase.
Because consumer prefer to push their budget or invest in properties and buy new house for
them.
Law of Supply: It is refer to the economic theory where price of commodity and supply
quantity have positive relation. Basically, when consumer pay more for the product then supply
increases in order to fulfil customer's demand and satisfy them. Supplier increases the supply in
order to maximise the productivity as well as profitability which provide economic growth. In
context of private housing, all the factors are constant rather than price of houses (Law of Supply,
2019). Increase in the private housing price will also increase the supply of new houses. On the
other hand, low price will reduce the supply of private housing in the UK. Below mention supply
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curve will provide better understanding of law of supply and how it will impact the demand of
private housing in the UK.
Illustration 2: Supply Curve, 2019.
(Source: Supply Curve, 2019)
Above supply curve represent the positive relation between price of private housing and
quantity supplied by the constructors as per the demand. When price increases from £200,000 to
£250,000 than supply also increases (Granger, 2014). S represent the supply curve which is in
upward direction and it represent the positive relationship which impact the supply of private
housing in the UK. Other than price, there are other factors as well which impact the supply but
it will only work in long run because in short run all the factors are constant.
There are various factors which impact the demand as well supply of private housing in
the UK (Factors which impact the Demand & Supply of Private Housing, 2019). Some of the
main factors are discussed below:
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Illustration 3: Factors which impact the Demand & Supply of Private Housing, 2019.
(Source: Factors which impact the Demand & Supply of Private Housing, 2019)f private
housing:
Factors that impact the demand of private housing:
 Affordability: Increase in the income will make individual capable to affords private
housing. When economy growth, demand of private housing also increases and it will
consider into luxury good (Kordos and Karbach, 2014). So basically, raise in the income
will increase the demand of private housing and similarly low income will reduce the
demand.
 Interest Rate: It is a major factors which impact the demand of private housing in the
UK. Where high interest rate will reduce the purchasing power of an individual that
automatically reduce the demand. On the other hand, lower interest rate will motivate
people to spend in the housing. UK homeowners prefer to take variable mortgage rates
rather than fixed. Change in the base rate will immediately impact the mortgage interest
payment.
 Population: It is very important for any country to understand their population size
because it may impact overall demand or supply of the goods & services in the market.
Change in size of population will affect the demand such as individual prefer to live
alone and buy their separate house (Lawrence, 2018). Birth & death also change the size
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of population which impact the demand of private housing in the UK. So basically, high
population country have more demand and low population country have low demand.
 Household income: Increase in the individual income will raise the willingness of
consumers to spend more. So high income of individual will increase the demand of
private housing and similarly, low income may reduce the demand. So income is elastic
which affect the demand. In the boom condition, demand of housing sector is in rapid
growth where household income is elastic.
 Cost of renting: In context of private housing demand in UK, high cost of renting will
increase the demand of housing. On the other hand, low renting cost will reduce the
demand as well. In case of increasing renting cost, people give extra efforts to buy new
house or stretch their budget (Milne and Parboteeah, 2016). Because economy is not
stable for longer period and it is possible that, in the future price of property can increase
which reduces the demand.
Above mention factors affect the demand of private housing in the UK. In order to boost
demand in housing, these factors impact the most and it will work in the long run because in
short run all the factors are constant rather than price. Low interest rate increase demand for new
building, increase in the population and high cost of renting also raise the demand of private
housing in the UK.
Factors that influence the supply of private housing:
 Planning restriction: Builders have to take permission from authoritative body or
agency because there is restriction of use of land. It is a big issues in the UK that is
limited buildings on green belt land and before construction they have to take permission
regarding construction. It become barrier for the builders which impact the supply of
private housing.
 Build new home: Construction will based on the demand of population which can
change timely (Build New Homes, 2019). Below mention graph represent the number of
new houses in the Britain and will change as per the demand of consumers which
affected by various factors.
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Illustration 4: New buildings, 2019.
(Source: New buildings, 2019)
 Profitability of developing new houses: Profitability depend upon the demand of private
housing in the UK. In case boom period in the economy, builders develop new buildings
and fulfil the demand of consumers. But, falling in the houses prices will lead the
restriction of supply.
 Local opposition: There are various opposition in front of builders because of
developing new houses (Norris and Vaizey, 2018). Local community prefer to live in
village and enjoy the peace & nature without increasing congestion in their locality.
Above mention factors impact the supply of private housing, so country have to develop
economic policy according to it. It further helps in boosting demand as well as supply of housing
in the UK market. Planning restriction and community opposition will reduce the supply of
buildings.
TASK 2
1. Evaluate government policy which formulated to stimulate the demand for private housing in
the UK
Government policy is an initiatives in the various areas where they declare political
activities, plans and change regulations as per the requirement of economy. In order to make
balance in the economy regarding demand & supply of private housing in the UK. Government
focus on fiscal or monitory policy and make sure to implement in effective manner to boost
demand of the properties (Salvatore, 2015). Below mention policies will help the UK
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government to boost demand of private housing. In order to boost demand in the UK regarding
private housing, so government have to reduce tax rates, interest rate or increase the government
spendings. These factors affect the entire economy as well as demand of private housing in the
UK. These policies discussed below:
Fiscal policy: This policy refer to the government adjustment where they increase or
decrease there spending as well as income tax. So government formulate strategy according to
the economic condition of the country. In the boom condition, country have to increase tax rates
and reduce their spending to balance supply of money. In order to boost demand of private
housing in the UK, government have to reduce tax rates which increases the affordability of
an individual to buy property. As well as, increase government spending also encourager people
to show their interest to buy buildings. There are other factors also included which motivate
people to invest in the business such as increase in the income will raise the affordability, low tax
rate will increase final savings etc. Similarly, availability of mortgage also encourage consumers
to show their interest regarding new houses which boost the demand of private housing in the
UK (Saviotti and Metcalfe, 2018). In context of increases housing demand in the UK, raise in the
tax rates will reduce the demand of new houses and similarly decrease in the tax rate will
motivate people to buy new houses. On the other hand, government have to adjust their
spendings according to the market conditions. Tax cutting and increases government spending
intended to raise the aggregate demand of private housing in the UK.
Monetary policy: It is refer to the microeconomic policy which managed by the central
government of the country in order to manage supply of money or interest rate of mortgage. In
order to maintain demand of commodity in the economy, government implement monetary
policy where they manage interest rate as per the situations. In order to boost demand of private
in the UK, government have to reduce interest rate which make people able to afford mortgage
payment and purchase new houses. Lower interest rate will encourage people to invest in new
houses and the other hand, high interest rate will reduce their spendings in the private housing. It
will will be possible when all the factors are constant rather than prices. Monetary policy
increase the liquidity of the economy in order to provide growth as well as decrease the liquidity
to prevent inflation. So basically, in order to boost demand of private housing in the UK
government have to implement this economic policy where they reduce interest rate to boost
demand.
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Factors that impact the demand of private housing:
Purchase houses as future investment: When real income of individual increases then it
will encourage people to save money and invest in the properties. So it will further impact the
demand of private housing. In order to boost demand in the UK, government also take necessary
actions where they cut tax rates which helps in saving more money. So people invest their
savings in the housing area in order to get future benefits.
Renting not affect the interest rate: If individual live on renting they does not affect
due to change in interest rate. But they think to purchase their own house then they have to
analyse the market in order know demand or supply of private housing. High renting cost will
increase the demand of private housing and similarly low renting cost will reduce the private
housing demand (Storey, 2016). So basically, renting cost not affect the interest rate but affect
the individual who willing to purchase buildings.
Supply of renting house more elastic: In the UK, renting house is more elastic which
impact the demand of private housing in the UK. Basically, when renting cost increases then
price of private properties also increases. On the other hand, when renting cost reduces than
demand also reduces. There are positive relation of cost of renting and demand of private
housing. This factors also impact the demand of property in the UK. So government will
implement economic policy in order to make balance in the economy.
CONCLUSION
From the above discussion it has been concluded that, demand & supply of commodity in
the market is important to analyse because there are various factors which impact the demand of
private housing such as population, interest rate, household income etc. These factors should be
analysed by the manager and formulate their future strategies accordingly. With the help of
demand & supply analysis, business able to understand the nature of consumers regarding
purchasing goods. Along with this, in order to boost the demand of private housing in the UK
government implement economic policy such as fiscal or monetary. Government implement
various economic policy where they reduce interest rate, tax rate and increase government
spending in order to boost demand of private housing in the UK.
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REFERENCES
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Online
Build New Homes. 2019. [Online]. Available Through:
<https://www.economicshelp.org/blog/15390/housing/factors-affecting-supply-and-
demand-of-housing/>
Factors which impact the Demand & Supply of Private Housing. 2019. [Online]. Available
Through:
<https://www.economicshelp.org/blog/15390/housing/factors-affecting-supply-and-
demand-of-housing/>
Law of Demand. 2019. [Online]. Available Through:
<https://www.economicsonline.co.uk/Competitive_markets/The_housing_market.html>
Law of Supply. 2019. [Online]. Available Through:
<https://www.economicsonline.co.uk/Competitive_markets/The_housing_market.html>
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