Factors Affecting Price of Private Housing in the UK

This report discusses the factors that determine the price of private housing in the UK using demand and supply analysis. It also explores the government and economic policies used to stimulate the demand for private housing.

Economics for
Business
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INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
TASK 1............................................................................................................................................3
1. Identify factors which determine the price of private housing with the help of Demand &
Supply analysis............................................................................................................................3
TASK 2..........................................................................................................................................10
1. Explain government/ economic policies that used to stimulate the demand for private
housing in the UK......................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
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INTRODUCTION
Supply and demand analysis help the organization to understand the market trend
regrading private housing. In the UK, price of private housing affected due to various factors
which further discussed in this report. With the help of this analysis, construction company able
to identify the factors which affect the consumers demand. So they have top formulate strategy
accordingly. Along with this, supply of new houses also affected because of various restriction
on construction (Böhme and et.al., 2015). This report cover various topics like analysis of supply
& demand and it is used to identify factors which impact private housing price in the UK. Along
with this, it includes economic policies that used to stimulate demand for private housing in the
UK. Main aim of this project report is to identify that how price of private housing affect the
demand of consumer and what strategy made by the government in order to boost the demand in
UK.
MAIN BODY
TASK 1
1. Identify factors which determine the price of private housing with the help of Demand &
Supply analysis
Law of Demand: Under this law, demand of product increases when price of commodity
decreases and it will be possible when other than price all the factors are constant. Price and
quantity have negative relation (Law of Demand, 2019). It is applicable in short run, because in
long run all the factor affects the demand such as household income, substitute price, preference
& taste of customers etc. Below mention graph will provide better understand which help the
individual or business to know about law of demand:
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Illustration 1: Demand Curve, 2019.
With the help of above diagram, it clearly represent the inverse relation between price or
quantity which demanded by the customers. Price is denoted with P and Q is for Quantity, so
when price increase from P2 to P1 then quantity will decreases as well from Q2 to Q1. It will
show the negative relation between the price and quantity.
Law of Supply: It is an economic theory which shows the relationship between price and
quantity produce by the company according to the demand of commodity. There are positive
relation between price and quantity. When price increases then supply of goods also increases
because of high demand (Law of Supply, 2019). It will happen when all the factors are constant
excluding price but in long run all factors affect the supply.
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Illustration 2: Supply Curve, 2019.
(Source: Supply Curve, 2019)
Factors which impact the price of private housing in the UK:
Demand of private housing: In the UK, demand of private housing will impact due to
increase in price and other factors (Demand of private housing, 2019). In context of demand of
an individual, price and quantity have negative relation so when one increase then another one
decreases. Below mentioned graph provide better understating of private housing demand in the
UK:
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Illustration 3: Demand of private housing, 2019.
(Source: Demand of private housing, 2019)
Above mention graph represent the price of housing market and how it will affect the
demand as well. When price increases from £200,000 to £250,000 then demand will reduces
from Q to Q1. DD show the demand of private housing which can change according to change in
price & quantity.
There are various factors that impact the private housing demand in the UK and some of
them discussed below:
Interest rate: Due to change in the interest rate will impact the demand of people
regarding private housing. High interest rate will reduce the demand and on the opposite site low
interest rate will encourage people to spend their money on properties (Buckley, 2016).
Household Income: It is one of the important factors which impact the price of private
housing in the UK. High disposable income will encourage people to invest in the properties. On
the other hand, low income will reduce the purchasing power and it will direct affect the demand
of private housing.
Population: Demand of private housing in the UK all get affected due change in
population. Size of population will change because of migration of people and due to death or
birth also changes the structure of population. Basically high population have high demand and
low population will reduce the demand of private housing.
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Shift in demand curve: Change in the demand curve from left or right side called shift in
demand curve and it will change because of various factors which affect the demand of
consumers (Evans and et.al., 2017). For example: high disposable income increase demand of
building and similarly low income reduces the demand. So these factors affect the demand curve
to shift and below mention graph provide better understanding.
Illustration 4: Shift in Demand curve, 2019.
(Source: Shift in Demand curve, 2019)
Above graph show the Q for quantity, P for price and D denote the demand curve. When
price is constant and quantity will increases then demand curve shift to the right side from D to
D2. Price of properties is fixed but due to high income, population or interest rate will increase
demand of building. So it will helps in moving demand cure to the right side but curve can shift
to left side also if demand reduces due to various factors.
Supply of private housing: In context of supply, there are positive relation between
price and supply of product quantity. For example: Supply will increase when individual
demanded more in the market. So basically, high price will encourage producers to supply more
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quantity to fulfil consumer’s demand (Supply of private housing, 2019). High price of properties
will increases construction more and raise the supply as well. On the other hand, low price will
reduces the demand of private housing in the UK. Below mention graoh will provide better
understanding.
Illustration 5: Supply of private housing, 2019.
(Source: Supply of private housing, 2019)
As mention above, when price increases then quantity of supply also increases due to
high demand of private housing in the UK (FOOK, 2016). When price increases from £200,000
to £250,000 then quantity also increases from Q to Q1. There are positive relationship between
price and quantity which mention in the above picture.
There are some factors other than price which affect the supply of private housing in the
UK and it mention below:
 Cost: It is the factor which affect the supply due to increase cost of manufacturing
building and it will happen due to increases labour cost or material cost. For example:
shortage of labours will increase the cost of labours and in result, price of properties
increases and supply as well.
 Technology: Use of latest technology also affects the demand of consumers and it further
impact the supply as well (Maier, Meyer and Steinbereithner, 2016). Change in
technology will increases the elasticity of supply for private housing in the UK market.
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 Regulation: Legal laws or regulations will affect supply because before constructing any
building they have take permission from authoritative body. There are various restriction
from the government sides which need to know otherwise in the future it will affect
negatively. So before doing anything they have to know as well as follow the all
regulations for future benefits.
Shift in supply curve: It is graphical representation where supply curve move to the left
or right side due to some factors which affect the price as well as quantity. Below mention graph
will provide effective understanding regarding change in the supply curve (Milne and
Parboteeah, 2016). It will force the curve to shift right or left side.
Illustration 6: Shift in Supply Curve, 2019.
(Source: Shift in Supply Curve, 2019)
In the above mention graph, there are various factors which affect the supply and force
them to shift left or right side. These factors will affect the demand of private housing in the UK
(Mulhearn and Vane, 2015). Supply curve shift to the right side due to favourable condition of
nature, improvement in technology, low taxes etc. in result, supply curve shift from S0 to S1.
Similarly, supply curve shift to the left side because of high government regulations, increases
raw material price etc. so curve shift from S0 to S1.
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TASK 2
1. Explain government/ economic policies that used to stimulate the demand for private housing
in the UK
Government develop various policies in order to maintain economic flow as well as
demand of private housing is the UK. Government have to formulate various strategies for
economic growth and it further used to maintain demand as well as supply of construction
industry. At the time of developing any strategy, they have to analyse entire market and make to
find out those factors which impact the price of private housing (Salvatore, 2015). Along with
this, researcher has to identify constant factors as well because it will affect in the long run.
Government use various policies for the sustainable development of the construction industry.
Below mention policy will enhance individual understanding regarding supply & demand.
Fiscal policies: This policy used by the government when they need to boost demand of
private hosting in the UK. In order to increase demand, government reduce income tax and
increase their spending. It affects the growth as well as GDP of the country so regulatory bodies
have to understand all the aspect and make sure to minimise negative impact. Fiscal policy
includes monetary policy where government change their strategies according to the requirement
such as (Spieth, Schneckenberg and Ricart, 2014). When they wanted to increase demand then
they reduce income tax as well as government spending. On the other hand, in order to reduce
demand they increase tax rate which reduce the demand of individual in the private housing
sector. It is very important to maintain economy otherwise it occur the situation of inflation,
recession which impact the whole economy. So below mention policy used to maintain business
environment and boost the demand of private housing in the UK:
 Income tax: It is used to boost demand as well as supply of the products such as, in
context of private housing government reduce tax rate which increase the savings as well
as purchasing power of an individual. High tax rate will reduce the demand and similarly
low tax rate will increase the demand. In context of private housing, in order to boost
demand government reduce income tax which encourage individual to purchase
properties (Storey, 2018). It will provide opportunity to the people to buy new house at
lower rate because in the future there is no confirmation that tax rate in same or not. This
economic policy help in increasing disposable income of people which further promote
their spending in context of private housing in the UK.
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 Government spending: This strategy develops to boost demand in the private housing.
Government have to maximise their spending which helps in providing employment in
the country. Increase in government spending will increase the programs which
conducted by the country in order to provide sustainable development as well as welfare
of people. Effective use of fiscal policy will helps in raising economic growth as well as
GDP of UK. It is mostly used in boom condition, where government have to increase
their spending to recover from the inflation and they take borrowings to the country to
make their economy stable. Government increase their spending in order to boost demand
of private housing in the UK.
Illustration 7: Government Borrowings, 2019
Monetary policy: This policy managed by the monetary authority where they control
interest rate of borrowings. It is arranged by the central government which include the
administration of money supply. It further affects the demand for private housing and it will be
done through cutting interest rate. Low interest rate will motivate people to increase their
spending. This process help the country to maintain inflation, liquidity, growth of economy,
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consumption etc. To boost Aggregate Demand (AD) government have to reduce interest rate
which increase the demand of private housing in the UK. Government reduce interest rate by
0.5% in 2009 which helps in boosting demand of private properties and reduce the demand of
renting buildings. Lower interest rate will increase household income and reduce the mortgage
interest payment. Due to change in government policies, it will help the economy to balance
demand as well as supply of the commodities.
Factors that impact the demand of private housing:
Rents not affected by interest rates: High or low rent does not affect those people who
brought properties through borrowings. High interest rate will reduce the demand of private
housing and the other hand low interest rate will encourage propel to invest in the properties.
People who live on rent not affected because of change in the interest rate.
Supply more elastic: Rental properties are more elastic rather than private housing in the
UK so high demand of renting place will increases the demand of private housing.
Buying home as investment: In the current business environment, when individual have
enough money so they think to invest in the properties which further increase the demand of
buildings and it automatically raise the price of properties. So government have to take necessary
steps through introducing various policies where government increase interest rate, taxes and
reduce their spending as well
CONCLUSION
From the above discussion it has been concluded that, in the business economy demand as
well as supply both are very important to analyse because it further help in formulating strategies
which impact the production and profitability. In order to achieve business goals & objectives
they have to deeply study about economic theories. With the help of law of demand or supply
readers able to understand that how demand will impact the price of private housing in the UK.
In addition, economic policies such as fiscal or monetary used to balance economic flow and it
further impact the demand. In order to increase demand in the price housing sector, government
should reduce income tax, interest rate and increase their spending in the various schemes etc.
Government need to adjust their spending according to the situation of business environment.
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REFERENCES
Books & Journals
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perspective for creation of sustainable business models. Business Strategy and the
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FOOK, Z., 2016. June. BUSINESS & ECONOMICS. In 24th Annual Beacon Conference June 3,
2016 (Vol. 113, p. 64).
Maier, F., Meyer, M. and Steinbereithner, M., 2016. Nonprofit organizations becoming business-
like: A systematic review. Nonprofit and Voluntary Sector Quarterly. 45(1). pp.64-86.
Milne, A. and Parboteeah, P., 2016. The business models and economics of peer-to-peer lending.
Mulhearn, C. and Vane, H., 2015. Economics for business. Macmillan International Higher
Education.
Salvatore, D., 2015. Managerial economics in a global economy. OUP Catalogue.
Spieth, P., Schneckenberg, D. and Ricart, J. E., 2014. Business model innovation–state of the art
and future challenges for the field. R&d Management. 44(3). pp.237-247.
Storey, D. J., 2018. The economics of smaller businesses: some implications for regional
economic development. In Technological Change, Industrial Restructuring and
Regional Development (pp. 215-229). Routledge.
Online
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Supply of private housing. 2019. [Online]. Available Through:
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