Factors Affecting Supply and Demand of Private Housing in the UK

This report discusses the factors that affect the supply and demand of private housing in the UK, including interest rates, stamp duty, income effects, and government policies.

Economics for Business

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Task 1: Supply and Demand Analysis.........................................................................................1
Task 2: Government and Economic Policies...............................................................................5
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Factors of economics highly a business of any industry. A business always need to
consider economic factors in their daily operations to gain high profit in the respective market.
These factors affect a business in both terms positively and negatively. There are supply and
demand are the biggest factors within economics which decides growth of any business. Top-
level management of any organization always need to develop their products and services
according to demand and supply factors. This report discusses various terms of economics which
affect private housing in the UK. There are interest rates, stamp duty, income effect, house
building, population, right to buy schemes, and planning permissions etc. has been considered in
this report.
MAIN BODY
Task 1: Supply and Demand Analysis
Supply and demand analysis is important term within economics which is useful
identifying various factors which are helpful in determining the price of private housing in the
United Kingdom. There interest rate, stamp duty, house building some major which plays great
role in the determination of private housing price (Palma, 2018). Supply and demand analysis
helpful in showing actual demand and supply of a product and service as well. Many businesses
can easily maintain their production value though analysing existing demand and supply ratio in
the market. These main factors which plays great role in determination of private housing price
has been discussed below;
Interest Rates: This is one of the main factors of economic which private housing companies
has considered in their daily operations. Each company under housing market is always needed
to charge interest rates from customers on the basis of government policies. The UK government
is only responsible body which decides interest rate on private houses. Many times interest rate
in housing sector fluctuate according to market demand and supply as well. For example;
currently people in the United Kingdom are demanding for those houses which has facilities.
They ready to pay any cost to buy this type of houses. In these situations, a company within
private housing market is able to set price of house and interest rates according to market
conditions. Economic inflation also play great role to set interest rate. Currently most
houseowner has taken 0.5% interest rate when any customer buy their house.
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Source: Factors affecting supply and demand of housing
Stamp Duty: Stamp duty is factor within housing sector which mostly negatively impact
demand supply of houses in the market, because it raises price of houses in this sector. Many
popular economist has been criticized stamp duty, because it unconditionally raises price of
private housing (Gurran and Bramley, 2017). When a customer buys a house, on that time it
responsible to pay additional amount of for fulfil formality of stamp duty. Currently government
of the United Kingdom has imposed very huge amount as a stamp duty on customers of private
housing. The UK has generated £8.6 billion revenue through SDLT (Stamp Duty Land Tax).
House Building: Number of houses are currently increasing in this market, because people are
highly demanding for houses. Companies which work within the private housing sector runs
their various house building projections in the different places. Nowadays people want to buy
those houses which able to provide proper convenience. Currently housing market has gained
market share in the UK. Reason is, a house is a prime need to a person. Lots of houses building
projects are currently runs under housing sector in the United Kingdom.
The Income Effects: Income of a person is the biggest factor which affect price of private
housing in this country. Currently UK is one of the richest countries in the world, so leaving
standard of people here is also very high. Most people in this country are comes from high
income group, so they can easily afford private houses. That's why demand and supply of houses
is stable in this country. Many rich people here like to invest in buying different property. On the
other side, some people are comes from low income group also in this country. That's why many
companies under housing sector working on building affordable house as well (Pettinger, 2019).
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Government of the United Kingdom is not charging high taxation on those house which has been
made for lower income group. Government has imposed high tax rates only on those houses
which comes under luxury category. Affordably index of UK housing sector is moving in very
smooth manner. High fluctuation in the graph of affordability index have been before. Many
people from income group has invested huge amount on luxury houses, so they currently paid
very high amount as a taxation to government.
Source: Factors affecting supply and demand of housing
Regional/Local Demand Factors: Price of private housing in the UK is decided on the basis
region and local demand as well. In the London, demand of houses is very high, because it is an
area of high population. That's why prices of houses is very high in this area, because people
continuously demanding for houses and companies under housing sector are capable to fulfil this
market demand (Cochrane and Poot, 2019). Then south-east of the United Kingdom highly
demands for private houses, because people are here easily able to afford a common house. Price
of private housing is very high within England zone as well. Basically this zone is very posh,
most people in this place are comes from high income group. That's why these people are mostly
demanding for luxury houses.
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Source: UK Housing Market
Demand of houses is stable in Yorkshire, North-East, Wales, East-Midlands, etc. for last
many years. Mainly London is an area where demand of houses if very high in the comparison of
different region and local zones. Government of this country is charges very high amount as a
taxation when any person buy house in this area. That's why companies which working in private
housing sector sells their houses on very higher prices. Buying houses in London is tough task to
those people who come from low income group, because they can't afford price of houses in this
area. But many times local government runs different favourable schemes for these low income
group of people (Aalbers, 2016). With the support of these schemes, people from low income
group can easily afford houses in the London. Basically, prices of private houses are too higher
in popular cities of this country as compare to small towns and cities. For example; housing
prices in Hammersmith and Fulham is lower than London city. Reason is, demand of houses is
too higher in London.
Population: Population is another major factor which highly affect demand and supply of
private houses in the United Kingdom. This is a very logical thing that, prices of private houses
is always higher in those areas where local population is very high. In the term of economics,
demand of private houses are increasing day by day in this country, because population level of
this country highly increasing per year. That's why people demand for better accommodation.
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Currently companies of private housing sector are not able to fulfil market demand of houses,
because they are facing issue related to lack of land (Rubio and Rubaszek, 2019). According to
many analytical data, population in England will become 60 million in 2041 if increasing as
current population increasing rate.
Source: Factors affecting supply and demand of housing
In this case, demand of private houses also will be increased in the future. Many people
purchase houses for increasing their assets only. Government has imposed very high taxation on
those people who have additional houses. On the other side household aspect of this country will
also be improved in the future. Reason is, demand of private houses is increasing day by day.
Task 2: Government and Economic Policies
Economic condition of country refers to rate of unemployment, education level, interest
rates and disposable income of people living in the society. Due to Brexit and agreement
between UK to leave European Union has resulted in situation of inflation thus it has rise prices
of housing in UK (Bachmann and et.al., 2019). More house are needed to be build in order to
meet demands and needs of customers and to reduce price of housing. Thus, various policies are
made by government in order to build more house in UK such as:
New garden cities: Government in order to increase homes is planning to develop new cities in
mode of Milton Keynes that are near high street railway line to London. But it will take lot of
time as build on greenbelt land thus many objections are raised on building of new cities.
Government subsidy: Government by spending in development and building of new houses has
place growth and increase supply of social house at subsidize rate in order to meet demand and
needs of customers in effective manner. Thus, government by making effort to build and develop
homes is helps in economic development as local authorities has stop building new houses that
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resulted in shortage of homes (Namazi and Namazi, 2016.). Political commitment and
government intervention helps people in solving such issue effectively and easily.
Flexibility in planning: Government also have reduced many restriction related to building of
house on greenbelt so that builder cans increases supply of house and inflation rate can be
reduced. But people of UK opposed to such policies of government as it increased building will
reduce significant amount of green field and adversely impact on environmental resources of the
country. Government has also come up with new and innovative solution to such problem is that
converting brown field into new houses so that needs and requirements of customers are fulfilled
Incentives to local authorities: it is another method that is used by government of UK to
enhances and increases demand of private house by providing attractive incentives to local
authorities. Attractive incentives motivate local authorities to build new and innovative homes so
that supply of private house can be increased and people of UK can easily survive and enjoy
their life. Increases in supply of private homes will helps in reducing inflation rates and meeting
demand of people in most appropriate manner (Clark and Fast, 2019.). Therefore, government by
providing incentives to local authorities is able to influence local authorities to build more and
more private houses.
Affordable home ownership or Right to buy schemes: This is a very favourable scheme for
those people who come from low income group. Currently many people taking huge advantages
from these schemes. When a person buys a house under this scheme, in this situation it no need
to give huge stamp duty, because these schemes are only has developed for low income group. A
customer need to fulfil some legal formalities before purchasing house from these schemes. For
example; a person need to show their income certificate before purchasing house from different
government schemes. These schemes are really affecting price of private housing in the UK,
because people these schemes increases wants within customers to buy a house. Many times
government authorities which responsible to manage these schemes are face different challenges
in allotment of houses, because many people show fake income certificate also during
purchasing house through these schemes.
Government's support: Government of the United Kingdom currently plays very supportive
role in the housing sector (Lombard, 2019). For example; government provide lands on very low
prices to those private housing companies which specially work for providing houses to poor
people on low prices. People are very happy with these step of government. Many times local
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government offers subsidy also to those people who come from low income group. Currently
different valuable policies and schemes operates by it which highly support of poor people in
buying proper accommodation. Many times UK government provides interest free loans also to
low income groups. These schemes and policies are great initiative by government, because now
poor person is also able to afford proper accommodation.
Monetary policy: Monetary policy of this country is too effective, because this policy has
opened different productive gates for companies which works within private housing sector. In
the UK's monetary policy, there are special terms has been mentioned for improvement of
housing sector. People from low income group feels valued by economic policies of this country,
because these policies helps to people for fulfilling their prime accommodation needs. Monetary
policy is too helpful maintain a stability within demand of private houses (Gurran and Bramley,
2017). Existing government says, some more productive policies will also come in the future for
developing private housing sector of the United Kingdom. According to many economic data,
currently housing sector is giving great contribution in GDP of this country. That's why
government always take various steps towards increasing contribution of this sector.
Discourage to buy second home: Government has taken various step for discouraging to people
to buy second house. This is necessary step or policy of local government to control on price of
private housing in the United Kingdom. Many times people buy houses on that time also when
they already have a house. These conditions promote uncertainty within housing sector. Many
times these steps of people increase demand of houses also in the market. That's why these
government and economic policies are necessary to discourage people to not buy additional
houses. A person need to buy house only in that condition when is necessarily needed house. It
means, people need to avoid buy house in that condition when they already have a house.
According to government, if people starting to avoid buy a second house, then they will able to
save precious resources also of the country. This policy help to provide house to those people
who actually need a house.
Planning Permissions: Government is providing planning permissions for building private
houses in the United Kingdom, so supply of housing can increase in order to demand of people
residing in this country (Chuang and et.al., 2018). Government is encouraging more and more
builders to plan for developing building private houses in UK., so that inflation rate in UK can
decreased.
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CONCLUSION
From the above report it can be explained that supply and demand are two factors that
impact and influence in determining price of private housing in UK. Therefore, various factors
that impact private house pricing are interest rate, stamp duty and income of customers residing
in UK. It can also be concluded from above analysis that economic and political policies of
company such as affordable home ownership schemes and green belt land had to increase in
supply of private housing. Therefore, it helps in reducing inflation rate and promote growth and
development of UK economy by enhancing living standard of people.
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REFERENCES
Books and Journals
Aalbers, M. B., 2016. The financialization of housing: A political economy approach. Routledge.
Bachmann, R. and et.al., 2019. Time-varying business volatility and the price setting of
firms. Journal of Monetary Economics. 101. pp.82-99.
Chuang, M. C., and et.al., 2018. Pricing mortgage insurance contracts under housing price cycles
with jump risk: evidence from the UK housing market. The European Journal of
Finance. 24(11). pp.909-943.
Clark, I. I. and Fast, M., 2019. Qualitative Economics. Springer International Publishing.
Cochrane, W. and Poot, J., 2019. The Effects of Immigration on Local Housing Markets. (No.
19/07).
Gurran, N. and Bramley, G., 2017. Relationships Between Planning and the Housing Market.
In Urban Planning and the Housing Market. (pp. 85-120). Palgrave Macmillan,
London.
Gurran, N. and Bramley, G., 2017. The Housing System. In Urban Planning and the Housing
Market (pp. 45-84). Palgrave Macmillan, London.
Lombard, M., 2019. Informality as structure or agency? Exploring shed housing in the UK as
informal practice. International Journal of Urban and Regional Research. 43(3).
pp.569-575.
Namazi, M. and Namazi, N. R., 2016. Conceptual analysis of moderator and mediator variables
in business research. Procedia Economics and Finance. 36(16). pp.540-554.s
Palma, A., 2018. Impact of students in the real estate sector, namely in student housing.
(Doctoral dissertation).
Rubio, M. and Rubaszek, M., 2019. Does the rental housing market stabilize the economy?: a
micro and macro perspective.
Online
Pettinger, T. 2019. Factors affecting supply and demand of housing. [Online]. Available
Through: <https://www.economicshelp.org/blog/15390/housing/factors-affecting-
supply-and-demand-of-housing/>.
Pettinger, T. 2020. UK Housing Market. [Online]. Available Through:
<https://www.economicshelp.org/blog/5709/housing/market/>.
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