Economics

Economics

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Describing the main factor that causing the price of private housing in UK...............................1
TASK 2............................................................................................................................................7
Explaining the main government and economic policies which stimulate the demand for
private housing in UK..................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Business economics is that field which is mainly applied in the economic theory by using
quantitative methods so that it will analyse the business environment. Further, it also describe the
factors that are also contribute the relationship of a company, labour, capital as well as product
markets (Castells, 2017). In the same way, current study will also describe the deep
understanding of demand and supply curves in which it describe the main factor that determining
the price of private house in UK by using special demand and supply graph. Further, study will
also determine the main government as well as economic policies which is mainly used to
stimulate the demand of private houses.
TASK 1
Describing the main factor that causing the price of private housing in UK
Housing in UK presents the largest non- financial assets class in UK and it is analysed
that around 30% of the owned by the people and further 40% of the homes are mortgage. But
due to increases prices in UK may affect the housing crisis for some especially for low income
brackets. Therefore, there are some factor that affect the overall private housing in UK and these
are as mention below:
Interest Rate: It is effect the overall private lodging market in opposite way such that
lower interest leads to lower down the mortgage rates which is offered from bank and as a result,
it decreases the monthly mortgage payment which homebuyer should pay for a specific mortgage
amount. It is such that smaller the monthly payment, it will be more affordable to take a loan
(Charles, 2016). As a result, the demand will increases because people may easily get loan in
low rates if the interest rates of loan is low. Moreover, changes in the interest rate large causing a
person's power to influence houses because of getting loan in such a low rates.
On the other side, as interest rates rises, mortgage also raise and as a result, the demand is
decreases. Further, the mortgage will remain cheap and there will be increase in wages which
will also feel as a burden (Factor that affect the housing property in UK, 2018). The main reason
of lower down the interest rate is low inflation environment which increases the competition and
there is a decrease in edge between policy interest rate and lodging debt charge.
Stamp Duty: As per the secondary research, when stamp duty drawn-out down the
lodging market in UK. Such that there is a decrease in rate of quality such that when the belief of
houses transcend £250000 and there is an alteration in levy charge from 1 to 3 percent (Gibb,
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2016). As a result, if there is 2 percent point increase in stamp duty then it will reduce the
household mobility up to 40%. it is also analysed that due to imposing stamp duty, the
households and the market of private house decreases and it will creates a significant welfare
loss on society as a whole. Therefore, the welfare loss link with tax rate also raise from 1 to 3%
which means that there is possible above 80% of the revenue increases.
In past time, Philip also get rid of stamp duty for all the holding up to 3 lack pound with
an direct result in fund. But the office of Budget Responsibility predicts which will raise price
by 0.3 percent. Therefore, the transfer tax on property creates negative impact such that by
increased moving cost of unemployed may take up jobs from their residence from switching to
more productive jobs. Therefore, it affect the overall housing market of UK.
As per the above graph, it is interpreted that S4 is the existing supply but when price
increases the supply decreases and as a result, quantity also affected.
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In this image, when price changes, it affected the overall demand of houses such that at
fixed quantity, the price affected with demand.
Housing building: As per last many years, there is a sudden increase in new build homes
such that there were 217000 homes coming in the market and this shows 20 percent increase in
the years before. Therefore, it is analysed that if the migration number go on to spill, and all
building activities are pick up further, the supplying rate is decrease and the supply of personal
lodging is wholly resolute by house price together with amount of determiner. Thus, in the term
of prices of house, there is a positive inter-relationship between demand as well as supply such
that it helps to promote people to raise their demand to buy homes (Jones, Fuertes and Lomas,
2015). On the other side, there is backward kinship between the house price and demand such
that when the house prices increases, the demand of building new home decreases and as a result,
it affect direct impact upon the economy as well.
Moreover, the financial crisis, of 2008 is creates the biggest disruption in US housing
market that affect the overall economy such that it is consider one of the greatest recession
impact on the housing market and it also affect the overall economy as well. Before the
recession, bank provides easy loan to public but when public did not repay the same amount,
bank did not have money and as a result, the housing market got affected in negative way
(Ivashina and Scharfstein, 2010). After that government made different policies and bank is
permit to provide particular amount of loan to public so that it will not affect in negative way.
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As per the graph, if demand of housing property in UK is lower down, then people did
not purchase the houses and as a result, the curve of demand also shifts from left.
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Illustration 1: Shift in Market demand curve

The above graph shows the amount of houses which are provide at each price and it has a
affirmative slop that means if the price of house increases, it increases the number of suppliers as
well.
On the other side, when prices increases, the real income will also fall and individual also
reduces the demand and they find out different substitute option as well Like renting. Beside this,
when home price are let down then reverse is true such that it increases the supply of houses and
as a result, renting become less attractive.
Income effects: The income factor also affect the demand and supply of household in
negative way such that alteration in both the plane of domestic income as well as its arrangement
impact the need of place (Goh and et.al., 2015). Such that if the houses are buy by people who
earn good income and also have normal goods then it raise in income which further causing
huge percent that leads to increase in demand. But on the other side, if individual's income
increases then they will definitely control from rental to home control or they may slowly move
to own property as well (Ball, 2017). Among them, many may buy intermediate holding such as
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Illustration 2: Market supply of houses

holiday homes and they may rent out. therefore, it clearly shows that the need line for private
housing will further shifts towards right whenever the income ascending.
It is also analysed that in UK, household income is higher and it is so because both
partners now work and as a result, they did not feel any burden while paying the mortgage.
(Gallent, Mace and Tewdwr-Jones, 2017) Thus, it reflect that when income have increases at
similar pace across most income In past decades and most of the people wants to invest in
buying homes only.
Regional and local demand factors: this factor also affect the overall housing property
in UK such that cultural and lifestyle way which includes liking for late marriage may also
modify the shape of need for houses (Hilber, 2015). Therefore, the orientation for future
marriage also increase the number of individual house and as a result, it increase the need for
flats and apartments. Moreover, on the other side, most of the regional factor also demand for
renting property as a alternative ownership and sudden change in rental prices may also affect
the need for the private home.
On the other side, as per the graph indicates that changes in any factors of need for the
houses will further shits the need curve from left to right such that D1 shows increase in demand
in which the price of houses decreases so that demand will automatically increases. Therefore,
decrease in cost will displacement the need from left to right and on the other side, raise in cost
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will displacement the need from constant to left. Therefore, supply of private housing is
determined by house price and there is a positive relationship between supply and price such that
when there is high price of houses that directly encourages supply as the below graph indicates.
As the graph states that when price decreases,the supply rates also shift towards right
which means supply decreases.
As per the above graph, when both demand and price intersect at single point that is
known as equilibrium.
Population: Population also creates direct impact upon the housing property such that in
UK the proportion of households where the oldest person is 85 or over will grow faster and the
data also shows that the number of people who desire for house with support services is also rise
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i.e. in next 10 years, there is 70 percent raise in the need for housing property (Ryan-Collins,
Lloyd and Macfarlane, 2017). In addition to this, the needs of housing property in UK is
ascertained by the total population size as well as changes in the artefact of people which is
further caused by movement as well as long term alteration in decease as well as birth rates.
Thus, the factor also reflect that ageing population also raise the demand for housing property in
UK and if population decline then it will lead to smaller the demand for housing. It is so because
of low fertility which is consider one of the main driving force that underlying population
decline and as a result, decrease in housing size as well. Thus, it reflect housing property of UK
also affect from this factor also. As a result, home ownership is also collapsed.
As the graph indicates that household percentage is decreases and from last 15 years up
to 5.9 and it is so because of financial crisis is 2008 in which bank have no liquidity to provide
home loans to their customers.
TASK 2
Explaining the main government and economic policies which stimulate the demand for private
housing in UK
The government of UK also take different initiatives in order to affect the need for
private housing and some of the policies are as mention below:
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The Affordable Homes Programme (AHP): It is manage by Government of Homes
England in which they provide a flourishing attempt to enter into bringing consent with Home
England. Therefore, this policy affect the substitution of superior aid activity grant for cultural
lodging with gross grant. As a result, this scheme contribute to delivery of 150000 new
affordable homes (Rahal, 2016). Therefore, by analysing the success of the project, government
increase the estimate to 170000 new homes and it also utilizing £1.8 million for grant funding.
In addition to this, the Chartered Institute of Housing and the Local government
Association have a long argued because removal of adoption cover that obligatory on national
regime which is a part of decision to self- financing . As a result, in 2015, the government of UK
raise the support which is accessible for new low-cost location by £150 million and further it
support around 10000 new homes as well (Chari, Christiano and Kehoe, 2008).
Stamp duty land tax reforms: The stamp duty tax is improve and it is proclaimed in
2014 that eliminate the long standing abnormality of tax. For example, when a person wants to
sold the house for £250000 that implicit a levy obligation of £2500 on the other side, if the
house is sold in £250001 which implied a tax liability of £7500 (Scanlon, Fernández Arrigoitia
and Whitehead, 2015). but under new law made by government of UK states that the buyer
should pay the tax rate on the part of property for each band such that Income tax. It is realized
that this step is proceed towards right direction because it creates incentive for group to decision
house.
Right to buy schemes/ affordable home ownership schemes: It is another scheme
which came into existence from 1 August 2016 that provides renter of assembly and some
lodging subordinate the lawful right to acquire with a big deduction. Moreover, they have a right
to take for the confident renter but at smaller discount. The policy reflect its success when there
are more than 1 cr houses were sold but the only default of this policy is that it reduces the
amount of reduction in social housing in UK (Lund, 2017). In this, the government of UK also
provide saving strategy for the basic clip buyers which may also includes an leader component
that further allow relief equivalent to pension for mortgage savings as well. Therefore, this tax
advantage would utilize only if all the money were in use or deposit as a part to buy the a house,
otherwise it would be withdrawn.
Beside this, the government of UK also provide Affordable Home ownership schemes in
order to increase the demand of housing property in UK and as a result, this scheme provides
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financial assistance to tenants in order to buy a home. Such that the government helps in saving
and provide low interest loan so that people encourages to invest in purchasing of homes. This
also reflect that in every year, the number of buyers also increases that also leads to increase the
overall financial performance of a country.
Planning permissions/ green belt land: Government of UK also introduce the scheme
in which they promote people to use those land which are largely underdeveloped, wild and
agriculture land that surround the urban areas. In this way, the government also promotes people
to invest in these areas. As a result, the present government advice to check the unrestricted
sprawl of large built- up areas, further to protect neighbour town from merging into another, to
help in safeguarding the country side from invasion. The policy also helps to preserve setting the
special character for historic town, therefore, by implementing this policy, the government
approved agricultural building under green belt and also provide facilities for outdoor sport and
recreation. As a result, it leads to redevelopment of larger, already developed sites within a
developed sites (Policies implemented by government of UK to stimulated demand of housing
property, 2017). Even most of the people also encounter the planning system and they also want
to make changes to their house such that extend existing building or replace building and these
are not included under this scheme.
Therefore, this planning scheme is also set up to permit the development in the
agricultural areas only if there is no harmful element to it. Even there is a need to implement
such policy because it check the unrestricted populated area of large built up areas, also prevent
neighbouring town to merging into one another, as the green belt covers almost 30 percent of
land area of England (Baptista and et.al., 2016). That is why, it is essential for the public to
follow the policy because it made a major contribution to quality of life used by individuals.
Fiscal instrument: This type of instrument provide income tax relief on saving schemes
as well as other payment. Moreover, under this scheme, the government also provide tax
incentives for the building of low-cost structure. Therefore, another advantage of using this
policy that leads to increase the demand of housing property in UK is such that people get
alleviation from superior addition levy on land as well as act place that sales for low-cost lodging
too. As a result, it is consider as a incentives for the people and may easily afford for a land.
Thus it clearly reflect that it increase the demand to purchase residential houses for their own
use.
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From the above, it Is analysed that Right to Buy is scheme is consider the best that helps
to increase the demand of people in UK (Balchin and Rhoden, 2019). Such that the number of
buyers increases from last many years because government provides legal right to buy the
property with larger discount rates or sometimes at low interest rates as well. Therefore, it will
help to encourage them to raise the demand so that it will not affect the supply rates. Event the
research also shows that this program provides a million of household and also secured their
families' finance as well because a low income people did not afford to invest on such thing.
Therefore, the Right to Buy provides way to those people who dream to have their own home.
CONCLUSION
By summing up above report it has been concluded that housing property in UK
contribute the major part in the success of the economy. Though report concluded different
factors that affect the demand and supply such that interest rates, stamp duty, house building,
income effects, some regional and local demand and population. Therefore, this may sometimes
decrease or increases the demand and supply and as a result, the price of housing property also
affected as per demand ans supply. In addition to this, the report also concluded the policies and
schemes implemented by the government of UK that promotes people to increase the demand of
housing property in UK. Such that government of UK establish The Affordable Homes
Programme (AHP), Stamp duty land tax reforms, Right to buy schemes/ affordable home
ownership schemes, Planning permissions/ green belt land and fiscal instrument that helps to
increase the demand of the public which directly creates positive impact upon housing property
in UK.
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REFERENCES
Books and Journals
Balchin, P. and Rhoden, M., 2019. Housing policy: an introduction. Routledge.
Ball, M., 2017. Housing policy and economic power: the political economy of owner occupation.
Routledge.
Baptista, R. and et.al., 2016. Macroprudential policy in an agent-based model of the UK housing
market.
Charles, S., 2016. Housing economics. Macmillan International Higher Education.
Gallent, N., Mace, A. and Tewdwr-Jones, M., 2017. Second homes: European perspectives and
UK policies. Routledge.
Gibb, K., 2016. Housing Finance in the UK: an Introduction. Macmillan International Higher
Education.
Hilber, C. A., 2015. UK Housing and Planning Policies: the evidence from economic research.
Jones, R. V., Fuertes, A. and Lomas, K. J., 2015. The socio-economic, dwelling and appliance
related factors affecting electricity consumption in domestic buildings. Renewable and
Sustainable Energy Reviews. 43. pp.901-917.
Lund, B., 2017. Understanding housing policy. Policy Press.
Rahal, C., 2016. Housing markets and unconventional monetary policy. Journal of Housing
Economics, 32, pp.67-80.
Ryan-Collins, J., Lloyd, T. and Macfarlane, L., 2017. Rethinking the economics of land and
housing. Zed Books Ltd..
Scanlon, K., Fernández Arrigoitia, M. and Whitehead, C. M., 2015. Social housing in
Europe. European Policy Analysis. (17). pp.1-12.
Ivashina, V. and Scharfstein, D., 2010. Bank lending during the financial crisis of 2008. Journal
of Financial economics.97(3). pp.319-338.
Chari, V. V., Christiano, L. and Kehoe, P. J., 2008. Facts and Myths about the Financial Crisis of
2008. Federal Reserve Bank of Minneapolis Working Paper.666.
Castells, M., 2017. Another economy is possible: culture and economy in a time of crisis. John
Wiley & Sons.
Goh, B. W. and et.al., 2015. Market pricing of banks’ fair value assets reported under SFAS 157
since the 2008 financial crisis. Journal of Accounting and Public Policy. 34(2). pp.129-
145.
Online
Factor that affect the housing property in UK. 2018. [Online]. Available through:
<https://www.economicsonline.co.uk/Competitive_markets/The_housing_market.html>.
Policies implemented by government of UK to stimulated demand of housing property. 2017.
[Online]. Available through: <http://cep.lse.ac.uk/pubs/download/EA033.pdf>.
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