Factors Affecting Prices of Private Rental Housing in the UK

This project report explores the key factors that determine the price of private rental housing in the UK. It discusses the impact of supply and demand, government policies, population, interest rates, income levels, and economic growth. The report also highlights the relationship between supply and demand and how it affects the rental housing market. Additionally, it examines other factors such as affordability, availability of mortgages, taxation, and new builds that influence rental prices. The report concludes with an explanation of government policies that can be used to influence the demand for private rental housing in the UK.

PROJECT 1

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1.......................................................................................................................................3
Using supply and demand analysis determine key factors in determining price of private rental
housing in UK.............................................................................................................................3
TASK 2.....................................................................................................................................10
Explaining government policies which can be used to influence the demand of private rental
housing in the UK.....................................................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
In the economy of nation, there is too essential that supply and demand should be balanced.
It is so because in the absence of this, there can be many financial problems. The project
report is based on key factors of economy which can affect to pricing policies of private
rental housing in the United Kingdom. These factors are mentioned by help of supply and
demand analysis. Along with, key economic policies are also mentioned that can influence
demand of private rental housing in UK.
MAIN BODY
TASK 1.
Using supply and demand analysis determine key factors in determining price of private rental
housing in UK.
In the context of economy of United Kingdom, there are different types of factors which
have a significant impact on various aspects. Before focusing on factors of economy, this is
essential to know about concept of supply and demand which is mentioned below:
Supply- Supply is a core economic term that defines the overall quantity that is accessible to
customers of a given product or service (Meaning of supply, 2020).
Demand- Demand is an economic concept that relates to the customer's desire to purchase
products and services and to pay a premium for a particular commodity or product (Meaning of
demand, 2020).
There is a critical relation between supply and demand which can be understood by laws:
Law of demand- As per the law of demand it can be stated that if price of product increases then
demands decreases (Law of demand, 2020). Such as in the aspect of UK, if prices of private
rental housing will rise then people will not focus on buying houses. On the other hand, if price
will decrease then more number of people will be willing to buy houses.

Illustration 1: Demand of private housing. 2020
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From the graph described, it is simple to calculate that if private house prices increase, such as
form P to P1, then housing demand decreases from form Q to Q1. As the law states that the price
and demand of the commodity are reversed, then the curve shifts down. Business engaged with
real estate industry thus benefits from the curve and make successful plans to raise the market for
rental houses in the UK in the short term. In fact, only price and calculation of positive effects on
demand are found in a short amount of time, although there are several other variables
influencing demand in a period of time.
Supply law- The theory of the economy refers to the idea that the demand for products primarily
modifies as shifts in the price of products and services (Law of supply, 2020). Therefore, supply
law establishes a good relationship between the quantity provided and the price, and if the
demand rises the supply of houses in the UK will rise immediately or vice versa. Builders in the
UK are rising or reducing the building as per the house price trend. The following graph provides
a better perspective on the definition of supply and demand.

Illustration 2: Supply of private housing. 2020.
The following chart demonstrates a strong relationship between the products and prices provided
by UK households, which helps to satisfy the customer's demand. For the short term this relation
stays stable, because all the other factors are fixed. Though, due to alteration of other factors, this
relation will change in the long term. As prices continue to rise between GBP 300,000 and GBP
350,000 the availability of homes for rental is also rising at the same time. Therefore, for
construction firms the corresponding analysis is important to build better policies that help
enhance the production in order to increase overall competitiveness.
Other factors determining the price of houses in UK.
Numerous factors have influenced the demand and availability of private rental houses in
Great Britain. This help is given in deciding the prices of UK housing as follows: affordability,
economic development, total households, the prevalence of loans, etc. Herein, underneath some
factors are mentioned that are as follows:
 Population- This also influences demand and thus the price of housing, where it depends
not just on the population, but on the average size. Therefore, raising life span, birth
levels and more contribute to shifts in population and growing population expansion. In
the next few years, the population in the UK is expected to raise more. It is the factor that

influences the population and hence the demand for private accommodation in the United
Kingdom. Population increase will fuel investments in new construction, and population
decreases in the housing sector will instantly reduce demand. The increase in population
of United Kingdom is different in years. Such as during year 2007 to 2008, the
population growth was too higher (About UK population, 2019). Due to fluctuation in the
number of population, the prices of housing rental are affecting. Though in next year’s, it
reduced which shows that demand for UK rental housing also affected due to this.
 Interest Rates- This is a critical factor that helps to take into account the price of homes
or other products or services. This also means that any increases in inflation will impact
the payment of mortgages for housing by the borrower. The interest rate largely depends
on supply and demand aspect of a country. It is so because if in the market demand of
products is lower than rate of interest will be higher because banking sector will try to
gain higher amount of profit. In the aspect of United Kingdom housing prices, interest
rate will affect significantly. Such as in year 2009, the rate of interest was of 0.5% which
remained same till 2015. After that it raised and became of 0.25% in year 2016 and in
year 2017, this was of 0.75% (Interest rate in United Kingdom, 2020). It indicates that
rate of interest fluctuated in all financial years and due to which demand of UK rental
housing also get affected. The reason of this is that if rate of interest will higher than
people will avoid taking financial assistance from banks and as a result real state sector’s
growth will be lower. The interest rate is clearly useful in ways that help determine the
quality and real price of houses in the current market.

 Income effect- Along with the above mentioned factors, income level of people is also a
main factor. This is so because if income of people will be lower than they will not be
able to buy more products as well as in the case of higher price it will be difficult for
sellers to sell their products. Such as in the aspect of United Kingdom, if income level
will be lower than market of real state will be lower. On the other hand, if income level of
people will be higher than there will be more scope of rental housing. Like in UK, annual
household income per capita has been fluctuated during different financial years. In year
2012, it was of 25187 GBP which rose in following year. Though, in year 2014, this rose
by huge margin and became of 28056 GBP (Income per capita in United Kingdom,
2019). It is showing that due to higher value of income per person, demand of UK rental
housing will also increase.
 Economic growth- The factors that affect the rental prices in a market are the demand
side determinants. Economic growth has a greater reach, including total nation
development and not sector production. The UK is one of the globe's most successful and
its growth is at its best. Due to the BREXIT problem, Britain has experienced many
problems during the last year, which have negatively affected financial stability and
development. As per the report of National statistics, this can be find out that prices of
rental housing in UK has been reduced and cause of this is the decreased rate of
economic growth of United Kingdom (Office of National Statistics, 2019). Though after
BREXIT, GDP rate of UK has been raised like in year 2014, it was on peak and its value
was of 3.1%. After this, it again reduced and became of 1.4% in year 2019 (GDP rate in
United Kingdom, 2016). So due to variation in economic growth or GDP, prices of UK
rental housing also get affected.

On the basis of above mentioned graph, this can be find out that before implementation of
BREXIT, the prices of private rental housing was raising in a significant manner. After
implementation of BREXIT in financial year 2016-17, prices of rental housing started to
decrease in a significant manner (About BREXIT, 2020).
Demand for housing rises in the United Kingdom, that create demand and supply movements
that boost economic growth. Because of liquidity crunch and reduced bank lending, the housing
market reduced during year 2007-2012. In the peak time period, when investors were willing to
purchase other homes, house price was higher. Though, due to recession unemployment rate has
been increased which affected more number of buyers.
 Availability of mortgages- It's another aspect that affects UK rental rates of private
housing. The concept is that someone planing to hire a private house needs funding and
the money is collected from mortgages. If loan supply is weak, private housing market
will decline and rates will also decline. Loan process was simple in Britain, but in 2007
government made too much restriction in process of loan which lead to reduction in
demand of rental housing in the UK (Mortgages approvals, 2020).

On the basis of above chart, this can find out that Kensington and Chelsea has higher
accessibility of loans. On the other hand, Barking and Dagenham has lower accessibility of
loans.
 Taxation- This factor influences the pricing of United Kingdom's private rented prices.
Tax is the price a person has to pay for income and benefit. Higher UK tax rates are the
cause of private rent home price rises. Those who rent a home must not pay a tax benefit
or income tax, but land owners must pay high tax rates. In addition to raise money,
owners of houses charge high premiums for their properties from tenants. This leads to
overall increasing in prices of rental housing in United Kingdom.

 Affordability of housing- This condition has evolved due to higher prices of rental
housing. It is being considered that in the United Kindom, renting charges are too higher
and due to which people are not focusing on rental houses. They consider to buy home
instead to living on rent. In addition, affordability of housing properties in UK has been
decreased in a significant manner which become cause of raising in prices of housing.
So, these are some key factors which are affecting prices of rental housing in the United
Kingdom. Herein, this is important to know that rental pricing is not affected only by these
factors. There are some more factors that can affect to pricing of rental houses such as:
 New builds - UK has a developing economy, this country's building sector expands
quickly as well. Each year in this area, there are thousands of new houses built. As a
result, private rental home rates have also growing. This graph shows the increase in UK
households in different years. Such as in year 2010, number of households were above 26
million which raised and became of 27 million in year 2016 (Total number of households,
2020).
The above mentioned graph is showing that construction of new houses in UK is increasing in a
significant manner throughout all the years.

TASK 2
Explaining government policies which can be used to influence the demand of private rental
housing in the UK.
The term government policies can be defined as those rules and legislation which are
created by different public authorities in order to better functioning of a country. In regards with
private rental housing, this can be find out that government has created vital range of policies
which are affecting to need of private rental housing in United Kingdom. Herein, below
description of some policies is mentioned in such manner that are as follows such as:
 Interest rates- These rates apply to the price to be paid by a citizen for the loan. The rates
of private rental facilities in the UK are rising and people will take loans for this reason.
If the policy declines interest rates on credits for the rental of homes in the UK, then the
demand for private rental property in the UK will likely increase, thereby stabilising the
growing prices for private rental housing in the UK. As above stated that interest rates in
UK have been fluctuated in different years (Interest rate in United Kingdom, 2020).
 Government policies- These are the laws that the government has introduced to regulate
the rise in rental prices of private housing in the UK. As per the Bureau of Official
statistics, the government will introduce various policies in the future which will lead in
growing the need for private accommodation in the United Kingdom. If government of
United Kingdom manage the number of tenants and will perform electrical installation
check than this may also lead to enhance in demand of rental housing properties in this
nation.
 Landlord rights- Basically, change in the government rules and regulation can affect the
increased prices of private rental housing properties in UK (Impact of landlord lights on
UK rental housing, 2020). This is so because it needs variation in right of landlord and
tenants. As the price of such rental properties increases, competition declines as
consumers choose to purchase a house instead of renting one. If the state decides to grant
residents and landlords all other rights, the demand for rented accommodations may rise.
Such rights can be extended to three month before demanding rental house, stable rent
and many others.
 Mortgage policies- These are kinds of policies which can resulted in raising and declining
of demand of rental housing in United Kingdom (Mortgages approvals, 2020). In the

case when government determines to reduce the availability of mortgages in UK then
people will not have enough financial resources to purchase a house and they will tend to
rely on rental houses which will lead to increasing in demand. While if government
increase availability of mortgage loans then people will be able to buy new houses and
this will impact as decreasing in demand of rental houses in UK.
The above mentioned graph is clearly indicating that mortgage availability in United Kingdom is
increasing and decreasing in all years. Though, in year 2015, the number of approvals has been
reduced (Mortgages approvals, 2020). Due to which demand of rental housing in UK might be
affected during year 2007.
So these are the policies which affected demand of rental housing in UK. Apart from these
policies, there are other policies also which are mentioned below in such manner like:
 Public housing- Such rules and legislation drawn up by the government that regulate
public housing practices. When government makes restriction on the regulations of
affordable accommodation in the UK, the need for a new home in the area will drop and
the need for private rental homes in the UK will immediately rise. The UK government
controls this housing policy, which means that it has a greater impact.

 Landlords- They are the citizens who rent their private homes to the tenants. If
government adjusts its strategies by restricting owner to rent their homes, the availability
of rental housing in the United Kingdom will decline, and the demand for rental property
will immediately increase (Impact of landlord lights on UK rental housing, 2020).
 Social housing- It is the last major factor impacting residential housing demand in the
United Kingdom. When policymakers contract their affordable housing plan in the UK,
the interests of people who own new houses will decline, which will boost rental housing
demand immediately.
In the end, this can be stated that these above mentioned all factors have significant impact on
rental housing in United Kingdom.
CONCLUSION
In regards to above mentioned project report this can be concluded that, the demand and
supply review has been conducted to better explain factors affecting the UK housing market. The
four primary considerations are interest rates, income tax and home building. These factors affect
markets due to their business life. Government-structured economic policies play an significant
role in that demand and supply of UK housing rental prices.

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