Economics for Business: Demand, Supply & UK Housing Sector Analysis

This report provides an analysis of the UK's private housing sector, applying economic principles to understand the factors influencing demand and supply. It examines the law of demand and supply in the context of housing, detailing how price fluctuations impact demand and construction companies' supply decisions. Key factors affecting housing prices, such as disposable income, interest rates, population changes, stamp duty, and rental costs, are evaluated. Furthermore, the report explores economic policies, including interest rate adjustments and taxation (stamp duty land tax), that the government employs to influence the demand for private housing. The analysis incorporates data and trends related to mortgage rates and residential building sales to illustrate the impact of these policies on the UK housing market. The report also touches upon the importance of planning permissions and regulations, particularly in green belt areas, that affect housing development.

Economics for
Business

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1............................................................................................................................................3
1. With the help of demand and supply analysis, evaluate other factors which influence the
price of housing sector in UK......................................................................................................3
TASK 2............................................................................................................................................7
1. Explain economic policies which influence the demand of private housing in UK................7
CONCLUSION..............................................................................................................................10
REFERENCES .............................................................................................................................11

INTRODUCTION
Economic for business is the application of economic theories which is used in
organizations to identify qualitative as well as quantitative factors which influence overall
demand and supply of goods & services. Use of business economics, management able to
analyse market or make optimal or rational business decisions. In an organization, managers
follow various economic which is required to analyse market condition and demand of
consumers. With the help of demand or supply law, individual as well as entire organization able
to evaluate market situation and what decisions they need to take which provide maximum
benefits (Bogdanović, Vetráková and Filip, 2018) . This assessment based on market analysis of
private housing sector of UK and demand & supply analyse will allow to understand or
investigate that how housing sector operates in market. This report cover various topics such as
law of demand, law of supply and various factors which influence price of private housing. In
addition, it includes government or economic policies which boost overall demand of properties
in UK.
MAIN BODY
Business economic essential for every organizations to make effective or essential
decisions in favour of housing sector of UK. It further helps organizations to make effective
strategic which provide growth in sales as well as maximise revenue margin. In UK housing
market, constructors should analyse all factors which influence overall demand and supply of
houses. Such as market condition, statistical data, construction cost, interest rate, stamp duty etc.
Demand and supply theory provide better understanding of housing sector of UK and make them
able to make strategies and perform accordingly.

TASK 1
1. With the help of demand and supply analysis, evaluate other factors which influence the price
of housing sector in UK
Law of demand:- In economics, the law of demand is one of the most fundamental
concept. It refers to the negative or inverse relationship between price and the quantity demanded
on a product. It states that consumer consume more when price decreases whereas less consume
when price increases (Bosshardt and Walstad, 2017). In context of housing sector of UK,
increase in value of properties will leads to reduce demand of new properties. On the other side,
decrease in the price of housing increases overall demand in the market. With the help of below
mention graph, people able to understand better relationship of price and demand of housing
sector in UK.

Illustration 1: Demand of private housing. 2019.
In the above mention graph, Q denotes quantity of properties and P indicates the price of
houses. D is the demand of housing sector which shows downward sloping and it will happen
because of inverse relationship between price and quantity. According to above graph, when
price of houses increases from £ 200,000 to £ 250,000 than it will reduces demanded quality
from Q to Q1. Similar, when price of housing reduces then it will maximise demand of
individuals. Demand curve always in downward sloping because of negative relationship.

Law of supply:- The law of supply is a fundamental microeconomic principle. It refers
to the positive relationship between price and quantity demanded on product. It states that
increase in price leads increase in supply demanded whereas decrease in price leads to decrease
in supply demanded. In housing market, increase in price will encourage construction companies
to supply more houses (Collier, 2018). On the other hand, decrease in housing value also reduces
supply of new building. Supplied quantity and price of housing have positive relations which
influence supply curve to move in upward directions. Below mention supply curve provide better
understanding on whole concept and it mention below:

Illustration 2: Supply of private housing. 2019.
Above graph shows the relationship between price of products & services and supplied
quantity. Both have positive relation which affect supply curve to move upward directions. Q
indicate quantity, P denote price of commodity and S is supply curve. When price of property
increases then supply of new buildings also increases. In addition, when price decreases than
construction companies will minimise their supply. As per above mention graph, when price of
housing sector increases from £ 200,000 to £ 250,000 than it will also increases quantity of
supply from Q to Q1.

Factors which impact the price of private rental housing in UK:
There are various factors which influence the price as well as demand of housing in UK.
Some of the factors are as follow which discussed below:
Disposable income: It is also termed as the Disposable Personal Income (DPI). It is the
amount that households have saved after spending in income tax. This income can be spent in
different alternatives to invest in household property for capital generation. The personal saving
rate is the percentage of disposable income that goes into savings for retirement or use for later
requirements (Grusky, 2017). In context of private housing, when disposable income of an
individual increases than it will encourage them to invest in the properties. Higher disposable
income raise overall demand of properties and low income limit their spending.
Interest rate: It is one of the essential factors which influence demand of private housing
in UK. Low interest rate motivates individuals to push their budget limits and give extra efforts
to buy new house. On the other hand, high interest rate will demotivate people because they have
to more interest rate to buy new houses. Basically, high interest rate reduces private housing

demand and low interest rate boost overall market demand. It is essential for individual to
determine this factor before making decisions regarding purchase of new machinery.
Population: The economy of United Kingdom is highly developed and market-oriented.
As the increase in population leads to increase in supply demanded and the decrease in
population leads to decrease in supply demanded. It is positively related with law of supply, as it
increase the purchasing power capacity by Gross Domestic Product. Overall demand of housing
depends upon size of population and it can change because of birth, death and migration of
people (Huber and Fischer, 2018). These aspects affect the overall population and further
influence demand of private housing. Raise in the population will leads to generate high demand
and decrease in the size of population decline overall demand. It further impact supply of
organization, so before making any decisions regarding supply of new building they need to
evaluate market condition in terms population.
Stamp Duty: It is an indirect tax levied on single property purchase with legal
documents, such as cheques, receipts, military commissions, marriage licences and land
transactions. It is necessary to be attached for impression on legally effective document that it
has been paid. This tax is usually placed for the transfer of assets or property.
Stamp duty is a value of tax which individual have to pay at the time of purchasing
properties. It is an kind of additional expense which buyer has to pay and it will also influence
demand of a person. Increase in the value of stamp duty will automatically increase selling price
of property and it further minimise the demand due to high price of building. Low rate of stamp
duty will maximise demand of housing sector. In order to boost overall demand of private
housing, government will take necessary actions where they reduce the rate of stamp duty to
encourage people to buy new houses.
Cost of renting house: The stock of renting house contains the privately owned and
occupied houses and apartments for local authority rented accommodation, managed by housing
associations (Lawrence, 2018). Landlord rents out property through a short tenancy agreement,
usually for six months, can be renewed. The renters typically pay monthly and quarterly
payments. Increase & decrease in renting cost also influence overall demand of private housing.
In context of UK market, raise in the cost of renting will also increase the demand of properties
and another side, lower cost of rental flats will reduce the demand of housing. Both aspects are

interrelated which has positive relation. So individual as well as organization should analyse this
relation and make their future strategies accordingly.
Above mention all the factors influence the price as well as demand of private housing in
UK. High interest rate increase the value of properties which automatically reduces demand and
similarly high stamp duty on properties will decline overall demand due to high price of buying
new buildings.
TASK 2
1. Explain economic policies which influence the demand of private housing in UK
In order to boost demand in UK market, there are various economic or government
policies which influence private housing demand in UK (Massa, Tucci and Afuah, 2017). Some
of them are as follow:
Interest rate on properties:
Interest rate: In the housing market of UK, interest rate play most essential role which
influence overall demand of housing sector. Increase in the rate of interest will minimise the
demand of housing sector in UK. On the other hand, low interest rate will raise demand in the
market. In order to boost private housing demand, government build policies where they reduce
interest rate on mortgage. For example: if any person purchase new house than it will add into
GDP of country because further it will generate more jobs which is related to the construction of
new buildings.

(Source: Mortgage Rate, 2019)
Above mention graph shows the figures of mortgage rate from 2014 to 2019 and total
number of residential buildings selling in UK market. As per the trends, it indicates that it
reduces in comparison to previous year. In addition, also identified that more than 1 million
houses purchase in UK in 2018. Also found that, most of rental building have been sold in
England (Mortgage Rate, 2019). Bank of England stopped tracking at 2.65 percent, 10-year fixed
rate mortgage levels have been at the third low after September 2019. Interest rates continues
decreases excluding 10 years fixed. In addition, interest rates drop by 1.99% in June and 1.61%
in September in comparison to last two years.
Taxation on residential properties:
Stamp duty land Tax: This tax paid by individual at the time of buying properties and it
is the nominal amount which buyer has to pay in terms of stamp duty. Basically, it is a kind of
document which indicate sales of property or transfer the ownership (Milne and Parboteeah,
2016). Stamp duty land tax included in the selling price of owner's property. Current UK's selling
price of properties are define below:

Rate Charge Band
0 0 - £ 125,000
1 % More than £ 125,000 to £ 250,000
3% More than £ 250,000 to £ 500,000
4% More than £ 00,000 to £ 1,000,000
5 % More than £ 1,0500,000 to £ 2,000,000
7 % More than £ 2,000,000
Above mention table shows different rates which individual have to pay as stamp duty on
their purchase of land. This factor also influence the demand of private housing in the UK.
Stamp duty: It is the fixed rate which is set by law and paid to HM Revenue and
Customs (HMRC). These stamp duties are different from above one, because it is applicable for
the people who buy properties for the first time. These rates are mentioned below:
Rate Charge Band
0
Up to £ 125,000
First-time buyers: first £ 300,000 for property up to £ 500,000
2 % Over £ 125,000 to £ 250,000
5 % Over £ 250,000 to £ 925,000
1 % Over £ 925,000 to £ 1,500,000
12% Over £ 1,500,000
Public housing permission:
Planning permission / green belt: In the UK, for building construction individuals have
to take from housing board. Because there are some areas in UK which comes under green belt
region and also have strict restrictions from planning control system that required for sustainable
development (Robst and VanGilder, 2016). In the UK, there are some places which are under
green belt area, so people need to take their permission before construction or buying property
there. Basically it includes:
 Agricultural land and farming properties.
 This policy introduces to control urban growth.

 In this permission, they allow local authorities to protect their land around cities &
towns.
 Construction will stop, if they not able to fulfil government standards for construction
on any land.
 Constructor need to take permission before construction on green land, if they unable to
get permission then they have to stop their work and provide another land.
Government Policy:
Equity Loan Scheme: There are various schemes which are offered by UK's government
in order to boost demand of housing sector in UK. Equity loan scheme for those people who buy
property first time as well as for owner's who wanted to buy new building. This scheme only
applicable on buying price of more than £ 600,000. As per this scheme, individual can borrow
around 20 % money on interest free rate. In addition, if buyers are from London, so they can
borrow up to 40 % of purchase price of properties (Söderbaum, 2016). This policy extended until
2023 and only applicable for first time buyer of new building. It also includes some clauses
which is based on where individual live and where they wanted to buy property. In addition, this
policy also implement after identifying that individual purchase property for commercial or
personal purpose.
Above mention economic or government policies help the UK housing market to boost
demand of new houses. Interest rate, taxation, government polices, permission from planning
agencies of housing etc. When all the factors are in favour, then it will influence overall demand
of private housing in UK.
CONCLUSION
From the above discussion it has been concluded that, by using demand or supply
analysing organizations able to understand actual condition of housing market. Other than price
of properties, there are lot factors which influence demand of private housing in UK. Such as
interest rate, disposable income cost of renting, population etc. On the other side, there some
actions or economic policies which help in boosting overall demand of private housing in the
UK. Such as, decrease in interest rate raise demand of new building, equity loan scheme also
encourage first time buyers to invest in properties or raise their overall wealth.

REFERENCES
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