Economics for Business: Demand & Supply Analysis of UK Housing Market

This report provides an analysis of the UK private housing market from an economics perspective. It begins with an introduction to business economics and its role in resource allocation. The main body of the report is divided into two tasks. Task 1 identifies factors influencing the price of private housing in the UK using demand and supply analysis, including cost of renting, household income, population, affordability, and interest rates. The report also examines factors impacting supply, such as new home construction, profitability of new housing, planning restrictions, and local opposition. Task 2 explains key government policies, specifically fiscal and monetary policies, used to stimulate demand in the private housing market. The report concludes by summarizing the key findings and includes a list of references.

Economics for
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
TASK 1............................................................................................................................................1
1. Identify the factors which impact the price of private housing with the help of Demand &
Supply analysis............................................................................................................................1
TASK 2............................................................................................................................................8
1. Explain main government policy which used to stimulate the demand of private housing in
the UK..........................................................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Economics for business is the study as well as struggle which organization have to done
in order to allocate resources as per the requirement of their operations. Business economics is
the segregation of economic theories which help the corporate to implement these theories in
effective manner in order to maximise productivity as well as profitability (Berck, 2018). It helps
in analysing the factors that work against and control that how resources used in effective
manner such as labour, capital material etc. This project report cover various topics such as
analyse the factors which influence the price of private housing in the UK by using demand &
supply analysis. In addition, evaluate some government policy which they used for stimulate the
demand of private housing.
MAIN BODY
TASK 1
1. Identify the factors which impact the price of private housing with the help of Demand &
Supply analysis
In economics, demand & supply play very important role where relationship between
price or quantity of commodity which demanded by customers or produce by the manufacturers
in order to satisfy consumers demand or needs. Economics based on various assumption such as
in context of demand price and quantity have inverse relation. On the other hand, in case of
supply price and produced quantity have positive relation. Both are economic theories which
provide better understating of this concepts and it described below:
Law of Demand: It is refer to the economic policy where all the factors are constant
other than price. When price of commodity increases then demanded quantity decreases which
impact the overall demand of product (Böhme and et.al., 2015). There are inverse or negative
relationship between price or quantity. Change in the price will impact the demand of private
housing in the UK, so in order to increase, constructors have to reduce price of houses.
Relationship of price or housing demand will represent with the help of demand curve which
mention below:
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Illustration 1: Demand of Private Housing, 2019.
(Source: Demand of Private Housing, 2019)
Demand curve is the graphical representation which shows the downward slopping
economic graph. It shows the relationship between price and quantity demanded by consumers
and the price which they are willing to pay. Above mention demand curve where P denote the
price of houses and Q denote the demand of quantity. When price or private housing increases
from £200,000 to £250,000 than it will reduce the quantity from Q to Q1 (Demand of Private
Housing, 2019). Similarity, when price decreases then demand of private housing increases. It
has negative relation and D represent the demand curve which provide the overall
Law of Supply: it is one of the economic theory which shows the relationship between
price and quantity supplied by manufactures as per the demand. All the factors are constant
rather than price. There are positive relationship because when price increase then supplied
quantity also increase. On the other hand, when price decreases then supplied quantity also
reduces (Supply of Private Housing, 2019). Supply curve will provide better understating of law
of supply as well as it relation with price. Below mention graph enhance the knowledge and
make organization capable to understand market trend.
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Illustration 2: Supply of Private Housing, 2019.
(Source: Supply of Private Housing, 2019)
Supply curve is the graphical representation which shows the relationship between price
and quantity produce by the manufactures. Price of commodity appear in the vertical axis and
supplied quantity appear on the horizontal axis. In context of price of private housing, when
price of private housing increase from £200,000 to £250,000 then supply also increases from Q
to Q1. Similarly, when price decreases then supply automatically reduces.
Factors which impact the demand of private housing:
There are various factors which impact the price of private housing in the UK and it will
be possible in the long run because in short run all the factors are constant rather than price.
Some of the factors mentioned below:
Cost of renting: If cost of renting houses increases then consumers make efforts to
increase their budget in order to purchase their own house because renting become costly for
them. So it will increase the demand of private housing in the UK due to high cost of renting. On
the other hand, when renting cost reduces then demand of private housing also decreases (Cost of
Renting, 2019). This factor impact the demand so before making any decision consumers have to
measure all the aspects. Because higher cost will encourage individual to increase their
spendings.
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Illustration 3: Cost of Renting, 2019.
(Source: Cost of Renting, 2019)
Household income: It is one of the essential factor which impact the demand of housing
sector. Because raise in the income will encourage people to afford mortgage which increases the
demand for housing (FOOK, 2016). In the boom condition, demand for housing sector
suggesting to grow because income is elastic. Basically, higher income will encourage
consumers to purchase their own house. Lower income will reduce the demand of housing in the
UK, this is the way demand or supply analysis work in context of housing.
Population: It is one of the important factor which influence the demand, because
increase in the population will increase the demand of private housing in the UK (Kordos and
Karbach, 2014). Population can change due to migration or birth & death. Increaser in life
expectants also impact the demand as well as diverse rate because it will lead to increase the
number of single parent families.
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Illustration 4: UK's Population, 2019.
(Source: UK's Population, 2019)
From the above statistics it is clearly understand that, in the future demand of private
housing increase in the UK because of increase in the population (UK's Population, 2019). It is
continuously grow from 2008 to 2033.
Affordability: Increase in the income means people can afford to spend more on private
housing in the UK (Affordability Index, 2019). At the time of economic growth, demand for
housing increases due to increase in household income and it become luxury good for the
consumers. Basically high affordability will increase demand and low affordability decrease the
demand of housing in the UK.
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Illustration 5: Affordability index, 2019.
(Source: Affordability index, 2019)
Above mention data represent that household income is not fixed which can fluctuate
according to time. So it will further impact the demand of housing sector and it is depend upon
the affordability of people.
Interest rate: It is one of the major or important factor which influence the demand of
private housing in the UK. When government change their policy regarding housing then it
affect the demand of construction industry as well (Interest rate, 2019). High interest rate will
reduce the demand because their affordability also reduces due to low income. On the other
hand, low interest rate will encourage people to increase their affordability. This factor directly
impact the demand of private housing in the UK.
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Illustration 6: Interest rate, 2019.
(Source: Interest rate, 2019)
Factors which impact the supply of private housing:
There are various factors which influence the supply of private housing in the UK and
some of them discussed below:
Build new home: When demand arises then builders increase the supply of private
housing in the UK (Milne and Parboteeah, 2016). In the boom condition, households income are
elastic which make people affordable to purchase new houses, so builders have to construct new
houses which increase the supply due to high demand in the UK market of private housing.
Profitability of developing new houses: When economy grow, that time demand of
housing is very high which help the builders to supply more. In the boom condition, consumers
income is elastic which increase the demand and constructors develop new buildings to fulfil the
requirement. But in condition of recession, demand will reduces due to low affordability of
households.
Planning restriction: In the UK, every builders have to take permission to construct
because there are limited area to develop building on green belt land. There are restriction on
construction of new houses so they have to take permission from authoritative body (Mulhearn
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and Vane, 2015). This factor become barrier for the suppliers which impact the demand as well
as supply of private housing in the UK.
Local opposition: Construction of new buildings will generate various oppositions
because local community still wanted to live in the congestion free area so they are opposite to
the construction of new houses. '
Above mention factors affect the supply of private housing in the UK, so before making
any decision consumers have to analyse market and how demand & supply impact their decision
making process.
TASK 2
1. Explain main government policy which used to stimulate the demand of private housing in the
UK
Government policy declared as government activity which include various laws,
regulations, standards etc. In order to make better impact, they have to change public opinion
regarding economic policy. It is developed in order to make their economy balance between
demand & supply in the market. In order to boost demand, government have to formulate
strategies such as fiscal or monitory. In context of demand of private housing in the UK,
government have to implement various economic policy where they take action regarding change
in interest rate, tax rate and government spendings. All of them are as follow:
Fiscal policy: It is refer to the policy where government adjust their spending level and
tax rates. These policies introduce in order to maintain balance in the economy which further
helps in boosting demand of private housing in the UK. In order to boost demand, government
increase their spending and provide various benefits to the people which encourage them to
invest in the properties because it will raise their affordability power ans boost the demand of
housing sector in the UK (Saviotti and Metcalfe, 2018). Along with this, when government
reduce the tax rates then it will encourage people to push their limits or budget or purchase new
houses which consider as investments. On the other hand, low spending will reduce the demand
of private housing as well as high tax rate will reduce demand for new houses. Tax cutting and
increase in the government spending help the economy to boost demand which further beneficial
for builders to increaser supply of new buildings in the UK. There are other factors also available
which impact the demand of private housing such as population, disposable income,
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affordability, cost of renting etc. These policies are very important so government have to make
sure that, they will implement it in effective manner.
Monetary policy: This policy refer to the economic policy where all the actions or
activities managed by the central government and make sure that money supply should be done
in well manner. In order to maintain demand, government increase or decrease the interest rate
which impact the mortgage payment. Higher interest rate reduce the demand of private housing
in the UK ans similarly low interest rate will boost the demand demand of consumers. In order to
maintain balance between demand or supply of goods, government have to introducer monetary
policy such as interest rate (Schaltegger and Wagner, 2017). Further it will be adjusted according
to economic condition of the country. Low interest rate increase the affordability of individual
regarding mortgage payment and encourage them to but new property. It is possible when other
than price factors all are constant and it further stimulate the demand for housing. In order to
boost demand in the UK for housing, government implement policy where they reduce interest
rate which encourage people and their will power to invest in the property.
Factors which used to stimulate the demand of housing sector in the UK:
Purchase houses as future investment: In the boom situation, household income is
elastic so they can afford to purchase new house. Basically, when income increases then it will
encourage consumers to invest in the private housing in the UK. Further it will impact the
demand as well as supply of new buildings. Along with this, in order to boost demand,
government will take actions where they increase their spending, reduce tax and interest rate.
These actions will increase the savings as well as affordability of an individual which impact the
demand.
Renting cost not affect the interest rate: Renting cost does not impact the interest rate
because those people who live on rent does not required to understand or analyse the market. If
they wanted to purchase their own house then it will affect the individual and demand of private
housing in the UK (Storey, 2018). Low renting cost will reduce the demand of housing and
similarly high renting cost will increase the demand.
Supply of renting house is more elastic: In the UK, demand of private housing is more
elastic and it depends upon the households income. It is possible, when renting cost increases
than properties prices also increases. On the other hand, when cost reduces then demand of
houses increase.
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Above factors affect the demand of housing so government take initiatives through
introducing various policies such as fiscal or monetary. Where, in order to increase demand they
will increase their spending, reduce tax rates as well as interest rate of mortgagee payment. In
short run all the factors are constant, only price of the product affect the demand. But, in the long
run all factors affect the demand of private housing such as size of population, income, interest
rate, renting cost etc. There are some factors also available which impact the supply as well such
as planning restriction, elastic supply of housing, local opposition etc.
CONCLUSION
From the above project report it has been concluded that economics for business is
essential for organization in order to analyse the market with the help of demand and supply
concept of economy. There are various factors which impact the demand of private housing in
the UK. Such as household income, population, interest rate etc. these factors impact the demand
of housing sector. So in order to boost demand, initially they have to measure market trends and
formulate further strategies accordingly. Government also take initiatives to increase demand
where they focus on fiscal as well as monitory policy. Here they reduce income tax, interest rate
and increase the government spending.
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REFERENCES
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Online
Affordability Index. 2019. [Online]. Available Through:
<https://www.economicshelp.org/blog/15390/housing/factors-affecting-supply-and-
demand-of-housing/>
Cost of Renting. 2019. [Online]. Available Through:
<https://www.economicshelp.org/blog/15390/housing/factors-affecting-supply-and-
demand-of-housing/>
Demand of Private Housing. 2019. [Online]. Available Through:
<https://www.economicsonline.co.uk/Competitive_markets/The_housing_market.html>
Interest rate. 2019. [Online]. Available Through:
<https://www.economicshelp.org/blog/15390/housing/factors-affecting-supply-and-
demand-of-housing/>
Supply of Private Housing. 2019. [Online]. Available Through:
<https://www.economicsonline.co.uk/Competitive_markets/The_housing_market.html>
UK's Population. 2019. [Online]. Available Through:
<https://www.economicshelp.org/blog/15390/housing/factors-affecting-supply-and-
demand-of-housing/>
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