Economics Report: PLC, Housing Demand, Elasticity Analysis and Factors

This economics report examines various aspects of the economy, focusing on a construction company, McCormack, and its strategic decisions. The report begins by analyzing the advantages and disadvantages of McCormack becoming a Public Limited Company (PLC), detailing the requirements, benefits like better access to capital and increased value, and potential drawbacks such as increased public scrutiny. The report then explores factors influencing the demand for owner-occupied housing, including economic growth, unemployment, interest rates, and consumer confidence, with an analysis of changes in the South West UK housing market. Furthermore, it investigates the factors affecting the income and price elasticity of demand for housing, particularly executive second homes and family homes of average value. The report concludes by discussing the influence of social housing on the market and the supply-side considerations affecting housing elasticity. The analysis incorporates relevant economic theories and real-world examples to provide a comprehensive understanding of the housing market dynamics and corporate decision-making in the construction sector.

Economics

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK ..............................................................................................................................................1
1. Advantages and Disadvantages of Public Limited Company (PLC)......................................1
2(a). Factors affecting the demand for the owner occupied hosuing..........................................3
2 (b). Analysis of changes in the demand for the houses in the South West..............................6
3(a). Factors which makes the demand for the executive second homes in income elastic........6
3(b). Factors that determine the price elasticity of family homes of average value...................7
3(c). Reasons for the supply of housing being inelastic in the short run but more elastic in the
long run.......................................................................................................................................8
4. Influence of the social housing...............................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
In this era where businesses has gone beyond the limits and they can easily perform their
business operations all around the world. This has all happened because of the globalisation and
almost every country believes in developing a environment where enterprises can easily setup
their business. Development is defined or can be analysed by keeping the economic development
in mind. They have to consider all the factors which falls in the economy. A lot of businesses
debut in the market every day but there are only some who make it to the last point. The reason
behind this is the changing conditions or environment of the business (Schumacher, 2011). There
are lots of factors which prevails in the internal and external surrounding of the enterprises which
impacts their functioning. All these factors are interrelated to each other so any change in one of
them can be modification to other(Becker, 2010). This report will be dealing with various
aspects of economy and by taking the scenario of a McCormack all the things will be explained.
TASK
1. Advantages and Disadvantages of Public Limited Company (PLC).
McCormack is a construction company who is one of the competitor of the Torridge
Construction ltd which is also a construction company. They are facing a lot of issues and the
working style has been not changed from long time. Now they have decided to build social
housing at the lower prices for those who comes in the category of average and below average
earning people(Etzioni, 2010). To come over the losses which has been acquired by the company
the company owner have decided to go public and become a PLC (Public Limited Company)
through the floating their shares in the stock market(Kagel and Roth, 2016). A public limited
company is a firm that is able to offer their share to the common public. It is not necessary for
them to offer companies shares to the public but they still do it. It is observed that almost 95% of
the limited companies existing in UK are private. It is the most common form of the company. If
McCormack has decided that they will be going public so first they should have information
about the criteria to become a PLC.
Following are the certain requirements for PLC:-
 There should be minimum two number of shareholders but in private limited company
there is only one.
 All the accounts must be filed within 6 months of the year.
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 The person who has been appointed as Company Secretary should be a qualified
individual.
 Directors of the company should be two but in the private limited only one person is
required.
There are lots of advantages that McCormack company can gain after taking this move.
Following are some of them:-
 Better Access to Capital:- With the action the company will be exposed to a larger
number of people which will definitely benefit them. They will have opportunities to
raise share capital from the current and the new investors. They will invest so that they
can get better returns and more the number of shareholders more will be benefit.
 Liquidity:- When the McCormack will able to trade on the stock market a lot of people
will buy their shares thus this will bring more shareholders. They will have right to sell
and purchase the the shares of the firm which they have buy.
 Value of Shares:- In today's world there are lots of companies who are functioning their
operation. So it becomes difficult for the investors to look the financial reports of the
company and this is a quite tough task. Normally those organisations which are listed in
the Stock market are judged or if someone wants to see their value in they look at the
market capitalisation(Brue, McConnell and Macpherson, 2016). This is based on the
share price of the organisation. Mc Cormack can increase their value by listing
themselves in the stock market thus a more number of customer will approach them for
their services.
 Easily Acquisition:- Businesses are the expanded through a variety of ways but the most
easy way is to acquire or merge with a different company who are of the same sector.
Mc Cormack can offer their shares to the shareholders of the target company. This way
they can grow their business.
 Profile:- This move will make a positive image of the Mc Cormack company in the eyes
of their targeted customers because when they will become PLC they will be known as
the prestigious profile.
Every coin as two sides because with the good side there comes the bad side also. The decision
of Adrian McCormack to make his company public limited company can give them lots of
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benefits but they also needs to face lots of disadvantages with this decision. Following are those
disadvantages:-
 When the company will be listed in the stock market there will be a large number of
external shareholders. So whatever happens in the organisation it will be the director of
the firm who will be accountable to those shareholders.
 Financial markets will govern the value of the firm by the trading of the Mc Cormack
shares and this will show the market's view of the enterprise's performance over time.
 There will be greater public inspection of the firm's financial performance and actions.
2(a). Factors affecting the demand for the owner occupied hosuing.
Almost every person in the world desire for a house where he or she can live according to
themselves with full amenities. It is observed that UK housing market is quite volatile and there
has been two crucial booms and busts. Following are the factors which influence the housing
market and the rates of the houses.
 Economic Growth: The demand for the housing is totally depended upon the income. If
there will be growth in the economic and the income of the individuals then they will
spend more on the houses(Do, 2011). This will bring increase in the demand and the
prices. If there will be recession in the economy the income of the people will fall and
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Illustration 1: Define supply and demand. 2017

they will not able to buy the houses for them. Many employees can loose their jobs and
this end up their him repossess.
 Unemployment: When the individuals will loose the job less people will afford a house.
They will avoid entering into the property market.
 Interest Rates: This is one of the factors which affects the monthly mortgage payments.
This can be analysed in this way that if their will be high interest rate then there will be
increase in the cost of mortgage payments and thus will decrease the demands for the
houses(Kolstad, 2011). But at the same time the renting factor encourage people to buy
the houses.
 Consumer Confidence:- Confidence is crucial for knowing that people want to go for
the risk of taking out a mortgage. If the people will fear that the prices of the houses will
go down they will avoid buying.
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Illustration 2: Tejvan Pettinger, 2013

 Mortgage Availability:- The ease of getting the a mortgage showed that demand of
housing increased as more people can afford to buy the house. In the year 2007 a time
when economy was going down banks and contractors founded it difficult to raise funds
for lending on the money markets(Akerlof and Kranton, 2010). So they made it tough to
borrow the money because now they lending criteria require a bigger deposit to buy a
house.
 Supply: From the year 1996-2006 an estimated was made that in Ireland 700,000 new
houses was built. But during the situation when the market went down, the market had
oversupply. The supply was greater than the demand and this made price fell.
Ratio of prices of the houses to earning influences the demand(Jackson and Senker, 2011).
House rates are largely depended on the income because if the income will be less then people
not buy it. It was seen in the 2007 when there was boon in this sector and ratio of the house rates
to income rose to 5.
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Illustration 3: Tejvan Pettinger, 2013

House prices may be falling but there are some areas like like London and Oxford may see the
rising prices. The reason behind this is that the demand in these areas are high but the supply is
limited. Geographical areas affects the prices as those property which is near schools, rail link
will have more prices.
2 (b). Analysis of changes in the demand for the houses in the South West.
Due to downfall in the economy in past period it was observed that people find it hard to
buy houses in the South West of UK. This was an opportunity for the Mc Cormack so they
decided to built the social houses for the people who cannot afford to buy houses because they
had low income or has become unemployment. With the collaboration of the government they
have decided to built social housing. It was the government subsidies which was helping them
and making sure that all the citizens can get a house where they can live(Lee, and Lemieuxa,
2010). The demand for the houses went down because the rates were too high and people does
not want to invest in such situations. Construction companies like Mc Cormack also found it
difficult to built houses because they felt the shortage of the labour and the raw material which
was used for building new houses also went high. There was more fluctuation in the housing and
the individuals does not has confidence about the pricing between their was frequent variations.
Those who were in urgent need believed in the concept of social housing and companies also
thought that this is the only way they can improve their condition as well as the profits.
3(a). Factors which makes the demand for the executive second homes in income elastic.
Income elasticity of demand shows the relationship between change in the quantity
demanded for good X and a change in actual income. It is calculated as the ratio of the
percentage change in quantity demanded to the percentage change in income. This can be
understood through different examples like if there is increase in 10% income and the quantity
demanded seen a increase by 20% . So the income elasticity will be 20%/10%=2. The positive
income elasticity of demand shows is related to the normal goods so if the customer's income
rises more is demanded at each price(Humbird and et. al., 2011). There is an outward shift of the
demand curve. In the necessities of the of income elasticity of demand is between 0 and 1.
Luxury goods and services have an income elasticity of demanded >+1. House comes in the
luxury goods so for them this will be considered. Inferior goods have a negative income
elasticity of demand which depicts that when the demand of the houses falls then their will be
increase in the income rises.
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3(b). Factors that determine the price elasticity of family homes of average value.
It is observed that change in the price does not have same proportionate change in
demand. There are lots of factors which affects the elasticity of demanded of a family homes are
as follows:-
 Nature of Commodity:
Whatever will be the nature of the area or house its elasticity of demand will be impacted. A
commodity can be anything depending upon person to person. Here the commodity will be
house. House is the commodity which prices fluctuates according to the requirement. Family
homes will have more prices as the demand is high.
 Availability of the substitutes:
Demand for the houses will be elastic if the large number of the substitutes is there. But houses is
the thing which cannot be replaced or has rare substitutes. Although rise in the property will
affect the demand but this is the things which is general necessity.
 Income Level:
Elasticity of demand for any house is normally less if the people have have higher income level
as comparison to the individuals who have low income. There are houses of different kinds from
normal to luxurious so people will buy more houses if they have higher income. People with the
low income will have higher elastic(Karpik, 2010).
 Level of Price:
The level of price also influences the price elasticity of demand. The houses demand is high so
the any change in the price brings a lot of change in the demand. They have high elastic demand.
 Postponement of Consumption:
The demand of the houses is not urgent so the family who is buying the house can postpone the
plan of buying the house. So the elastic demand will be high for the family house.
 Number of Uses:
The family who has decided to buy the house finally look at a particular property and they
decided to buy it. After sometime they came to know that this houses has some legal issues so in
that case demand will be elastic. When the price of such thing increase then it is put in the
category where it is not sold so its demands will fall.
 Share in Total Expenditure:
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More the income of the customer spend on the house will affect the elasticity of demand of it. It
will have higher elasticity. House is the thing on which person spend at lot so that he could buy a
suitable house for his family. So the demand for such things will be elastic.
3(c). Reasons for the supply of housing being inelastic in the short run but more elastic in the
long run.
Demand is price inelastic if a change in the price causes a smaller % change in demand
and if the changes in prices bring a bigger percent change in demand.
Elasticity of Demand in short period: It is analysed that in short period of time the
demand is more elastic i.e., low and less than 1. If the people are used to buying when the prices
are up and they will tend to buy it because its there habit. If they thinks that the prices of the
house are permanently high so they put more efforts to find a different house. For example;
people in UK continuously have a habit of buying houses at the beach area(Fortin, Lemieux and
Firpo, 2011). But during the summers the prices went up thus so they will look at houses which
are situated in different places.
Elasticity of Demand in Long run: It determinants the time taken by the people to give
their responses for any changes which has occurred. Demands seems to be more elastic for the
longer period. This is because the consumer needs more time to respond and change their buying
habit. When the people seen that the prices will remain consent in the particular area so they will
take their time and will look for the other type of houses or for the new concept.
4. Influence of the social housing.
The government has cut down the construction of social housing after they have slashed
subsidies. In a research it was found that the Labour government has build almost 54000
government subsidised houses. But year 2013-14 saw downfall in these numbers and thus
restricted to approx. 41,600. They have changed the funding system and hs replced with the
system in which the landowners gets less construction subsides but they re given the permission
to change tenants up to 80 percent of the local market rate. This can be termed as affordable
rents. This has badly impacted the business of the construction firms because when they were
subsidies they were building at large number of houses which insured that almost all the citizens
of the country get houses on affordable price(Sassi, 2010). Torridge Construction Ltd was
achieving new heights and has gained the competitive advantage. But with this step their
business has affected to a large extent. The government spending on the construction of shared
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ownership and affordable rent houses has been cut by three quarters. If they want to receive the
funding for the new rented house which is affordable rates the social landlords must convert
current social rented homes into “affordable rent”. This decision has affected a lost of houses as
the result can be seen(Williams and Laurens, 2010). Almost 60000 social rented house have
been lost in these couple of years. Social landlord also don't have much funds to train the
employees and they are also facing the issue of labour shortage. The reason behind this is that the
they cannot afford labour at high rates. Government which has cut down the subsidy from the
training institutes and colleges has brought pressure on the construction companies(Angrist and
Pischke, 2010). The should not implement to force to out this policy because the results are
clearly visible. As like the other goods and service they should rely on the market forces which
decides the impact of the demand. At times when the affordable housing is needed the
government should take preventive steps to resolve the issue.
CONCLUSION
In this following report, it can be concluded that there are certain advantages and
disadvantages of Public limited organisations. But in order to sustain in competitive market
while having a major loss of capital and funds, converting housing company into public limited
can help in increase of financial crisis situation, raise funds and collect capital from market.
Every system have their pros and cons in their function. To understand the factors that affect
demands and supply and factors of market and trends, company can overcome from loss and also
clear the concept of publicising share quantity. In order to increase their sales and funds and
overcome from restriction in housing organisations, Govt. provide schemes to raise construction
in society that also facilitate funds and benefit to company.
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