Economics for Business: Rental Housing Demand and Supply in UK

This report examines the economics of the UK private rental housing market, focusing on demand and supply dynamics. Task 1 analyzes the factors affecting demand and supply, including affordability, disposable income, economic trends, availability of finances, interest rates, and consumer confidence. It utilizes graphical representations of demand and supply curves to illustrate the relationships between price and quantity. Task 2 explores governmental and economic policies, such as interest rates, taxation, and landlord rights, and how these policies influence the demand for private rental housing. The report concludes by summarizing the key findings and implications of these economic factors and policies on the UK rental market.

Economics for
Business

Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Demand and supply analysis to determine factors affecting private rental housing in the UK
................................................................................................................................................1
TASK 2............................................................................................................................................5
Governmental and economic policy that formulated to influence the demand for private rental
housing in the UK...................................................................................................................5
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Economics is the study of mankind in the ordinary business of life. It is a huge concept
which defines relation among resource utilisation and production made. Economics when applied
to businesses helps to analyse the market by establishing a relationship among demand and
supply of various goods and services (Moran, 2012). There are number of economic factors
available in the business environment that affects businesses for using various resources.
Business sector in the economy is one of the important in order to govern the whole economy.
In this project report business economics will be analysed in order to present effective
utilisation of resources. The concept of demand and supply is analysed for the private rental
housing in UK. Analysis of various factors and policies will be made to analyse how they
influence demand and supply of rental housing in UK. All these analyses will be represented
through graphical representation.
TASK 1
Demand and supply analysis to determine factors affecting private rental housing in the UK
In an economy business sector is all directed and governed thorough the concept of
demand and supply. There are number of predictions are made in order to access future demand
and supply. There are number of factors that affects demand and supply in the market and these
are considered for analysing future market condition. There are certain laws and theories are
developed in order to analyse and trend of demand and supply in the market. Detailed discussion
of demand and supply concept to analyse factors affecting private rental housing in UK is as
follows-
The concept of demand computation is introduced in the name of “law of demand”. This
helps to analysing or evaluating consumers spending on different goods and services available in
the economy of UK. The law of demand by keeping all the factors constant defines a relationship
among price and quantity demanded in relation to each other (Thanh and Duong, 2011). As per
this law a clear vision is provided which determines the changes that quantity demanded faces
due to change made in the prices of the good offered in the market. As per this law price and
demand possess an inverse relationship with each other i.e. when price of goods will increase
then it will result in decrease in the demand. This concept will be applied on the private rental
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housing sector in UK to determine how demand is affected through pricing effect. Graphical
representation of the law of demand is as follows-
(Source: Demand Curve, 2020)
This demand curve defines that when price of the housing at rent in UK was at P1 then
demand was at Q1. A decline in price is recorded and price reaches to Q2 then demand for rental
houses increases to Q2. These changes keep on taking place with change in pricing in the
industry. Price of a good is not the single factor that affects demand. There are number of factors
which affects pricing of rental housing in UK which leads to create a negative and positive effect
on demand for housing at rent. Some of these factors are as follows-
Affordability: It means that individuals become capable to spend the amount required to
purchase a house. When prices of houses decrease in economy they become affordable for more
and more users and demand for the private rental housing facilities decreases (Anwar and
Nguyen, 2011). As more and more people will shift towards purchasing their own house rather
than ranting. When an economy is at growing stage then demand for housing facilities increases
and availability of housing at lower rate will shift demand towards purchase of the housing.
Disposable Income: It is termed as the amount of income available with the individual
after payment of all the taxes. Availability of high amount of disposable income leads to
generation of more and more demand for housing (Tria Kerkvliet, 2017). People tends to
purchase a house property when made available with more amount of disposable income. So,
when more disposable income will be available with individuals then demand of rental housing
property will reduce and vies-versa.
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Illustration 1: Demand Curve, 2020

Economic Trends: It means the future expectation that is made for economy to be taken.
When the economic trend is booming then it will lead to increase in demand for the houses. As
people are expecting increase in the prices for housing facilities and due to high expectation in
the rental housing property more and more investment will be made in the purchase of housing
(Long, 2018). Booming economic provides good overall health of the economy which minimises
demand for rental housing facilities and generate more and more focus on greater demand for
purchasing of a house property.
Availability of Finances: Funds are considered to be an important factor which leads to
generate more demand for housing facility by purchasing or renting. Easy availability of required
finances for purchasing a house property leads to minimise demand for rental housing facilities
in the UK economy and vies-versa.
Interest Rate: Interest charged on the amount of borrowings made in the economy
affects demand of various goods and services. As higher rate of interest on borrowings will
reduce borrowings for purchase of house property. This will lead to influence demand for rental
housing facilities in UK in positive manner.
Consumer Confidence: When consumer in UK is confident that housing market will
increase in future then more investment will be made in the purchase of house property. This will
lead to reduction in the demand for the rental housing property in UK (Anwar and Nguyen,
2011).
In order to meet demand of the market supply needs to be made in effective manner. The
concept of supply is elaborated through “Law of Supply”. As per this concept all the other
factors are kept constant and effect of change in price is reflected on supply of goods and
services. This law specifies that when the price of goods and services will increase the supply of
all the goods will increase. Price and supply possess a positive relationship with each other i.e.
when price will move upward the supply will also shift towards positive direction. Price affects
supply of various goods and services and there are various other factors which in long run
influences supply in positive or negative manner (Forte and Moura, 2013). In order to understand
the concept of change in supply in private rental housing services in UK consideration will be
made to all the factors that possess some amount of effect on the supply facilities of housing
services. Graphical representation will be made to understand the concept of the law of supply in
detailed manner.
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(Source: Supply Curve, 2019)
In this supply curve law of supply is clearly determined. When price in the market is 10
then quantity supplied is 100. With increase in price to 13 quantity supplied enhanced to 250.
This helps to demonstrate the impact of change in pricing on the supply made for rental housing
property in UK. Together with pricing there are various other factors that needs to be consider to
demonstrate the effect of change in pricing. Some of these factors are as follows-
Cost of building a house: When cost of building a house property increases then it leads
to reduce demand for houses in the market. At this stage supply of house available at rent will be
made at higher rate by charging high prices.
New Build Houses: When construction of more and more houses will take place in UK's
economy then it will lead to generation of more and more availability of rental housing facilities
in UK. Supply of housing facilities made available at rent will be improved in the market. When
building of new houses is restricted in certain areas of UK then it will lead to decrease in the
construction of new houses (Yano and Furukawa, 2013). At this stage more and more demand
for rental property is created and supply will be made at higher rate in the market.
Development schemes: When government introduces development scheme for
household sector then construction of more and more new houses are created. This leads to
supply of more houses in the market which are owned by an individual. At this stage supply for
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rental property needs to be minimised as no more demand is available in the market for rental
housing services.
Profitability of the new houses: Availability of high profit margin in the economy for
construction of the new housing facilities affects supply of housing facilities. High profit margin
in the housing sector leads to enhance supply of housing property for sale and renting so that
more and more profits can be enjoyed as per economic conditions (Chiappori and Salanié, 2016).
There are number of factors that affects demand and supply in the market for rental
housing in UK. All these factors needs to be considered while determining estimated demand
and supply in the market.
TASK 2
Governmental and economic policy that formulated to influence the demand for private rental
housing in the UK
The private rental housing industry in United Kingdom is a market whose prices are
continuously increasing. From the above task, it has been observed that prices of this industry are
continuously rising and it is impacting the demand and supply of private rental housing
properties. There are various government and economic policies which can be formulated by the
government of UK in order to influence the demand of private rental housing. Some of these
policies are identified and analysed below:
Interest rates – These policies are the regulations which governmental authorities of a
nation implies upon the banking and financial system of a country. Interest rates are the rates
which are required to be paid against the amount of loan which is acquired through a financial
organisation. Typically, in countries such as United Kingdom, Central bank has the authority to
fix such interest rates. Instead of providing absolute rates, these authorities provide a scale of the
rates which includes maximum and minimum interest which a financial organisation can charge
against a loan. According to Richard (2020), this policy of government has the direct impact
upon the private rental housing in United Kingdom. Buying a housing property in United
Kingdom requires ample funds due to which if an individual has to a buy a house in UK, that
individual has to take loan. If government of United Kingdom increases the interest rates, then
buying a housing property will be difficult for people and they will tend to rent a house instead.
This process will increase the demand of private rental housing in United Kingdom. Therefore,
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this interest rate economic policy can be used by government to influence the demand of private
rental housing in United Kingdom.
Taxation – Taxation is the amount which an individual of a nation has to pay against their
income, capital gains and assets so that government can earn revenue of nation welfare. There
are set taxation rates which HMRC department of United Kingdom develops for the purpose of
charging taxation from each individual. Landlords of the housing properties has to pay property
tax every year against their assets. As the taxable amount on these properties increases, landlord
tends to raise the prices of their rental properties as well. This increasing prices, reduce the
demand for private rental housing in UK. Therefore, taxation can influence the demand for
private rental housing in UK.
Landlord rights – In this governmental policy, authorities create few rights for the purpose
of protecting interest of investors. These rights are provided at the discretion of landlord stating
the decision is in the hands of landlord that whether they want to exercise their rights or not.
Government can use these policies to influence the demand of private rental housing property. If
government provides additional rights stating that landlord will hold the right of vacating their
rental properties without any prior notice, then the demand of these properties will be directly
impacted and will reduce to a great extent.
Public housing – Public housing is another government policy which provides the standards
for the process of renting out a house. DANIEL (2019) stated that there are various policies and
regulations which are required to be completed before renting out a house. In the case, where
government decides to restricts these policies and make it difficult for landlords to rent their
place, then the supply of private rental housing properties will reduce which directly influence
their demand as well. When landlords will find it difficult to rent out their properties the supply
of properties will reduce and demand of those properties will also reduce. Therefore, these
policies can be used to influence the demand of private rental housing in United Kingdom.
Social housing – This is another economic policy which influence the demand of private
rental housing in United Kingdom. Social housing is different from public housing as it is related
with rights of tenants and not of landlords. If government of United Kingdom increases the rights
of tenants against their rented housing properties, then the process of rental will be easier and
people will prefer to rent out private properties. This factor has the direct impact over demand of
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private rental housing in UK. When government of UK will provide more rights to tenants, the
demand of private rental housing properties will increase.
Availability of mortgages – This is a demand side factor of governmental policies which
impacts the demand of private rental housing in United Kingdom. There is a set number of
mortgages which a nation allows in a year. If the restrictions over availability of mortgages are
increased by the UK’s government then it will be easier to acquire loan for purchasing the
housing properties will reduce the demand of private rental housing.
(Source: Mortgage approvals, 2020)
From the financials acquired from financial times, it can be seen that availability of
mortgages has increased in the period of 2019 due to which it is easier for people now to acquire
loan for their housing properties due to which the demand of private rental housing is decreased.
Other governmental regulations – Apart from above mentioned economic and
governmental policies, there are few other regulations as well which impacts the demand of
private rental housing of United Kingdom. Due to current air pollution situation of United
Kingdom, government has developed the policies which will reduce the carbon monoxide and
other smoke particles from the environment of UK. This policy will make UK, a better place to
live. This will directly increase the demand of private rental housing of United Kingdom
(Richard, 2020).
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CONCLUSION
From the above report, it has been concluded that every commodity which is traded in a
nation is influenced by its demand and supply. Private rental housing is also considered as a
commodity which has analysed using its demand and supply patterns. It has been observed from
these report that there are various governmental and economic policies which impacts the
demand of this commodity and most influential policies are interest rates and taxation. It is also
analysed from the above report that various factors can impact the prices of private rental
housing in UK and the most influential factors are economic trends.
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REFERENCES
Books and Journals
Moran, T. H. 2012. Foreign direct investment and development. The Wiley‐Blackwell
Encyclopedia of Globalization.
Thanh, V. T., and Duong, N. A. 2011. Revisiting exports and foreign direct investment in
Vietnam. Asian Economic Policy Review, 6(1), 112-131.
Anwar, S., and Nguyen, L. P. 2011. Financial development and economic growth in
Vietnam. Journal of Economics and Finance, 35(3), 348-360.
Tria Kerkvliet, B. J. 2017. Dilemmas of development: Vietnam update 1994. Canberra, ACT:
Dept. of Political and Social Change, Research School of Pacific and Asian Studies, The
Australian National University..
Long, P. D. 2018. The relationship between foreign direct investment, electricity consumption
and economic growth in Vietnam.
Anwar, S., and Nguyen, L. P. 2011. Financial development and economic growth in
Vietnam. Journal of Economics and Finance, 35(3), 348-360.
Forte, R., and Moura, R. 2013. The effects of foreign direct investment on the host country's
economic growth: theory and empirical evidence. The Singapore Economic
Review, 58(03), 1350017.
Yano, M., and Furukawa, Y. 2013. Chaotic industrial revolution cycles and intellectual property
protection in an endogenous exogenous growth model. MQ Discussions Series.
Chiappori, P. A., and Salanié, B. 2016. The econometrics of matching models. Journal of
Economic Literature, 54(3), 832-61.
Richard P. (2020). [Online]. Available through:
<https://www.theguardian.com/business/2020/feb/11/uk-gdp-british-economy-zero-
growth>
DANIEL L. (2019). [Online]. Available through:
<https://www.investopedia.com/terms/e/equilibrium-quantity.asp>
Online
Law of Demand. 2020. [Online]. Available Through:
<https://www.economicsonline.co.uk/Competitive_markets/The_housing_market.html>
Law of Supply. 2019. [Online]. Available Through:
<https://www.economicsonline.co.uk/Competitive_markets/The_housing_market.html>
Mortgage approvals. 2020. [Online]. Available through:
<https://www.ft.com/content/6330f128-40ee-11ea-bdb5-169ba7be433d>
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