Economics for Business: Factors Impacting UK Private Housing Prices

This report, focused on the economics of the UK private housing market, investigates the factors that influence housing prices through demand and supply analysis. It begins with an introduction to economics for business, emphasizing market dynamics. Task 1 identifies key determinants of private housing prices using demand and supply curves, including affordability, interest rates, population, household income, and the cost of renting. Task 2 evaluates government policies, specifically fiscal and monetary policies, designed to stimulate demand. The report concludes by summarizing the findings and referencing relevant sources. The analysis underscores the interplay of economic principles and government interventions in shaping the housing market. This report provides valuable insights into the complexities of the UK housing sector and how economic policies can be used to influence market conditions.

Economics for
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK 1............................................................................................................................................1
1. Identifying the factors which impact price of private housing with the help of Demand &
Supply analysis............................................................................................................................1
TASK 2............................................................................................................................................6
1. Evaluate government policy which formulated to stimulate the demand for private housing
in the UK......................................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Economics for business is the application of economic theories which help the
organization to understand the market situational and economic condition. There are various
factors which affect the business operations and make sure to analyse these factors at the time of
decision making process. Some of the factors contributed in the organization and provide
diversity in the economic structure (Cleff, 2014). Economic theory based on the demand as well
as supply of commodity and there are various factors which impact the relationship between
capital, labour or product market. This report cover various topics such as factors which impact
the private housing of UK, demand & supply analysis and the factors which influence the
demand of private housing in the UK. In addition, there are various economic policies which
required to implement in order to boost the demand of private housing in the UK.
MAIN BODY
TASK 1
1. Identifying the factors which impact price of private housing with the help of Demand &
Supply analysis
Economics used in the organization to analyse the factors which affect the demand as
well as supply of any product or services. Every organization has desire to maximise the
productivity or profitability through minimising the cost of product because it further increase
the demand due to low selling price of product. Most of the organizations enable to determine
the costs which involved in the production period. In context of private housing, construction
organization have to develop their strategy with the help of demand and supply (Evans and et.al.,
2017). It required huge analyse of market and the factors which affect the demand and supply of
housing in the UK.
Law of Demand: This economic theory refer to the concept where other factors are
constant rather than price and quantity. They have inverse relation which is known as law of
demand. When price of commodity increases the demanded quantity of product reduces and
similarity, when price decreases demanded quantity increases (Law of Demand, 2019). It will be
happened due to inverse relationship between price and quantity. In order to understand the
private housing demand, organizations have to understand the law of demand and analyse it, in
effective manner.
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Demand cure is the graphical representation which helps in providing better
understanding of price and quantity relationship which affect the overall demand. With the help
of demand curve, readers also get the better understanding which mention below:
Illustration 1: Demand Curve, 2019.
(Source: Demand Curve, 2019)
Above mention graph represent that Q is for quantity and P is the price of private housing
in the UK. When price of private housing increases from £200,000 to £250,000 than demanded
quantity reduces Q to Q1. On the other hand, when price of private housing reduces than it will
increases the demand of individual. When individual income increases than it will increase the
will power of an individual to buy more. When income reduces than it will reduce the
willingness to purchase something and they prefer to select alternatives such as renting building.
Law of Supply: It is the microeconomic law where all the factors are constant rather than
price and supply quantity. They have positive relation which affect the supply as well as demand
of individual. When price of commodity increases then supply quantity also increases due to
high demand. On the other hand, when price reduces, than quantity of supply also reduces. In the
short run all the factors are constant but in long run all the factors affect the demand and supply
of quantity (Law of Supply, 2019). This relation will be represented with the help of supply curve
which provide better understanding.
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Supply curve is the graphical representation which helps in showing relation between
price of product and quantity supplied for the period (FOOK, 2016). In context of private
housing, supply new houses according to price is mentioned below:
Illustration 2: Supply Curve, 2019.
(Source: Supply Curve, 2019)
From the above supply graph, it is represented that Q denote the quantity of supply and P
denote the average price of houses. When price of private housing increases from £200,000 to
£250,000 than supply of new houses also increases. In the graph, S demote the supply curve
which is in upward direction and shows the positive relationship between price and quantity of
private housing in the UK. Similarly, low price reduces the supply of private housing due to
factious factors which impact the price. Other than price, all the factors are constant but affect in
long run.
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Illustration 3: Factors which impact the Demand & Supply of Private Housing, 2019.
(Source: Factors which impact the Demand & Supply of Private Housing, 2019)
Factors that impact the demand of private housing:
There are various factors which affect the demand of housing sector in the UK, some of
them mentioned below (Factors which affect the demand of private housing in UK, 2019). It
further beneficial for individual as well as builders to make their strategies accordingly:
 Affordability: When income of individual increases then it will increase the affordability
of consumers to spend more on housing sector. In order to boost demand of private
housing, it is important that individual have affordability power. High income increase
the demand and similarly, low income will reduce the demand of private housing in UK.
 Interest Rate: It is the major factor which affect the demand of individual because of
mortgage interest payment (Kanev and Terziev, 2017). Most of the UK citizens prefer to
take mortgage rate, so any change in the base rate will impact the interest of mortgage
payments. Basically, increase in the interest rate will reduce the demand of private
housing and low interest rate increase the demand of housing in the UK.
 Population: It is also one of the major factors which can affect the demand of private
housing in the UK. Change in the population will increase or decrease the demand such
as high population increase the demand and low population reduce the demand. Due to
demographic change such as growing number of individual who living alone which
increase the demand of housing or increase in divorce rate also raise the demand of
housing in the UK.
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 Household Income: Increase in the household income will increase the demand of
private housing because because it will encourage people to afford mortgages (Hummel,
Pfaff and Rost, 2018). Similarity, low income reduce the demand because it is income
elastic.
 Cost of renting: In context of private housing, increase in the renting cost will encourage
people to push their budget or bought new house because it become cheaper in
comparison to high renting cost of house. If, cost of renting house reduces than it will
decrease the private housing demand as well.
From the above mention factors that affect the demand of private housing in the UK.
Suppliers have to determined that these factors affect the demand of individual. In order to boost
demand, these factors should be favourable situations otherwise it reduce the demand which
influence the profitability of construction companies. High interest rate, increase in renting cost ,
population, household income influence the demand of housing in the UK. These factors affect
the overall demand of consumers.
Factors that influence the supply of private housing:
In the business economy, there are various factors which impact the supply of housing
where rather than price, all the factors are constant which affect the supply (Factors which affect
the supply of private housing in UK, 2019). In short run all the factors are constant but in long
run, factors affect the supply of organization which mentioned below:
 Planning restriction: In context of construction industry, suppliers have to take
permission before constructing any new building. Because in the UK, there are very less
buildings on green belt land. In the UK, builders have to take permission from the
authoritative body due to various restrictions on developing new houses.
 Build new home: When demand of new houses increase then supply also have to
increase in order to satisfy consumers (Lawrence, 2018). Constructing new building also
affect the supply of private housing in the UK. These factors affect the supply in long run
because it will constant in short run.
 Profitability of developing new houses: It is totally depend upon the demand of housing
and price. In the boom situation, builders make sure to develop more buildings which
increases their profitability. Because in the recession period, demand reduces and it will
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lead to restriction in supply. High supply will raise the profitability and the other hand,
low supply reduce the profit margin of builders.
 Local opposition: In every sector or industry, local oppositions are there which not
satisfied with the activity. In context of private housing in the UK, builders build new
houses where local opposition still prefer to live in small village in order to avoid
congestion or pollution. This factor also affect the supply of housing in the UK, so
economy have to focus on this and make strategic decision in order to overcome this
situation.
Above mention affect the supply of private housing in the UK which required to analyse.
So individual have to analyse these factors when consumer show interest to buy new house.
TASK 2
1. Evaluate government policy which formulated to stimulate the demand for private housing in
the UK
Every country's government develop various economic policies in order to maintain the
flow of demand and supply of commodity. In order to take initiatives in the various field to
improve the economic condition of the country, government develop policies in order to
maintain the flow of money supply (Salvatore, 2015). Economic policy develop in order to make
balance between demand and supply of private housing of UK. In order to boost demand of
properties, government implement various policy such as fiscal or monetary. Below mention
policy helps in increasing demand of private housing in the UK.
Fiscal policy: Under this policy, government adjust their spending or income tax
because it will directly influence the demand of private housing. So in order to boost demand,
government has to increase their spending and reduce the tax rates because it will encourage
individual to push their limit and purchase new house. High income tax will reduce the
willingness of purchasing house due to high low savings. But low tax rate help the individual to
save more, it will encourage them to spend more because they can afford to buy new house. On
the other hand, government spending also play huge role to increase or reduce the demand of
private housing in the UK (Saviotti and Metcalfe, 2018). High spending helps in increasing
demand of individual regarding private property and low spending reduces the demand. In order
to boost demand in UK regarding private housing, government have to increase their spending
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and reduce tax rates. Both policies used which influence the aggregate demand of housing, so
builders or organizations have to analyse these factors and build their strategy accordingly. It
further helps in maximising the demand which provide profitability through supply new houses
in the UK. In long run all the factors affect the demand of private housing. But in short run, only
price affect the demand of product. Other factors include like population, renting cost,
affordability etc.
Monetary policy: It is the monetary authority which any country have and they change it
according to their economic condition. It is used to control the short term borrowings or the
supply of money. It mostly targeting the inflation or interest rate in order to ensure that price
will be stable and currency for longer period. Government develop strategy in order to stable
currency rate or exchange rate. Further it will affect the demand of consumers in the UK. In
order to boost the demand of private housing in the UK. Government reduce the interest rate
which further reduce the payment of mortgage. High interest rate reduce the demand and
similarity, low interest rate increase the demand of private housing in the UK. It encourage the
individual to spend more or push their budget to purchase their own house if rate of mortgage
reduces (Siegfried and Walstad, 2014). It will increase the willingness as well as increase the
affordability of individual to buy new house. On the other hand, high interest rate will reduce the
purchasing power because they have to pay high mortgage interest which is not affordable. With
the help of this factor, government balance the economy at the time of inflation. In order to boost
the demand of housing in the UK, government have to reduce the rate of interest that encourage
individual to buy their own house. In the short run, only price factors affect the demand but in
long run there are various factors which affect the demand as well as supply. Such as population,
cost of renting, household income etc. These factors affect the private housing demand or impact
the buying decision of an individual.
Factors that impact the demand of private housing:
There are various factors which affect the demand of private housing in the UK, these
factors need to analyse before taking any decision because it influence the willingness of
individual to buy property. Some of the factors discussed below:
Purchase houses as future investment: When household income increases then
purchasing power of individual also increased. So they start investing in the property which can
provide them better price in the future (Spieth, Schneckenberg and Ricart, 2014). When
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household income increase then demand of private housing also increases which affect the
overall supply which also increased.
Renting not affect the interest rate: Those people who stay on renting house they does
not affected due change in interest rate. But, if cost of rent increases then individual push their
budget to purchase new houses because cost of renting house increases. On the other hand, low
renting cost will will encourage people to stay in renting house. Basically, cost of renting not
affect the interest rate but affect the will power of individual who willing to but new property.
Supply of renting house more elastic: In context of private housing in the UK, supply is
elastic where high price increase the supply and similarly low price reduce the supply. There are
various factors which affect the supply in the long run because in short run all the factors are
constant rather than price.
CONCLUSION
From the above discussion it has been concluded that, with the help of demand & supply
of product will impact the economy as well as price. At the time developing any strategy,
organizations have to analyse various factors which can impact the demand as well as supply.
With the help of market analysis, organization able to understand the consumer's demand. In
order to boost the demand of private housing in the UK, government implement various policies
such as fiscal or monetary. Here, government adjust their spending, cut interest rate and reduce
the income tax as well. These policies affect the demand private housing in the UK.
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REFERENCES
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3, 2016 (Vol. 113, p. 64).
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moral judgment competence?. Journal of Business Ethics. 150(2). pp.559-577.
Kanev, D. and Terziev, V., 2017. Behavioural economics: development, condition and
perspectives. Business Economics. 4(52). pp.387-410.
Lawrence, R. J., 2018. Applications in economics and business. In Lognormal Distributions (pp.
229-266). Routledge.
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economics. In Evolutionary theories of economic and technological change (pp. 1-30).
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Online
Factors which affect the demand of private housing in UK. 2019. [Online]. Available Through:
<https://www.economicshelp.org/blog/15390/housing/factors-affecting-supply-and-
demand-of-housing/>
Factors which affect the supply of private housing in UK. 2019. [Online]. Available Through:
<https://www.economicshelp.org/blog/15390/housing/factors-affecting-supply-and-
demand-of-housing/>
Law of Demand. 2019. [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>
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