Economics for Business: UK Housing Price Factors and Policies

This report, focusing on Economics for Business, examines the factors influencing the price of private housing in the UK. It analyzes the impact of supply and demand, interest rates, stamp duty, house building, income levels, and population on housing prices. The report also identifies and discusses the main economic and government policies used to stimulate demand for private housing in the UK, including interest rate adjustments, stamp duty regulations, and affordable home ownership schemes. The analysis covers demand and supply curves, and government interventions, providing a comprehensive overview of the UK housing market dynamics and the economic tools used to manage it. The study aims to provide a clear understanding of the complex interplay of these factors and their effects on the housing market.

Economic for business

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Identifying the main factors which affects the price of the private housing in the UK. ............1
TASK 2............................................................................................................................................6
Identifying the main economic or government policies which are used to effectively stimulate
the demand for private housing in United Kingdom...................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Economics for business is considered to be an effective field which intends to use various
economic theory in order to effectively analyse the business enterprise. Demand and supply
analysis is referred to as a relationship between quantity of the commodity and price in the
market. Demand analysis is referred to as an effective approach which helps in determining the
demand of the particular products and services in the market. This report will highlight on
effectively identifying the main factors which affects the price of the private housing in the UK.
Furthermore, this study also tends to effectively identify the main economic or government
policies which are used to effectively stimulate the demand for private housing in United
Kingdom.
TASK 1
Identifying the main factors which affects the price of the private housing in the UK.
Supply and demand analysis is referred to as a theory which helps in explaining the
relationship between the price and quantity of the product. The house price in UK tends to
increase by 0.3% in the year 2019. Demand of the house is increasing which in turn results in
increase in the price of private housing in the UK. Demand analysis is useful in effectively
forecasting the market which is useful in carrying out modern business activities. When the
demand of the house increases then eventually prices also goes up (Fuerst and et.al., 2016). On
the contrary, when the supply of the housing decreases then the price goes up. Supply analysis is
referred to as a system which helps in determining quantity of the supply and the various factors
associated with the supply (Jones, Fuertes and Lomas, 2015). Demand and supply analysis is
referred to as a relationship between quantity of the commodity and price in the market. Rising
house prices tends to encourage individual consumers to sped high which in turn results in higher
economic growth and better flow of money in the economy. Falling housing pricing tends to
contribute towards recession.
Interest rate: This is referred to as the percentage of principal which has been charged
from the lender for sum of money lent to the individual. Interest rate tends to significantly
influence the price of the private housing in the UK. Low interest rate tends to increase the
demand for the private houses which in turn results in high prices for the houses (Allen and
Hamnett, 2018). Interest rate tends to affect the capital flow i.e., the demand and supply of the
house or property is influenced. Higher interest rate tends to result in higher loan payment (The 8
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Biggest Factors that Affect Real Estate Prices, 2016). This in turn states that, the affordability to
buy a house tends to become higher this in turn leads to long term sustainable growth in housing
industry.
Stamp duty: This is a legal tax which is payable in full where it tends to act as an
evidence for the purchase of particular property (Gibb, 2016). Stamp duty tends to slow down
the housing market by effectively preventing household to move to more suitable homes. This is
due to increase in the tax rate to around 1% to 3% where the value of the house extends to
£250,000. Stamp duty land tax is applicable in UK. This in turn results in lower demand for
housing in UK and high supply of private housing in the market (Jones, Fuertes and Lomas,
2015). Increase in tamp duty results in slower housing market which in turn prevents household
from moving to much more suitable places.
House building: New housing developments tends to push the price of the house up
because of high demand of private housing in the UK. Newer and more construction of the
houses tends to result in increasing the value of the prices. With the increase in the value of the
property, this in turn might also result in increase in property tax as well. This in turn have
negative effect on the demand of the hosing and leads to lower housing price in UK.
The income effect: Private housing is considered to be as a high income elasticity
demand where they tend to increase the demand of the private housing in UK. High income
individuals tends to increase the demand for housing which in turn results in high price of the
private housing in UK (Giglio, Maggiori and Stroebel, 2016). People with lower income level
tends to affect the price of the private housing in UK. The standard of living in the UK is
increasing which in turn has a positive effect on the demand of the private housing. Local
housing affordability is mainly concerned with the income groups. If the spending of the
consumer is low this in turn lowers the demand of the private housing.
Local or regional demand factors: This is considered to be an effective factor which in
turn largely influences the demand and price of private housing in the UK. In case the demand of
the private housing is higher in particular region then this in turn results in higher prices of the
houses in the particular region. This in turn tends to improve the performance of the economy by
effectively improving the cash flow within the UK economy. This in turn leads to high demand
for the particular commodity. If the demand of the particular region is not good then this in turn
leads to lower price levels of the private housing in the UK.
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Population: This is considered to be one of the major factor which in turn leads to
change in the demand and supply of the private housing in UK. Decline in the population tends
to result in lower demand for the private housing and which in turn leads to lower prices for the
private housing (The relationship between population and housing, 2019). On the contrary,
growth in the population tends to result in higher number of households and also tend to higher
demand in the price of the house. This in turns results in oversupply of private housing. The high
rate of population size, migration, income level, etc. are mainly responsible for high price of
private housing in the local market (Charles, 2016). Population can lead to change in the demand
for housing which in turn leads to change in the price of private housing in UK.
Demand and supply curve
The price and quantity in the demand graph are not positively correlated. This in turn
states that, increase in the price of the product results in lower quantity demanded. Price and
quantity are directly related in supply graph. This states that, when the price of the commodity
goes does the quantity supplied also tends to decrease.
Demand curve shift to right
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When the income of the customer increases, this in turn results in higher demand of the
products in the market (Cook, 2017). High income individuals tends to increase the demand for
housing which in turn results in high price of the private housing in UK. This in turn leads to
shift of the demand curve to the right.
Demand curve shift to left
Illustration 1: Shifts in Demand & Supply: Decrease and
Increase, Concepts, 2019
People with lower income level leads to lower demand for the private housing in the UK.
Lower demand for the private housing leads to lower house price which in turn results in shift of
demand curve to the left.
Supply curve shift to right
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Illustration 2: Supply | Determinants |
Economics Online, 2019
This tends to state that, change in the underlying factors of supply tends to shift the
supply curve to the left or right (Hegetschweiler and et.al., 2017). Decrease in the price of the
raw material in private housing leads to shift of supply curve to the right.
Supply curve shift to left
Illustration 3: Supply | Determinants | Economics
Online, 2019
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In case the cost to resources increases, then the suppliers will be less inclined to supply
the stipulated quantity at specific price (Karunanithi and et.al., 2017). Increase in the price of the
raw material leads to lower quantity of goods. This in turn shifts the supply curve to the left.
TASK 2
Identifying the main economic or government policies which are used to effectively stimulate the
demand for private housing in United Kingdom.
Economic policy is mainly associated with the control or behaviour of the economy.
Government policy tends to influence the economic growth where they focus on improving the
economic conditions (Allen and Hamnett, 2018). The primary factor of the housing states that as
the price of the house increases, the demand of the private housing decreases. On the contrary,
the price of the house decreases, the demand of the private housing increases. There are several
economic policy such as interest rate, stamp duty, affordable home ownership scheme, planning
permission and fiscal and monetary policy which in turn largely stimulate the demand for private
housing in United Kingdom.
Interest rate: Interest rate tends to affect the capital flow i.e., the demand and supply of
the house or property is influenced (Wang and Nicolau, 2017). Low interest rate tends to
increase the demand for the private houses which in turn results in high prices for the houses. On
the contrary, higher interest rate tends to result in higher loan payment. Higher interest rate
results in higher cost of mortgage to the economy. High cost of mortgage payments tends to
result in fall in the prices of the private housing in UK. High interest rate tends to stimulate the
demand of the private housing. This in turn states that, interest rate and house prices do not have
any strong relationship between each other. Higher price of the private housing leads to increase
in demand and reduction in supply chain. The sharp rise in the interest rate tends to cause steep
fall in the price of the house in UK because individual homeowner cannot afford the rise of
interest rate.
Stamp duty: Stamp duty is considered to be a legal tax which is payable in full where it
tends to act as an evidence for the purchase of particular property (Ball, 2017). Stamp duty land
tax is applicable in UK where they tend to focus Stamp duty tends to slow down the housing
market by effectively preventing household to move to more suitable homes. Stamp duty tend to
increase in the tax rate to around 1% to 3% which in turn results in high value of houses. This in
turn results in lower demand for housing in UK and high supply of private housing in the market.
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Lower stamp duty rate results in high demand for the private housing because individual
consumers will have more spending in their hand (Fuerst and et.al., 2016). Stamp duty tends to
lower the demand of the private housing in the market by preventing individuals to move from
more suitable homes.
Affordable home ownership schemes: This is referred to as an effective scheme which
tends to provide shared equity or ownership in the form of part rent and part buy of the housing
property. This economic policy help individual to offer the opportunity to the consumer to
purchase part of their home in order to build their own equity. Effective affordable home
ownership schemes tends to stimulate more customers to buy the private housing property which
in turn leads to higher demand of the private housing in the UK. On the contrary, no proper
affordable home ownership schemes leads to lower demand of the private housing in the UK.
This in turn affects the economic condition of the business (Gibb, 2016). This scheme is useful in
providing opportunities to individual consumers to purchase house at more affordable price and
with various tax benefits. This in turn helps in stimulating the demand for private housing in
United Kingdom. These schemes gives better opportunity to the individual to carry out certain
task in a systematic and efficient manner which helps in stimulating the demand for private
housing in United Kingdom.
Planning permission: This is referred to as the consent of the local authority which is
mainly associated with the construction of new building, making extensive changes in the
existing building, etc. Company needs to comply with various relevant rules and regulations
which in turn helps in building new private housing properties. Higher planning permission
given by the authority results in creation of high demand for private housing in UK. In case the
local authority of the UK having stringent planning permission then this in turn negatively
affects the demand of the private housing in UK (Jones, Fuertes and Lomas, 2015). Planning
laws are considered to be restrictive in relation to the permission associated with the private
housing in UK. This in turn affects the demand and supply of the private housing in UK. Giving
permission to build more house tends to improve the price of the economy which in turn helps in
stimulating demand for the private housing in the UK.
Fiscal and monetary policy: This is mainly concerned with management of interest rate
where it tends to largely influence the demand of the private housing in the UK. Change in the
fiscal policy largely influence the household income, employment level, interest rate and
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inflation rate. Effective spending of government helps in creating higher level of demand of
private housing in the economy (Charles, 2016). Monetary policy tends to effectively manage the
level of money supply into the economy. This in turn largely affects the income level, interest
rate, price of the stocks, etc. When all these factors are positively affected then this in turn results
in creation of higher demand of private housing in the industry. Effective fiscal and monetary
policy results in better economic condition. On the contrary, if the factors associated with the
fiscal and monetary policy are negative affected then in turn has negative impact on the demand
of the housing policy in UK.
CONCLUSION
From the above study it has been concluded that, supply and demand analysis is a theory
which helps in explaining the relationship between the price and quantity of the product. This
study highlights on various factors such as interest rate, stamp duty, the income effect,
population and local and regional demand factors which affects the price of the private housing
in the UK. This report also includes that, the price and quantity in the demand graph are
negatively correlated. This states that, increase in the price of the product results in lower
quantity demanded. Price and quantity are directly related in supply graph. This states that, when
the price of the commodity goes does the quantity supplied also tends to decrease. It has been
concluded that, high interest rate tends to stimulate the demand of the private housing.
Furthermore, this report highlights on, effectively identifying economic policies such as interest
rate, stamp duty, affordable home ownership scheme, planning permission and fiscal and
monetary policy which in turn stimulate the demand for private housing in United Kingdom.
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REFERENCES
Books and Journals
Allen, J. and Hamnett, C. eds., 2018. Housing and Labour Markets: building the
connections (Vol. 1). Routledge.
Ball, M., 2017. Housing policy and economic power: the political economy of owner occupation.
Routledge.
Charles, S., 2016. Housing economics. Macmillan International Higher Education.
Cook, P.J., 2017. The demand and supply of criminal opportunities. In Crime Opportunity
Theories (pp. 127-153). Routledge.
Fuerst, F and et.al., 2016. Energy performance ratings and house prices in Wales: An empirical
study. Energy Policy.92. pp.20-33.
Gibb, K., 2016. Housing Finance in the UK: an Introduction. Macmillan International Higher
Education.
Giglio, S., Maggiori, M. and Stroebel, J., 2016. No‐bubble condition: Model‐free tests in
housing markets. Econometrica.84(3). pp.1047-1091.
Hegetschweiler, K.T and et.al., 2017. Linking demand and supply factors in identifying cultural
ecosystem services of urban green infrastructures: A review of European studies. Urban
Forestry & Urban Greening. 21. pp.48-59.
Jones, R.V., Fuertes, A. and Lomas, K.J., 2015. The socio-economic, dwelling and appliance
related factors affecting electricity consumption in domestic buildings. Renewable and
Sustainable Energy Reviews. 43. pp.901-917.
Karunanithi, K and et.al., 2017. Integration of demand and supply side management strategies in
generation expansion planning. Renewable and Sustainable Energy Reviews.73. pp.966-
982.
Wang, D. and Nicolau, J.L., 2017. Price determinants of sharing economy based accommodation
rental: A study of listings from 33 cities on Airbnb. com. International Journal of
Hospitality Management. 62. pp.120-131.
Online
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The 8 Biggest Factors that Affect Real Estate Prices. 2016. [ONLINE]. Available
through:<https://resources.point.com/8-biggest-factors-affect-real-estate-prices/>
The relationship between population and housing. 2019. [ONLINE]. Available
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