Government Policies and UK Private Rental Housing: An Economic Report

This report delves into the economics of private rental housing in the United Kingdom, examining the factors that influence its price. The analysis begins with an introduction to economic concepts like demand and supply, crucial for understanding market dynamics. The main body of the report is structured into two key tasks. Task 1 identifies the main factors determining the price of private rental housing in the UK market using demand and supply analysis, including interest rates, population, economic growth, availability of mortgages, taxation, affordability, new builds, and overall housing supply. Task 2 explores government policies that can influence the demand for private rental housing, such as interest rate adjustments, landlord and tenant rights, governmental regulations, and mortgage policies. The report concludes by summarizing the findings and referencing the sources used. The report uses statistical graphs to support the analysis and provides insights into how economic forces and governmental actions shape the UK rental market. This assignment is a comprehensive overview of the subject and demonstrates an understanding of the economic principles at play.

Economics for Business

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
TASK 1............................................................................................................................................3
Identifying main factors which determines the price of private rental housing in the UK market
by using demand and supply analysis..........................................................................................3
TASK 2..........................................................................................................................................11
Explaining government policies which can be used to influence the demand of private rental
housing in the UK......................................................................................................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Economics is the field of study which is concerned with production, spending and
consumption of goods and services and a specific region (Gillespie, 2013). In context to a
business organisation, it is important to analyse the impact which economics levies on that
company so that effective functioning can be ensured. The main aim of this report is to build an
understanding about the concepts of demand and supply and their impact upon the private
housing of United Kingdom.
In this report, various factors which impacts the price of private housing in UK are identified
and then analysed which belong to both demand and supply side. Along with this, factors which
have direct impact upon price of public housing in UK are also evaluated with examples of
various graphs.
MAIN BODY
TASK 1
Identifying main factors which determines the price of private rental housing in the UK market
by using demand and supply analysis
Demand and supply are the factors which highly related to each other and the reason of
changes of price change. The law of demand states that if other factors remain constant then the
price of a product or service is inversely related to the demand of a product.

(Source: Law of demand, 2019)
On the other hand, law of supply states that if all the others factors remain constant then
price of a product or service and supply of that product will have a positive relationship.
(Source: Law of supply, 2019)
Both the concepts of demand and supply influences the prices of private renting in United
Kingdom. Demand factors which are usually considered while analysing the changes in price are
interest rates, population, economic growth, availability of mortgages, taxation, affordability of
housing etc. On the other hand, there are few factors from supply side as well which impacts the
price of private renting, these factors include new builds and supply of housing.
Main factors which affect price of private housing in the UK market:
There are various demand side factors which determined the price of housing in UK
market, some of them are as follow:
Interest rate - It is the most essential factor which affect the UK housing market because
interest rate is the cost which individual have pay for a mortgage. It will take huge proportion of
home-owner's monthly spending. In the UK, majority of people have variable mortgage so
increase or decrease in interest rate affect the price of housing as well demand. High rates
reduces demand and the other hand, decrease in interest rate will maximise the demand of

housing sector. Currently in the UK, rate of interest rate will remain same because it will be
expected to raise by 0.25% that is around £ 22 on mortgage value of £ 175,000. It will not be
affecting most of the home-owner's (Factors-influencing-the-property-market-in-2018, 2017).
Population – This factor is directly dependent upon the number of households in a region.
United Kingdom is developed country where population as compared to other developed regions
of the world is low due to which there are low number of households in this country. Population
of a region is related to four components which are births, deaths, international migration and
cross border migration. Due to high maintained health and education services, the rates of birth
and death in United Kingdom are stable. But the rates of migration have been increased
drastically in United Kingdom. According to the government report, the change in population of
United Kingdom between the period of 1991 to 2016 which has been born outside of UK has
been increased by 4.8 million (Determinants of house price changes, 2018).
Economic growth – This factor is the demand side determinant which impacts the rental
housing prices of a region. Economic growth has a wider scope which includes growth of overall
country and not an industry. United Kingdom is one of the most developed countries of the
world and its economy is at its peak. In last few year, due to the issue of BREXIT, United
Kingdom has faced various issue due to which economic stability and growth of this country has
been adversely impacted. According to the Office of national statistics, the price of rental
housing in United Kingdom has decreased after 2016 and the reason behind this price decrease is
declining pattern of economic growth of UK.

(Source: Office of National Statistics, 2019)
From, the above graph, it can be clearly seen that London, United Kigdom is facing the
increase in prices of private rental housing (HPI) in inuitial years. But after the implementation
of BREXIT in 2016-17, these prices begin to fall abd then maintained a declining pattern.
Demand of housing in UK increases which generate the flow of demand and supply
which provide grow in the economy. From 2007 to 2012, housing market fall due to credit
crunch and decline bank lending. Price of house became over-valued in boom period where
buyers some buyers first time able to purchase. But, due to recession unemployment increases
which discourage many buyers as well.
Availability of mortgages – This is another factor which impacts the price of private
rental housing in United Kingdom. This factor is based on the principle that every individual
who plans to lease a private rental house requires funds and those funds are procured from
mortgaged amount. If the availability of mortgages is low, then the demand of private rental
housing will decrease and the prices will also decrease. In United Kingdom, procurement of
mortgages was an easy task but because of credit crunch in 2007, government of this country

decided to restrict the mortgage accessibility due to which demand and price for private renting
housing increased.
(Source: Office of National Statistics, 2019)
From the above statistical graph, it can be seen that Kensington and Chelsea has the
maximum availablity of mortgages and Barking and Dagenham has the minimum avaibality of
mortgages.
Taxation – This factor impacts the price of private rental housing of United Kingdom.
Taxation is the amount which an individual has to pay against their incomes and gains. In
context of private rental housing. Rising taxation rates in United Kingdom is the reason behind
the price rise in private renting housing. Individuals who rent a house does not have to pay any
capital gain or house property tax but the landlords have to pay a high rate of taxation. In order to

procure funds, landlords charge high prices for their housing property due to which overall price
of private rental housing in United Kingdom increases.
Affordability of housing – According to John Kay (2017), UK housing market is broken.
This situation has raised due to the high prices of rental properties. It is considered that renting is
not necessarily cheaper than buying a similar property due to which people do not prefer to rent a
housing property in United Kingdom. The affordability of housing properties in United Kingdom
has been drastically decreased due to which prices of these properties has even increased.
Apart from above mentioned factors, there are few other factors as well which are
associated with the supply side. These factors are identified and discussed below:
New builds – This factor defines the supply of rental property in United Kingdom by
which price of those properties are defined. As United Kingdom is a developed country, the
construction industry of this country is also growing with a rapid speed. Every year, thousands of
new buildings are constructed in this region. Due to this situation, the prices of private rental
housing has also been increased.
(Source: Total number of households, 2020)
From the above graph, it has been seen that new builds in United Kingdom is
continuously increasing due to which supply of private rental housing is also increasing. As price

and supply share a positive relationship as per the law of supply due to which along with the
increasing supply of private rental housing in UK, their prices are also increasing.
Supply of housing – This factors states that if the supply of housing properties in the
region of United Kingdom will increase then the availability and supply of private rental housing
properties will also increase.
(Source: Supply of hosuing peperties, 2020)
According to the above graph, The blue line represents the onwer occupied hosuing
propereties in United Kingdom which is continoiusly increasing. Due to this increase the supply
of private rented housing properties (represented by red dotted line) is also increasing. This high
supply of private rental peoperties increases the prices of these properties as well.
From the above analysis, it has been evaluated that both supply and demand side factors
increases the prices of private rental housing properties in United Kingdom.

(Source: Equilibrium house prices, 2020)
From the above equilibruim graph, it has been seen that if the demand curve shifts and
supply remains constant then prices also increases. The above graph showcases all the factors
analysed which states due to the supply and demand side factors, the price of average house
increases in United kingdom.

TASK 2
Explaining government policies which can be used to influence the demand of private rental
housing in the UK
Governmental policies refer to the rules and regulations which are developed by
governmental authorities for the purpose of adhere the functioning of a nation. In context of
private rental housing United Kingdom, government has developed various policies which
directly or indirectly impacts the demand of private rental housing. There are various policies
which could be used to influence the demand of private rental housing in the UK. Some of these
policies (demand side) are identified and analysed below:
Interest rates – These rates refer to the amount which an individual has to pay against the
loan. The prices of private renting housing properties in United Kingdom are continuously
increasing due to which individuals has to take loan for this purpose. If government decreases the
interest rates on the loans which are taken for the purpose of renting a housing property in UK,
then there is a high possibility that demand of private rental housing properties may increase in
UK which will also stabilize the ever increasing prices of private rental housing (Factors
affecting real estate market, 2020).
Landlord rights – According to Emily Cadman and Chris Giles (2016), solely variation in
governmental policies cannot stabilise the increasing prices of private rental housing properties
in United Kingdom, it requires changes in rights of landlord and tenants as well. Due to the
increasing price, demand of these housing properties are decreasing as people tend to prefer
buying a private housing property rather than renting it. If government decides to provide certain
rights to tenants and landlords, then there is a possibility that demand of rental housing may
increase. These rights can involve three months’ notice before demanding vacancy of the rental
house, stable rent and many more.
Governmental policies – These are the rules which are developed by government to control
the price increase of the private rental housing in United Kingdom. According to Office of
National Statistics, there are various policies which government may implement in future which
will increase the demand of private rental housing properties in UK. The government of this
country is planning to bring effectiveness in the policy of smoke and carbon monoxide alarms by
which overall pollution in the region will reduce. If government of this country control the
tenants are states that it is mandatory to carry out electrical installation checks then it can also

increase the demand of rental housing properties of United Kingdom (Governmental policies,
2020).
Mortgage policies – These policies can both result in increasing and decreasing the demand
of private rental housing in United Kingdom. If government decides to decrease the availability
of mortgages in United Kingdom, then individuals will not have enough funds to buy a house
and they have to rent housing property which leads to increase in their demand. On the contrary,
if government of UK decides to enhance the availability of mortgages then people can procure
funds easily to buy a new house and demand of private rental housing will decrease.
(Source: Mortgages approvals, 2020)
As it can be seen from above graph, it is clear that the ratio of mortgage approval
fluctuates according to the time. These fluctuations impact the demand of private rental housing
in UK. Demand of rental properties would be low in 2007 as compared to 2015.
Apart from the above mentioned demand side governmental policies, there are few supply
side governmental policies as well which can impact the demand and prices of private rental
housing in United Kingdom. Some of these policies are policies on public housing, landlords,
social housing which are analysed below;