Analysis of Factors Determining Private Rental Housing Prices in UK

This report examines the factors that influence the price of private rental housing in the UK. The analysis begins with an introduction to supply and demand dynamics, emphasizing the assumption of perfect competition and the focus on industry-wide effects. Task 1 identifies key determinants, including regional demand, population shifts, interest rates, taxation, house building, income effects, price controls, and the availability of complementary and substitute goods. Each factor's impact on demand and supply curves is explained. The report further analyzes the effects of government and economic policies on the private rental market. Task 2 explores how these policies can influence the demand for private rental housing. The report uses graphical representations to illustrate the effects of price equilibrium and shifts in supply and demand. The report emphasizes the interplay of multiple factors and their influence on the UK rental market.

B11533
WRITTEN REPORT

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................2
1. Identification of main factors in determining the price of private rental housing in the UK:
2
TASK2...........................................................................................................................................11
Identify and explain the main government/economic policies that could be used to influence
the demand for private rental housing in the UK......................................................................11
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Supply and demand analysis allows determining optimized price to get maximum profit
from the market. Single individual firm cannot affect whole supply and demand of product;
hence whenever supply and demand mentioned it’s about whole particular industry not a
single one. In this report it is assumed that market has perfect competition, there is no
monopoly in the market and whenever talking about a factor, all other variations will be
constant or do not affect the demand and supply. The theory of demand and supply tells that
there’s inverse relationship between both because demands slope always moves downward
with increasing in prices while supply curve moves upward with increase in price. This
report consists of main factors which affects price of private rental housing in the UK.
Second task will discuss about main government and economic policies used to influence
demand of private housing in UK.
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TASK 1
1. Identification of main factors in determining the price of private rental
housing in the UK:
In the past 12 months rental prices paid by tenants in London raises by 1.2%; while
private rents in London rose by 0.8% in the same period. The prices of private rental
housing increasing year on year without any fall. For staying in London left two choices
for any person; whether to own a house paying monthly installment to mortgage
company for long term or paying regular rents to landowners for short period of time.
There are many factors which can affect the price of private rental housing in UK, but
discussing each factor it is assumed that all other factors are constant or will not affect
current analysis.
Case1: Right and left shift in demand:
Here, in case 2, there are two scenarios; right shift and left shift of demand:
Shifting in demand curve: It means increase or decrease in quantity demanded with
constant price or no change in price factors. Shifting towards right means demand for
private rental houses in London increases without any change in price level; whereas
shifting leftwards shows that customer demand decreases for the reason except price
(Mangan and Lalwani, 2016).
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RIGHT SHIFT LEFT SHIFTD1 D
0 0
PRICE
PRICE
P P
Q QQ1 Q1
D D1

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Case 2: Shifting of Supply curve right and left:
Right shift: Supply curve shifts right side when price are constant and due to other
factors either internal or external landlords increases the supply of private housing.
Shifting right side increases the revenue.
Left shift: Supply curve shifts left side when there is decrease in supply of products and
services; while price factors remain constant. In this situation economy faces losses due
to generating less revenue. Landlords stop giving housing on rental due to other factors
like security issues, not interested, etc (Hu, 2019).
Some of main factors in determining price of private rental housing are discussed
below:
 Regional / Local demand factors: These factors include people from London itself;
as normally local people use owns their house, so it’s very rare chance that they
required rental property but still sometimes students or employees have settled near
to the location because it’s not possible for them to travel regularly. Hence these
factors also impact the price of rental housing of London. For instance, let’s assume
that all other factors are constant; with the increase in housing demand; more
landlords will occupy housing properties to be available for rent.
4 | P a g e PRICE
PRICE
0 0Quantity Quantity
P P
Q QQ1 Q1
S
S1
S1
SShifting right Shifting left

Demand Left Demand Right Supply Left Supply Right
If all people get
jobs and colleges
in locality; then
there will be no
regional demand
for rental housing
and demand curve
will shift left
because no effect
of price on
demand.
If people had to
travel far for job
and colleges; then
more regional
demand for rental
housing rises;
while no effect of
price and demand
will shift right.
Decreasing in
demand by regional
factors will force
landlord instead of
occupying empty
room; use it in
other activities, this
will shift supply
curve left side.
Supply curve will
only shift right
side when demand
by local factors
increases.
 Population: This factor also plays a major role in determining private housing rental
prices and shifting in demand and supply curve. Population might be increases due to
outside migrants coming to London either for schooling or job. Their stay at London is
temporary and they are not citizen hence the only option left with them is private rental
housing (Li, Wu and Holsapple, 2017).
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Demand Left Demand Right Supply Left Supply Right
Taking price
factor constant;
demand will
shift left with
less arrival of
migrant from
outside
countries.
Taking price
factor constant;
demand will
shift right with
arrival of more
migrants from
outside country.
Assuming all
other factors
constant;
supply curve
will shift left if
population
decreases due
to utilizing
housing
property for
other work.
Supply curve will
shifts right when
population increases
with demand for more
new rental housing
facilities. This will
also raise the
opportunity for future
price increasing
expectation by
landlords, more new
houses will built.
 Interest Rates: Interest rates have direct impact on supply but indirect impact on price of
private rental housing. This factor also effects left and right shifting of demand and
supply curve. Here interest means amount paid by landlord for mortgage loan regarding
new house.
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Demand Left Demand Right Supply Left Supply Right
More interest
rates will shift
the burden on
tenants and
hence shifting
demand
towards left.
Less interest rate
will shift
demand curve
on right side due
to less burden
on tenants.
No increase and
decrease in
interest rates can
shift supply curve
left because price
is constant.
Supply curve will
shifts right side with
decrease in interest
rates as more people
will take new
housing loan and
more private rental
housing will be
available.
 Taxation: This factor also doesn’t have direct impact on demand but on supplier of
products and services. For instance rental housing generates income for landlords and
subject to pay tax on it. Therefore there is direct impact of taxation in determining price
(Rao, 2016).
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Demand
Left
Demand
Right
Supply Left Supply Right
No impact
on demand
No impact
on demand
Assuming price factor
constant; increase in
taxation will de-
motivate landlords for
giving more rental
housing, as it will
increase their income
and also burden of tax.
Price factor constant,
supply curve will shift
right side with the
decrease in taxation
due to less burden of
tax on income.
 House building: This factor has direct impact on supply of rental housing property. As
more house buildings will simultaneously increase more private rental housing facilities
in London and thus increase the supply.
Demand
Left
Demand
Right
Supply Left Supply Right
No impact
on demand
No impact
on demand
Less house buildings
will shift supply curve
towards left side, due
to less availability of
rental housing in
London.
More house buildings
will shift supply curve
towards right due to
availability of more
private rental houses.
 Income Effect: This factor affects demand of people as more tenants get the opportunity
to afford rental property in London. Rise in income also raises the capacity of people to
afford things. There is no direct impact of income on price of rental housing but it
affects movement along demand curve.
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Demand Left Demand Right Supply Left Supply Right
Decrease in income
reduces affording
capacity of people
and thus demand
curve shifts left side.
Increase in
income increase
the affording
power of people
and shifts the
demand curve
right side.
Less income from
housing property
de-motivates
landlords and
they stop availing
more rental
properties. Hence
shifting supply
curve towards
left.
More income from
housing
encourages
landlords in
supplying more
houses for rent to
increase their
income.
 Price caps/ subsidies/ intervention: These are regulated by government to regulate prices
of private rented houses in London. It kept control any price rise of housing properties
by government; it holds price for particular duration period to help vulnerable group to
afford rental house at their limited budget.
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Demand Left Demand Right Supply Left Supply Right
Less restriction on
price caps will
increase prices of
rent and will shift
demand curve
towards left side.
More restriction on
price caps will
reduce rent and
demand curve will
shift right side.
Fewer subsidies on
building house will
discourage people
landlords in building
more houses for rent
and thus curve will
shift left side.
More subsidies
will encourage
landlord to build
more houses and
thus increase the
supply and curve
will shift right
side.
 Complimentary / Substitute goods: Complimentary goods are those which have
combined use with main product and substitute goods are the alternate of main product.
In case of private rental housing; the complimentary products are facilities like laundry,
gym, transport facility, hospitals and other facilities. While substitute goods available
for private rental housing are government occupied rental facilities. Where
complimentary goods have negative or opposite relation with demand; as increase in
price of facilities will decrease the demand for rental houses and vice-versa. While
relationship between demand and substitute goods is positive, as more increase in price
of substitute goods, more increase in demand for current product. In case of supply this
for making new house complimentary goods include bricks and cement, as more price
increase will discourage for less house building; on the other hand substitute product
include rented houses, decrease in monthly rent will reduce supply of new houses
(Goodwin, Ramsey and Chvosta, 2018).
Demand Left Demand Right Supply Left Supply Right
Increase in price of
complimentary
Decrease in price
of complimentary
Increase in price of
complimentary
Decrease in price
of complimentary
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