UK Private Housing Market: Demand, Supply, and Government Policies

This report provides an economic analysis of the UK private housing market. It begins with an introduction to economic concepts relevant to business, followed by an examination of the factors determining private housing prices, using demand and supply analysis. The report identifies factors influencing demand, such as interest rates, household income, and population, as well as factors affecting supply, including construction costs, technology, and regulations. The analysis includes graphical representations of demand and supply curves and shifts in these curves. The report then explores government and economic policies aimed at stimulating demand for private housing in the UK, focusing on fiscal policies like tax rates and government spending. The report emphasizes how these policies impact the housing market and overall economic growth. The document concludes with a summary of the findings and relevant references.

Economics for
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK 1............................................................................................................................................1
1. Identify factors which determine the price of private housing with the help of Demand &
Supply analysis............................................................................................................................1
TASK 2............................................................................................................................................7
1. Explain government/ economic policies that used to stimulate the demand for private
housing in the UK........................................................................................................................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
In the current business environment, economics used to analyse the concept of demand or
supply in the market which impact the product as well as profitability of the company.
Economics includes various practices which help the organization to formulate strategies and
identify those factors which can impact the business operations (Cleff, 2014). In order to know
about effect of demand or supply of goods & services on their business, top management deeply
research about that how price of private housing impact the economy of UK. This project report
include various topics such as using supply & demand analysis in order to identify those factors
which impact the price of private housing in the UK. In addition, it covers the government
policies which used to affect the demand for private housing in the UK.
MAIN BODY
TASK 1
1. Identify factors which determine the price of private housing with the help of Demand &
Supply analysis
Economics is the study of various theories and practices which followed by the industry
in order to make their strategies accordingly but before that they have to evaluate market trends
and current situation in context of demand or supply. It further helps in making effecting
decisions in context of organizations. Manager have to identify the problem of their operations
and make to develop effective solutions for it. In the business economics, there are two
traditional economic theory such as normative where it focus on prescriptive statement and
develop rules to achieve their goals (Business Economics, 2019). On the other hand, another
theory is positive which focus on describing aims in effective manner to the staff so they are
able to accomplish organizational goals & objectives. In order to maximise their production or
profitability, business used to follow demand or supply analysis which mention below:
Law of Demand: According to this law, demand of commodity increases when the price
of product decreases and it will be happen when all the factors are constant rather than price.
There is a inverse relationship between price and quantity demand by the customers (Law of
Demand, 2019). Other factors those are constant will include the disposable income of
customers, price of the substitute, taste & preference of consumers, climate change etc. These
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factors constant for the shorter period but in long duration they also impact the demand of
product along with price.
Illustration 1: Demand Curve, 2019.
(Source: Demand Curve, 2019)
Above mention graph represent the relationship between price of commodity and the
quantity demand by the consumers (Elgelal and Noermijati, 2015). There is inverse or negative
relationship which clearly shown in the above picture. P is the price of product and Q is the
quantity demanded by individuals. As price of goods increases such as P2 to P1, quantity
decreases from Q2 to Q1. Demand of the product shift from B to A as mention in the graph.
Law of Supply: As per law of supply, there are positive relationship between price or
quantity supplied by the manufacturers. Basically, when product price increases than supply of
product also increases. On the other hand, decrease in the price will also reduce the quantity
which manufactured by the company (Law of Supply, 2019). In this case, only price factor will
effect and other factors are constant and it will be possible in only short term period. Because in
long run, all factors affect the price as well as quantity.
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Illustration 2: Supply Curve, 2019.
(Source: Supply Curve, 2019)
Above mention graph represented that price or supply quantity of commodity have
positive relation. As mention in the picture, when price (P) increases from P1 to P2 than quantity
also increases such as Q1 to Q2.
Factors which impact the price of private housing in the UK:
Demand of private housing: In context of demand of private housing in the UK will
impact due to various factors and other than price all the factors are constant (Demand of private
housing, 2019). Price and quantity have inverse relation which can be easy to understand with
the help of graph which mention below:
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Illustration 3: Demand of private housing, 2019.
(Source: Demand of private housing, 2019)
From the above mention picture it has been interpreted that as price of housing market
increases than demand will be reduced because of high prices. As price increase from £200,000
to £250,000 then it negatively impact the quantity which demanded by the consumers such as
quantity shift from Q to Q1 which clearly mention in the above graph.
There are various factors which impact the demand of private housing in the UK some of
the factors discussed below:
Interest rate: Change in the interest rate also affect the demand of individual such as
high interest rate on mortgage or other loan will reduce the purchasing power of consumers
(Kanev and Terziev, 2017). On the other hand, low interest rate will encourage to people to
spend money.
Household Income: change in the national income as well as distribution among the
people significantly impact the demand of private housing in the UK. High income will result
high demand and similarly low income will limit the demand.
Population: Demand of property measure according to the size of population and it will
change due to migration of people. Death or birth also an important factor which change the
structure of population. Basically change in the population and their common interest &
preference will impact the demand of private housing in the UK.
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Shift in demand curve: Demand curve move to the right or left side which is called shift
and it will happen due to various factors which impact the demand of consumers (Lawrence,
2018). For example: increase in the income will encourage people to buy more commodity in
the same price. Below mention graph will provide better understanding.
Illustration 4: Shift in Demand curve, 2019.
(Source: Shift in Demand curve, 2019)
Above picture represent the shift in demand curve and it happen when price is constant
but demanded quantity will increases or decreases as per the requirement. Price of private
housing is fixed but due to high income of individual they purchase more which increase the
demand and shift the curve from D to D2.
Supply of private housing: In context of private housing in the UK, there are positive
relationship between price and supply of commodities. For example: high price will encourage
high supply of goods because of high demand and similarity of the other side as well (Supply of
private housing, 2019). High price of buildings will encourage builders to construct more and
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increase the supply. Similarly, low price will discourage construction and reduce the supply of
buildings. For better understanding will provided with the help of below mention graph:
Illustration 5: Supply of private housing, 2019.
(Source: Supply of private housing, 2019)
From the above mention graph it clearly mention that High price of private housing will
increase the supply of properties. Similarly, low price will reduce the production, here price or
supply of quantity have positive relation which mention in the above picture.
There are other factors rather than price also impact the supply of private housing in the
UK and some of them discussed below:
 Cost: In case of constructing new building, it will impact the supply because cost include
the raw material, labour charges etc. Shortage of labours will increase the cost of
construction which impact the supply and push supply curve to left side.
 Technology: Change in the technology also affect the supply and helps in increasing
elasticity of supply for private housing in the niche market.
 Regulation: Government regulations affect the supply because they have to take
permission for construction to the authoritative body (McCabe and Snyder, 2015). With
the help of it, organizations able to understand the area of restriction and their benefits as
well.
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Shift in supply curve: Change in the supply curve will happen due to change in the other
factors rather than change in the price of commodity (Shift in Supply Curve, 2019). Supply curve
can shift left or right side because of various factors. Below mention graph will provide better
understanding of this concept.
Illustration 6: Shift in Supply Curve, 2019.
(Source: Shift in Supply Curve, 2019)
Supply curve can move right or left side due to some factors which impact the supply of
private housing in the UK. Curve can shift to right side because of favourable natural condition,
improvement in technology, low taxes etc. These factors force to shift supply curve from S0 to
S1. On the other side, supply will reduce and move towards left because of increase in the input
prices, high regulations etc. It further shift the curve from left side which mention in graph S0 to
S1.
TASK 2
1. Explain government/ economic policies that used to stimulate the demand for private housing
in the UK
In order to maintain economic growth, government have to formulate various strategies
which helps in maintaining demand & supply in the construction industry (McClave and et.al.,
2014). They have to make sure before developing any policies that need to analyse all the factors
those who are constant as well. Because it will impact the demand as well as supply of private
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housing in the UK. Some of the policies are discussed below which helps in maintaining demand
of private housing.
Fiscal policies: It is the policy which develop by government which impact the demand
for the private housing in the UK. It further impact the growth of economy as well as GDP.
Another policy is monetary policy which is also used to achieve goals of economy. Under this
policy government adjust their spendings level or tax rates accordion to then situation of
economy (Mulhearn and Vane, 2015). In the economy, government can boost the demand or
supply through adjusting tax rates and their spendings in the market. Some of the factors which
impact the demand for private housing is discussed below:
 Tax Rate: This is the factor which consider at the time of making fiscal policies and it
further impact the demand as well as supply of commodity. Basically high tax will reduce
the purchasing power of an individual because they have to pay more for the properties.
On the hand hand, when tax rate is low then it will encourage people as well as
constructor to build new buildings for sale (Salvatore, 2015). In order to boost demand
for private housing, government cut the tax rates will increase the will power and also
increase the demand of properties. Low income tax will increases the disposable income
of an individual and promote consumers spendings. Similarly, high income tax will
reduce household income and reduce the spending of consumers as well.
 Government spendings: In order to maximise demand for private housing sector in the
UK, government have to increase their spending which directly maximise the production
as well as employment in the economy (Government Spendings, 2019). It further provide
growth and increases GDP of the country. Fiscal; policy used by the government in the
boom situation to cool down the situation in the nation. Government spendings include
the welfare benefits, pension scheme, education & training, infrastructure investment etc.
These factors include in the spending which helps in maximising demand of people for
the properties. There are some problems with fiscal policy where government increase
the borrowings due to increase their spendings. So they borrow from private sector and
high borrowings can crowd out the private sector.
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Illustration 7: Government Spendings, 2019.
(Source: Government Spendings, 2019)
From the above mention picture, it clearly represented that borrowings of government is
not stable it will change according to the requirement of economy. Main aim of expansionary
fiscal policy is to offset the private sector spendings. On the other hand, at the time of expanding
economy, government have to increase taxes and reduce their spendings in the economy in order
to create budget surplus.
Monetary policy: It is the policy which arranged by the central bank and it involved the
management of money supply as well as interest rate which impact the demand for private
housing in the UK. It include the interest rate which reduce by the government in order to
encourage people to increase their purchasing power (Saviotti and Metcalfe, 2018). With the
help of it, country able to control inflation, growth, liquidity, consumption etc. It is the most
common tool which influence the economic activities. So in order to boost aggregate demand
(AD) of private housing government have to cut interest rate. Low interest rate will increase the
demand and high interest rate will reduce the demand of properties in the UK. Along with this,
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lower interest rate will reduce the mortgage interest payment, increase disposable income for
consumers etc. In 2009, UK government reduce the interest rate by 0.5% to stimulate the
economic growth which directly impact the private housing.
Factors that impact the demand of private housing:
There are various factors which affect the demand of properties in the UK and some of
them mention below:
Rents not affected by interest rates: This factor affect those people who purchase
properties through borrowings (Spieth, Schneckenberg and Ricart, 2014). So high interest rate
will impact the demand for private housing in the UK. Those people who live on rent, does not
get effected due to change in interest rate.
Supply more elastic: In the UK, rental properties are more elastic in comparison to
private housing. High demand of renting properties will increase the demand of private housing.
Buying home as investment: When people have more money then they will invent in the
poverties. This process further increase the demand of properties which increase the price as
well. So in order to maintain flow of cash in the economy, government have to increase interest
rate, taxes and reduce their spendings as well.
CONCLUSION
From the above discussion it has been concluded that demand and supply both are most
important factors which impact the production as well as profitability of the company. It is
essential for business to analyse these laws or market and formulate their business strategies
according. With the help of various economic policies, organization able to understand that how
price of private housing impact the demand in the UK. On the other hand, government or
economic polices affect the demand of individual as well as entire economy regarding private
housing. Government policies include fiscal or monetary policies that used to stimulate demand
for private housing in the UK. Here they adjust government funding according to the cash flow
of economy.
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REFERENCES
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Online
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Supply of private housing. 2019. [Online]. Available Through:
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