Economic Analysis of Demand and Supply Factors in UK Housing Market

This report provides an economic analysis of the UK housing market, focusing on the factors influencing the demand and supply of private housing. It examines how affordability, interest rates, population changes, and household income impact housing prices and consumer demand. The report also explores the supply side, discussing the effects of planning restrictions, construction rates, profitability, and local opposition on the availability of new housing. Furthermore, it delves into the economic policies, specifically fiscal and monetary measures, that the government can employ to stimulate demand within the housing sector, such as adjusting government spending, tax rates, and interest rates. The analysis uses demand and supply curves to illustrate the relationships between price and quantity in the housing market, providing a comprehensive understanding of the market dynamics and the impact of various economic factors.

Economics For
Business

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

INTRODUCTION
Economics for business suggest to the monetary arrangements just as financial concept
which helps the undertakings and a few factors contributed so as to broaden the authoritative
structure. Fundamentally, financial hypothesis dependent on customer's request just as item
provided by the makers (Bogdanović, Vetráková and Filip, 2018). With the assistance of applied
financial aspects, business ready to comprehend the connection between capital, work or item
showcase. It help the associations to break down market which further give advantages to the
administrator at the hour of figuring methodology through examining request and supply of
products in the market. This project report cover various topics such as identify the factors which
help the researchers to identify how demand & supply affect the goods & service. In order to
boost demand, what economic policies develop by the government. It further beneficial for the
construction industry to formulate strategy and make sure that how price will impact the demand
of private housing,
MAIN BODY
TASK 1
1. Factors that impact price of private housing with the help of Demand & Supply analysis
Economics suggest to the different speculate which made for the examination of
demand and supply of item in the market among the shoppers. It helps the association in basic
leadership procedure and future systems. So it is essential to dissect the whole market and
comprehend the request just as supply of the item in the market (Davidson and Davidson, 2016).
So before defining nay start for the business, chief comprehend the economic situation, buyer's
interest, monetary approach and so forth.
Law of Demand: It is an economic theory which help the organization to evaluate the
market trend of any product along with its demand among the consumers. According to demand
law, price and quantity has inverse relationship like, when product price increases then demand
of goods decreases. On the other hand, when price decreases then demand automatic increases
due to inverse relationship (Law of Demand, 2019). other than price, all the factors are constant
but in long run all the factors affect the demand of commodity. In the UK, there are various
factors which affect the price of private housing which further impact the demand of customers
regarding housing.
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Demand curve is the graphical representation which shows that how demand will affected
due to change in product price. Because price and demanded quantity have inverse relation, so
when price increases, demand decreases and vice versa. Below mention graphical representation
will provide better understanding.
Illustration 1: Demand Curve, 2019.
(Source: Demand Curve, 2019)
With the help of above demand curve, readers able to understand the relationship
between price or demanded quantity. Q denote the demanded quantity, P represent the price of
private housing and D is for demand curve. In the UK, in context of price of private housing
when it increases from £200,000 to £250,000 then demanded quantity of housing reduced Q to
Q1 and vice versa.
There are various factor which impact the price of private housing in the UK which
impact the demand also. So UK marketers have to analyse these factors and make sure to
consider into their business strategy. Some of the factors discussed below:
Factors that impact the demand of private housing:
 Affordability: When individual can afford to buy new house then it will increases the
demand of consumers or make then able to increase predictability of an individual
(Elgelal and Noermijati, 2015). At the time of growing economy, demand of private
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housing in the UK also increases and affect the price of housing as well. Basically
increase in the individual income will encourage people to afford their own house.
 Interest Rate: IT is one of the major factors which affect the price of private housing in
the UK. Low interest rate motivate people to buy new houses because mortgage interest
payment is less which they can afford. But when rate of interest increases then it will
reduce the purchasing power of an individual. Demand will increases when interest rate is
low because it motivate people to buy more.
 Population: Change in the population also affect the demand of housing sector which
further impact the price of private housing in the UK. There are various ways that change
the population such as demographic change, high diverse rate, individual prefer to live
alone, birth & death etc. High population develop high demand and low population
reduce the demand of private housing in the UK.
 Household income: Demand of any product is based on the willpower and it is possible
when people have income to spend on goods & services. High household income increase
the willingness to spend more and low income will limit the spending. This factor affect
the price as well as demand of private housing in the UK (Evans and et.al., 2017). In the
boom situation, economy face the huge growth where income is elastic.
 Cost of renting: Demand of private housing also affected due to cost of renting, high
renting cost of housing will encourage to but new house which increase the demand of
private housing. Similarly, low cost of renting house will reduce the demand of properties
which affect the overall construction industry.
All the above mention factors influence the demand of housing sector in the UK. In order
to increase the demand of private housing organization have to analyse all the above mention
factors such as change in population, interest rate, renting cost, affordability etc.
Law of Supply: It is an microeconomic theory which help the organization to understand
their production process as per the change in the price of commodity. In context of supply, price
of goods and supply quantity have positive relation. When price of commodity increases, then
supply also incarnates in order to meet the demand of consumers. Similarly, when prices
reduces, production of goods also reduces due to positive relation with each other. There are
various factors which affect the supply of goods but in the short run all the factors are constant
rather than price. But in long run all the factors affect the supply of goods (Fell and Kaffine,
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2014). In context of UK housing market, builders have to analyse the relationship (Law of
Supply, 2019). With the help of supply curve, people able to understand the relations of price and
quantity of supply.
Supply curve is the graphical representation which show the relationship between price
and quantity. They have positive relation which evaluated in effective way with the help of
below mention supply curve.
Illustration 2: Supply Curve, 2019.
(Source: Supply Curve, 2019)
With the help of above supply curve, which shows the positive relation between price or
quantify supply for private housing. Increase in the price of private housing from £ 200,000 to £
250,000 will automatically increase the supply also increases. Q denote the quantity, P demand
the price of private housing and S represent the supply curve that is in upward direction. There
are various factors which affect the supply of new housing but rather than price all the factors are
constant in short run. But, in long run all the factors affect the supply of private housing in the
UK.
Some of the factors that influence the supply of private housing in the UK (Factors which
impact the Demand & Supply of Private Housing, 2019). Some of them discussed below:
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Illustration 3: Factors which impact the Demand & Supply of Private Housing, 2019.
(Source: Factors which impact the Supply of Private Housing, 2019)
Factors which impact the supply of private housing in the UK:
 Planning restriction: In the construction industry, there are various restrictions which
builders haver to adopt and take permission before developing any buildings.
Authoritative body or agency for construction industry restrict the development due to
limited availability of green belt land (Hummel, Pfaff and Rost, 2018). It is one of the
biggest issue, which they have to face and it will further affect the supply of new houses
in the UK. Further it become barrier for the company which affect the supply of private
housing in the UK.
 Build new home: Regulator construction of new buildings will on the size of population
which change according to the time (Build New Homes, 2019). Change in the population
affect the supply of new houses. So builders have to evaluate these factors before
formulating any strategy in context of their organization. With the help of below
statistics, it shows the construction of new houses in the Britain which further affect the
supply of private sector housing in the UK.
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Illustration 4: New buildings, 2019.
(Source: New buildings, 2019)
 Profitability of developing new houses: It is one of the major factor which motivate the
suppliers to build more buildings in the UK. Profitability totally depend upon the demand
of private housing and supply accordingly (Granger, 2014). At the time of economic
growth, suppliers increase the supply of new buildings and satisfy the consumers needs.
High price of housing increase the supply as well as profitability.
 Local opposition: Every sector have some opposition that become barrier for the
company in order to maximise their production or provability. In context of private
housing in the UK, local community still prefer to live in village area due to avoiding
congestion because they wanted to live in the peaceful location with nature. This factory
also affect the supply of housing sector in the UK.
All the above mention factor affect the supply of housing such as government restriction
on construction, profitability, building new houses etc. So construction organization have to
evaluate these factors which affect the supply of private housing in the UK.
TASK 2
1. Economic policy that formulated to stimulate the demand for private housing in the UK
Economic policy formulate by the government which also known as government policy.
Here they focus on the broad area of country and make sure to cover all the problems in their
strategy. It includes the political activities, strategy, plans and change in the regulations
according to the requirement of market condition (Maier, Meyer and Steinbereithner, 2016).
With the help of demand & supply analyse, government try to balance the demand of private
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housing. There are majorly two policy such as fiscal or monetary which helps in boosting
demand of housing sector in the UK. In order to maximise demand, government increase their
spending, reduce tax rates and interest rate as well. Fiscal or monetary policy discussed below
in context of demand of private housing in the UK.
Fiscal policy: It is the use of government revenue or expenditure for the development of
country which influence the economy. It include the various aspects such as adjustment of
government spendings or income tax. At the time of formulating these strategy they have to
make sure that it will helps in economic growth or reduce the negative aspect. In order to boost
the demand of housing sector in the UK (Salvatore, 2015). Government have to increase their
spending through providing various benefits and other schemes which is beneficial for the
individual. On the other hand, they reduce the tax rates which make a person capable to afford to
buy new house. Because low tax rate helps in saving money which used as investment for the
future. If tax rates increases, than it will reduce the saving which enable the person to spend
more on anything. High tax rate reduce the demand of private housing so in order to
increase demand government have to reduce the tax rates. Along with this, government adjust
their spending as per the economic condition. Cutting tax and increase in the government
spending supposed to raise the aggregate demand of private housing in the UK.
Monetary policy: This policy followed by the authorised body where they focus on
interest rate which can be change according to the short term or long term borrowings. It is an
microeconomic policy which managed by the central government. In the economy, in order to
maintain the demand or supply of commodity as per the needs of consumers. So government
have to build strategy which helps in maximising the demand of goods & services which make
organization profitable or provide huge market growth. In order to boost demand in private
housing sector, government have to reduce interest rate which increase the affordability power
of an individual. Low intestine rate will encourage individual to increase their spending and also
increase the willingness to buy more so they spend on private housing. High interest rate will
reduce the will of purchase houses because they have to pay more mortgage interest. Basically
change in the basic rate of mortgage will impact the demand of housing sector (Saviotti and
Metcalfe, 2018). With the help of monetary policy economy able to increase the liquidity of
economy. In the boom satiation, they have to implement these economic policy for the stability
of private housing in the UK.
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Factors that impact the demand of private housing:
Purchase houses as future investment: People invest in the housing sector when they
have enough money to spend and it will possible when real income of consumers increases
which motivate them to save and invest in the properties. Basically increase in the individual
income will increase the demand of private housing and similarly low income reduce the
demand. More savings will encourage people to invest in the housing sector. Low tax rate or
interest rate increase the investment due to high saving in their real income.
Renting not affect the interest rate: Those people who live on renting houses will
affect the does not impacted due to change in interest rate. But if consumers wanted to buy new
house then interest rate will impact the demand. High renting cost will helps in increasing
demand of private housing in the UK. On the the hand, low cost of renting reduce the demand of
housing sector because people prefer to live on renting houses because of their low cost (Spieth,
Schneckenberg and Ricart, 2014). If individual willing to buy new house than it will affect the
demand of private housing in the UK.
Supply of renting house more elastic: In the private housing sector, supply of new
houses are elastic which can be change according to the demand of consumers as well as price. It
is also depend upon the various factors such as cost of renting, population, affordability, real
income etc. Increase in the renting house cost will raise the demand but increase the tax rates or
interest rate will reduce the individual demand of private hosting in the UK. With the help of
various economic policy, government able to balance the demand as well as supply of private
house in the UK.
CONCLUSION
From the above discussion it has been concluded that, there are various factors which
affect the demand of private housing in the UK. So they have to measure those factors with the
help of demand & supply analysis. Demand of housing sector get affected due to change in
population, interest rate, cost of renting etc. Supply will affected because of planning restriction,
local opposition etc. In order to boost demand of housing sector, government introduce some
policies such as fiscal or monetary. They have to adjust their spending, cut the interest rate as
well as tax rates.
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REFERENCES
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Online
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<https://www.economicshelp.org/blog/15390/housing/factors-affecting-supply-and-
demand-of-housing/>
Factors which impact the Demand & Supply of Private Housing. 2019. [Online]. Available
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<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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