Government Policies and Private Rental Housing Demand in the UK

This report provides an economic analysis of the UK private housing market. It begins with an introduction to business economics and then delves into the factors influencing the price of private housing, utilizing demand and supply analysis. The report examines the Law of Demand and its application to the UK housing market, considering factors such as affordability, interest rates, population, household income, and the cost of renting. It also explores the Law of Supply, discussing factors like planning restrictions, the construction of new houses, profitability, and local opposition. The report further investigates governmental and economic policies, specifically fiscal and monetary policies, designed to influence the demand for private rental housing in the UK. The report concludes by summarizing the key findings and implications of the analysis.

Economics For
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Factors that affects or influence price of private housing with the help of Demand & Supply
analysis.........................................................................................................................................1
TASK 2............................................................................................................................................6
Governmental and economic policy that formulated to influence the demand for private rental
housing in the UK........................................................................................................................6
CONSLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Economics is defined as the theory of valuable concepts such as supply and demand,
production, prices, expenditure etc. that have an impact on the economic development. When
these concepts are integrated within business operation in order to increase the profitability of
company is known as business economics (Amankwah-Amoah, 2016). The main objective of
using economic perception or tool in to make a better decision so that maximum return can be
gained to company. Business economics states the techniques for better uses of resources in
order to gain at most satisfactions.
In this report, demand and supply analysis is performed to determine the price of rental
houses in UK. Some of the important factors which have an impact on the prices of houses are
also discussed. In addition, different government reforms and policies are discussed which are
mainly prepared to influence the demand for rental houses in UK are discussed.
TASK 1
Factors that affects or influence price of private housing with the help of Demand & Supply
analysis
Economics being a wider field involves technical analysis of demand and supplies and
also involve predictions. In economics numerous factors and facts are thoroughly analysed to
predict future demand and supplies. It also involve certain laws and assumptions used for
determining the trend of demand/supplies. For different markets and commodities, estimation of
demand and supplies is not so much easy but consideration of multiple aspects and factors can
assist analysts. In this regard following are key factors and analysis of supplies and demand of
private rental housing in UK, as follows:
Law of Demand: This is an economical theory that helps the entity assess the market
pattern of any item/good alongside its consumer spending (Law of Demand, 2019). As per
demand law, prices and volume/quantities have an inverse relation/connection such as in case
product price rises then the demand for with respect to goods/commodity will fall. At other side,
because of such inverse relationship, if price declines then demand will auto rises. Apart from
prices, all the variables are static however all the factors impact commodity's demand in the
longer term. In this context, there are multiple variables that impact prices and values of private
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housing that may further impacts customer's demand for house. Also if consumer spending and
income rises then demand in housing and real-estate rises,
demand curve implies to graphic representation which indicates how demands will be
influenced as a result of product price changes. Because prices and requested quantities have
inverse relationship, so demands decreases and vise-versa if price rises. The graphical depiction
provided below will give a smarter comprehension.
Illustration 1: Demand Curve, 2019.
(Source: Demand Curve, 2019)
Using the aforementioned demand curve, one can effectively recognize the connection
among prices or quantities demanded. Q signifies the needed quantity, P represents the private
housing value/prices and D represents demand curve. In this regard, in UK value and prices of
private housing rises from £150,000 to £300,000, then demand for in sector will reduced as
shown in graph (Q to Q1) and vies-versa (Bahadir and Gumus, 2016). This law of demand may
be get affected due to several factors that may also affect price and demand of of private-housing
in UK. Therefore, consideration of these factors for analysts and marketers is essential for
making estimations and taking decisions, as follows:
Factors that impact the demand of private housing:
 Affordability: This is most critical factor as it directly affects the price as well as
demand in private housing sector. Here affordability implies to whether customers are
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capable to afford new house even by paying interest on loan taken for acquiring house. In
case income individuals are capable to afford buying new house then this lead to
increment of demand. This also reflects the spending power of customers and value of
house at specific location.
 Interest Rate: This is another considerable aspect that determines the demand along with
prices of private housing. This is crucial variable that can impact UK's privater housing
sector as lower interest cost and rate attract individuals in UK to purchase new private
houses if mortgage repayment and its interest are within their budget. but if interest rates
increases it will lower an individual's buying power (Burke and Cowling, 2019).
Demands will rise when interest rates are minimal, as this motivates individuals to
purchase more.
 Population: A significant increase and decrease in overall population or specific age
group of individuals can impact overall aggregate demand of private-housing business
area and market specially demand and prices. There are assorted manners that may
impact population and density in particular location like demographic variances, higher
diversity, preferences of living people, birth-rate & availability of basic amenities etc.
Increasing population contributes in developed and increased demand while lower
population cut down demand for private housing throughout UK.
 Household income: Income is of individuals and households is direct factor which
impact demand with respect to any particular product based on product's nature and
customer;s preferences. As private housing is essential and preferential need of every
individual but it majorly not affect basic survival of individual as thy can take house on
rent, But in case households' income rises they shift towards purchase of private house.
Higher income of households increases the ability to invest more and lower income can
reduce spending (Fernández, González and Rodriguez, 2018).
 Cost of renting: This factor not only affect demand but also influences the preferences of
customers. As in case rental cost of houses increases in UK, individuals shift towards
buying new house if rental cost exceeds the rental cost. If rent increase to the extent that
individual can not afford house on rent then they move towards the buying of their own
private house.
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Law of supply: this is a theory that aid companies to acknowledge about manufacture
system according to the modification in the price and preference of a specific good. In the
respect of supply, price of product and quantity supplied shows a positive connection. If price
gets enhance than supply automatically increases so that consumer requirement is fulfilled.
Likewise, in case price decrease the quantity supplied also gets reduce because every business
wants to attain the maximum advantage of market (Law of Supply, 2019). There are number of
variables which have a direct influence on the quantity supplied in the long time period. In UK,
builder or property owner analyse the market condition and make valuable decision regarding
supply and prices of rental houses in specific time frame.
Supply diagram is basically a presentation of positive relationship among quantity
supplied and prices. This clearly demonstrate that whenever the prices are going to rise there will
be a upward movement in the supply of product.
The above curve shows that when the prices move in positive direction the quantity supplies
by the suppliers also gets enhanced. Such as price rise from £ 200,000 to £ 250,000 than supply
for rental houses also increased from Q to Q1. The provision of affordable housing is affected by
factors involved, but almost all the factors are steady in short periods instead of price. All
factors, however, have a long-term influence on the supply of residential homes in the UK.
Factors which impact the supply of private housing in the UK:
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Planning restriction: There have been multiple limitations in the construction sector, that are
acceptable and acceptable to builders before structures are developed. Because greenbelt
property is not available, authority or organization for the building industry restricts growth. This
is among the major questions they experience, as well as the provision of new buildings in the
UK can continue to be affected (Haugh, 2020). It will also hinder the firm's supply of private
residential property in the United Kingdom.
Construct new home: In present time it is determined that continuous construction of new
building is mainly depend upon the size of population of that region. Population changes affect
existing housing supply. Constructors must assess these variables throughout the sense of their
organisation, before constructing an approach. This indicates the building of new homes in
England, that further impact the availability of private industry accommodation in the UK, use
the following figures.
Profitability of developing new houses: The implication that the providers construct more
constructions in the UK is among the key factors. Profit margins depends entirely on the demand
and supply of rental housing. When the economy is growing, suppliers should increase the cost
to meet the buyer's demands with new construction (Kim and Song, 2017). Rising rents increase
both supply and revenue growth.
Local opposition: Each construction industry has a certain resistance which makes it difficult for
the business to maximize its production or provenance. As regards rental housing in the UK,
local communities nevertheless chose to live in the neighbourhood of the small town, since they
want to live in such a quiet environment with nature to minimize overcrowding. In addition, the
housing supply throughout the UK is influenced by this factor.
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Planning restrictions, construction of new houses and profitability are some of the factors
which affects supply of housing in the economy. Various construction organisations must
consider such factors while supplying private housing facilities.
TASK 2
Governmental and economic policy that formulated to influence the demand for private rental
housing in the UK
Government of UK is involved in formulation of economic policies so that demand of
housing facilities can be maintained in UK. Government policies are established by accessing the
whole situation so that each problem is resolved in effective manner. Analysis of demand and
supply plays important role for analysing future demand of houses and government policies
helps in generation of balance among them so that private housing sector performs in productive
manner. Government in order to manage demand for the housing in private sector introduces
Monetary policy and Fiscal policies (Meyer and Peng, 2016). When demand is law in
comparison to supply then through monetary policies government enhances availability of funds
among general public and balance is created. Elaboration of these two policies of UK
government are defined as follows-
Fiscal Policy: It is a policy thorough which adjustments are performed in spending level
and tax rates for general public so that management and influence can be made towards economy
of UK. These policies are simultaneously implemented with monetary policies of the nation so
that central bank of the nation can influence monetary facilities in the country. Fiscal policies
must be implemented in such manner so that economic growth must be maintained. Government
spendings must be increased so that number of benefits can be provided to general public. Rate
of tax is moderated for increasing monetary power of general public in the country. These both
steps will help in providing more and more amount of funds among public and their level of
spending over houses will increase (North, 2016). Reduced tax rate minimises spending of
general public through providing some amount of savings through different tax saving schemes.
Fiscal policy will highly influenced through present market conditions. When gap between
supply and demand is high then it will leads to establishment of more effective policies. Policies
of the government can be visa versa when situation in the economy is reversed.
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Monetary Policy: Policies related to management of monetary services in the country to
are termed as monetary policies. Central bank takes all the actions in order to manage, supply
and increase liquidity in the market to create economic growth and development. In order to
maintain demand and supply of housing in the economy all the monetary facilities are controlled
by government thorough implementing monetary policies. Rate of interest in the economic of
UK is influenced through availability of finances in the economy and intention of government
regarding flow of finances. In order to maximise demand for the house government establishes
monetary policies for charging low rate of interest so that borrowing power can be increased
(Rosado-Serrano and Navarro-García, 2019). Availability of funds for granting loan is made in
high amount so that growth can be maintained for economy. When government helps business
with affordable housing policies this will eventually generate more demand. Rate of mortgage is
set high then interests rate for purchasing house and this influences demand for house in positive
direction. Establishment of monetary policies which facilitates and simplifies the process of
acquiring new houses is an initiative towards settling demand and supply ratio of housing facility
in UK.
Factors that impact the demand of private housing
Mortgage Availability: Purchasing a house is one of the best investment opportunity
performed by large number of general public. Availability of mortgage facilities on that invested
property made this investment opportunity more profitable for large number of general public.
Consumers can take loan through mortgaging such property and this will also helps in increasing
level of income in the economy.
Economic growth and real income: Level of income when available among general
public increases in that case demand for houses increases. Affordable capacity of the people for
purchasing new housing or taking them on rent increases. Economic growth in the country and
real income generation with general public will help in enhancing more and more demand for
houses (Zeev, Pappa and Vicondoa, 2017).
Population and renting: Number of population possess clear and positive relationship
with demand of houses in UK. More and more population who can afford their own house
increase then a positive impact will be recorded in the demand for houses. Availability of houses
at rent when made in easy manner then no one of interested to purchase house. Low availability
of renting facility provides more and more demand for house in the economy.
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CONSLUSION
From the above project report on Economics for business it has been concluded that
market of each product is governed on the basis of demand and supply as per economic trend.
Relationship among demand and supply of housing in UK have a clear influence over pricing
strategy for the same. Law of demand and law of supply will be made in this respect so that
effective valuation can be made to understand the demand and supply concept of housing
industry. Government have a intervention through different policies for influencing demand of
private rental housing in UK. Their are number of restriction available in the economy which
restricts demand of the houses. Government adjust their spendings and interest rate so that
demand and supply of houses can be maintained in UK's economy.
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REFERENCES
Books and Journals
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economies. Journal of International Economics. 103. pp.250-262.
Burke, A. and Cowling, M., 2019. On the critical role of freelancers in agile economies. Small
Business Economics, pp.1-6.
Fernández, A., González, A. and Rodriguez, D., 2018. Sharing a ride on the commodities roller
coaster: Common factors in business cycles of emerging economies. Journal of
International Economics. 111. pp.99-121.
Haugh, H., 2020. Call the midwife! Business incubators as entrepreneurial enablers in
developing economies. Entrepreneurship & Regional Development. 32(1-2). pp.156-
175.
Kim, H. and Song, J., 2017. Filling institutional voids in emerging economies: The impact of
capital market development and business groups on M&A deal abandonment. Journal
of International Business Studies. 48(3). pp.308-323.
Meyer, K. E. and Peng, M. W., 2016. Theoretical foundations of emerging economy business
research. Journal of International Business Studies. 47(1). pp.3-22.
North, P., 2016. The business of the Anthropocene? Substantivist and diverse economies
perspectives on SME engagement in local low carbon transitions. Progress in Human
Geography. 40(4). pp.437-454.
Rosado-Serrano, A. and Navarro-García, A., 2019. Family business in transition economies: an
exploratory study of private business. European Journal of Family Business. 9(1).
pp.39-53.
Zeev, N. B., Pappa, E. and Vicondoa, A., 2017. Emerging economies business cycles: The role
of commodity terms of trade news. Journal of international economics. 108. pp.368-
376.
Online
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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