Impact of Economic Determinants on UK Housing Market (2009-2019)

This report provides an analysis of the UK housing market, focusing on the period from 2009 to 2019. It examines the fluctuations in average house prices, highlighting the influence of various economic determinants such as interest rates, inflation, affordability, and population changes. The report also investigates the impact of government actions and policies implemented during this time, aiming to stabilize and stimulate the housing market. Furthermore, it explores the potential effects of the COVID-19 pandemic on the UK housing sector. The analysis covers the supply and demand dynamics, mortgage availability, and the influence of external factors like Brexit on housing market trends. The report concludes by summarizing the key findings and projecting future trends in the UK housing market.

Contemporary business
environment
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Table of Contents
INTRODUCTION...........................................................................................................................3
How have average house prices in the UK changed from 2009 - 2019?.....................................3
What are economic determinants of changes that occurred?.......................................................6
How has government action in 2009-2019 affected the UK Housing market?...........................8
What would be the impact of COVID-19 on UK Housing Market?...........................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
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INTRODUCTION
In recent times, the pandemic covid 19 has adversely impacted on global economy and all
sectors and countries economic growth. basically, the impact is more on developed countries as
compared to developing one. the housing sector is main pillar of growth in infrastructure. so,
there is decline in its growth as well in UK. in UK there is a great contribution of housing sector
in its GDP. In that many companies are operating in it. Since 2009 there has been many changes
which has occurred in it. The new reforms and policies are formed and applied. Government has
taken several steps to increase it growth (Alencastro, Fuertes, and de Wilde, 2017).
In this report it will be described about how average house price has changed in UK.
besides, what are economic determinants of change ad action taken by government in 2009-
2019. along with that, it will be discussed on covid 19 will affect on this sector.
How have average house prices in the UK changed from 2009 - 2019?
In UK housing sector is most important as it highly contribute in GDP as well as economic
growth of nation. it has been evaluated that since past 10 years the industry is rapidly growing
and there are many changes observed in price of houses. Also, it is identified that prices of house
depend on many factors that are demand and supply, market condition, economic growth, loan
policy and many others. so, any change in all these factors led to fluctuate in prices of house.
thus, it results in change in growth of industry (Stone, and Berrington, 2017).
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It is analysed from graph that since 2009 there is decline in prices of house. the was a fall of 10%
in price in July 2010 (Alqaralleh, 2019). however, there was rise in price from year 2012 to
2016. besides that, there has been many ups and downs in average price of house in UK. this has
highly impacted on economic growth of nation. moreover, there was decline in interest rate of
housing industry. it is identified that when there is increase in interest rate by 1% than housing
rate decline by 3%. also, in 2016 average annual bank rate was 0-1 %. hence, there is decline in
11% in bank rate since last 10 years. Mortgage rates and the Bank of England base rate do not
move with each other. In January 2009 the average standard variable rate was 7.6 %; in January
2016 this had decreased to 4.2 % .
Besides that, in UK housing sector growth is declining which has led to fall in price of it.
the main reason behind that is Brexit due to which economic growth is affected. so, it has led to
impact on housing sector. the demand has fallen down that has affected on income level of
people. alongside, interest rates are modified as well because government is not able to provide
loan to people.
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by interpreting above graph, it is evaluated that inflation started falling from year 2007 till 2009.
then there was rise in inflation rate till 2010 (Ambrose, , 2018). However, there was again
decline in rate in 2011 to 13%. also, in 2014 inflation rate was 11%. but after that there is
decrease in rate till 2019 which highly impacted on growth of housing industry. thus, it is
identified that with change in inflation rate average price of house is affected. due to it, in 2019
there is change in price of house in UK along with shift in demand and supply.
Furthermore, inflation rate is declining due to Brexit. As new policy and reforms are
made it has affected on housing sector demand. It is due to shift in economic drift. this has raised
cost of housing in which has made difficult to buy house to people. thus, the average price of
houses has increased. since, past 3-4 years with stable growth of nation housing sector growth
remain flat. the prices are increased with drift in economic growth.
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What are economic determinants of changes that occurred?
Economic determinants are those factors which affect on change in economy. due to
change in these, economy is highly affected. it brings in shift in demand and supply. similarly, in
UK housing sector there also occurred some economic determinants which affected on average
price of housing sector. basically, they are of 3 types that is supply and demand side and other
factors. in supply side they are number of houses build. On demand side they are affordability
and demand (Bruff,. and Kumi-Ampofo, 2019). At last the other factors consists of inflation rate,
loan policy, interest rate, market condition, etc. So, these all are some determinants which lead to
bringing changes in housing sector in UK. Along with it, there are several other determinants as
well which has contributed in change in price of house. they are defined as below :
Affordability- this is a factor in which shift change in average price of house. so, when people
are having more income they buy house an it leads to rise in price of house as demand increases.
but on contrary when income level decrease, affordability is declined as well. thus, demand
decreases and it lead to fall in average price of house. Thus, in UK during 2012 the demand
increased. It was due to economic shift in income level. Thus, affordability was risen.
Confidence- here it refers to confidence of people in demand of house. It means that when
people are confident on economic growth and housing sector there is rise in demand of house. In
addition, if people expect that price of houses will rise there will be increase in demand. It will
highly help in maintaining demand in housing sector. It brings change in economic growth.
Interest rate- it is another major economic determinant which bring in change in price of house.
the interest rate is related to demand and supply. so, with any variation in interest rate there is
effect in industry. However, there are many people in UK who are still depends on interest rate
to buy house. This is because they get affordable house on that rate defined by government.
Thus, they have to pay mortgage on it. So, when there is any change in interest rate it directly
impacts on people affordability to buy house (Byrne, 2019). so, when there was cut in interest
rate in buying of houses it led to increase in affordability of people to buy house. besides,
average price of house was increased. Hence, in the time period there was high cut in interest
rate. This resulted in increasing power of people to buy house. But in time period of 2008-09
even if interest rate was low the demand was less as well. It was due to other factors like
recession, unemployment etc.
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Population- this is also a determinant which bring fluctuation in average price of house. so, when
there is increase in population then demand of houses rises. in addition, when population
decreases demand also falls. thus, it brings change in shift of prices of house. along with it, when
economic growth rises there is rise in demand of house. this is because income level of people
increases and their affordability also rises.
Mortgage available- the economic determinant state that when banks are willing to give more
mortgage to people then this result in boosting demand. However, capability of bank to lens
mortgage depends on their lending and financial performance. If it is weak then it will not be
able to provide loan to people to take mortgage (French, Bhat, and Solomon, , 2018). from graph
it is stated that due to global economic recession of 2008 there was high impact on banks of UK.
this is because they were not able to give more loans to people. so, the impact remained in year
2009 and 10 as well. thus, the demand was low as well. Bank demanded a high deposit before
lending loan to people. but on other hand, people were not having such income to keep deposit.
This makes it affordable to people to buy house at low rate when mortgage rate is low.
Cost of renting- in this there is change in economic growth. it is because average price of house
depends on cost of rent. so, people earn high revenue by renting houses. hence, when cost of rent
rises then there is increase in demand of house. thus, they can easily pay rent and buy a house. In
UK cost of renting has raised and allowed people to buy house. however, change in cost of
renting is dependent on mortgage available. It is because they both are proportionate to each
other as it reflects that whether it is affordable for people to pay rent or not. It increases when
demand of house is high and supply is low. therefore, at high prices people are ready to rent
house (UK Housing Market at its Weakest Point in a Decade. 2019)
therefore, these all the economic determinants which has led to shift in variation in
demand and supply in housing sector. moreover, it has led to make variation in prices of houses
(Kilpatrick, and Patel, 2020). In 2012- 15 there was rise in demand of houses as income level of
people was high. besides that, government made certain efforts as well which allowed in rapid
growth of housing sector. the policies and interest rate were modified and it enabled people to
buy houses at stable prices. besides, bank started providing loan and mortgage to people so that
they are able to buy house. in addition, there was increase in demand of houses as it allowed in
providing money in their hand. so, they were able to buy house at low rate. also, mortgage loan
was easily available to them in low interest rate. with shift in these determinants there is affect on
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interest rate, demand and supply of houses. it also changes affordability of people to buy houses.
the economic growth of UK is impacted due to housing sector. it is identified that in future
demand will be low and price of houses will fall. this is due to Brexit deal and pandemic of covid
19. The government will make efforts to increase demand in market. it will try to boost it by
making flexible interest rate.
How has government action in 2009-2019 affected the UK Housing market?
In order to improve the condition of housing industry there are several reforms and action
taken by UK government. These actions were taken during time period of 2009- 2019. This was
done to maintain efficiency and stable growth of housing sector as it highly contributes in GDP
and economic growth of nation (Martindale, 2020). It is found that after recession of 2008, the
growth of housing industry was negative in 2009. thus, with that growth was declining in further
year as well. hence, several actions were taken in order to maintain growth. the government
provided financial as well as trade support to sector. Thus, the various action are described as
below :
first of all in 2015 an initiative was taken in which there was a plan to build 1 million homes till
2020 and .5 million till 2022. this will enable in generating revenue from it.
Department plan 2019- It is a plan in which government decided to supply 300000 houses within
one year. this plan was related to building houses in particular area of UK. this led to creating
jobs and employment in this sector. it allows in emerging of small companies within housing so
that innovation can be implied in design and construction of houses. Moreover, this plan was
developed so that affordable houses are given to people. it was initiated under the affordable
house programme.
Supply and demand – it was necessary for government to maintain balance between supply and
demand. so, for that they took action to ruse in ownership of houses by forming a planning
policy which are implied at national level. in that they assured that more than 10% houses are
kept under house affordability ownership. but the scheme was applicable for people who
purchased house for first time (Pathan, , Mavrogianni, and Davies, 2017).
Besides that, there are many other actions taken to support sector. the focus was on social
rents for which local authority housing revenue account in 2018 was applied in it. but it is
difficult to build 300000 houses in year due to emerge of covid 19. so, it is identified that in 2002
UK housing review, average house build was only 300,000.
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therefore, these all are action taken by UK government to maintain stability and boost
growth of housing industry. they are emphasising on affordability housing sector which allows
people to buy house at low rate. thus, changes are made in interest rate to provide loan to them.
through this, mortgage and rent of houses will decrease and it will result in rising demand of
houses in it. in this way, it has resulted in growth of this industry (Preece, Bimpson, and Flint,
2019).
What would be the impact of COVID-19 on UK Housing Market?
It has been analysed that there will be adverse impact of covid 19 on UK housing market.
Not only the pandemic will affect this sector but entire economic growth and GDP of UK as
well. However, it is estimated that is already downfall of 20.4% GDP of UK due to pandemic.
this is worse downfall in entire history of UK. moreover, there is decline up to 4% in UK
housing industry. thus, it is evaluated that due to covid 19 there will be high decline in demand
of houses. It is because of people will not be having enough money to buy house. Also, there will
be increase in rent of houses thus people will not be able to afford to buy house at such high rent
prices (Rispoli, and Organ, 2019). so, it will led to rise in average prices of house. Apart from it,
there will be change in interest rate as well of bank. this is because they will lower the rate so
that people are able to get loan at low interest rate and buy it. besides that, there will be more
flow of money in market. The government will make efforts to increase demand in market. it will
try to boost it by making flexible interest rate.
In addition, it is identified that there will be rise in unemployment in this industry. the
companies will not be having sufficient funds to pay salary to employees and also no investment
will be made to increase growth. It is because company will not have capital to invest in.
However, growth of this sector will remain downward for long time till there is no adequate
funds available for people as well as companies to boost its growth. Also, it is estimated that
there will be decline in 13% of growth of this industry till 2020. besides that, there will be a fall
in prices of the houses with fall of 0.2 %. The fall in price of housing industry is estimated as
$231,855 till 2020. As per expert in 2020 there will be a fall of 3 % and in year 2021 the prices
of the houses bounce back to 5 %. alongside, as per forecast there will be fall of 10 % in the
housing market and there will be a bounce back of 4 % in 2021. The recovery of the housing
price will be around 2 % a year (Sagoo, and Khalfan, 2017).
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thus, as impact of covid 19 will be adverse it will led to decline in growth of this sector. so,
in order to survive for long term, big companies will have to bring in foreign investment. they
will have to provide flexibility to people to buy house at normal rate. for that they can provide
various options to them regarding payment of loan. for instance- paying it later or giving them
flexibility as well. it will be easy for them to buy house and rise demand of it.
CONCLUSION
Thus, it can be summarised that there is adverse impact on housing sector in UK due to
covid 19. there is decline in its growth and revenue of industry. besides that, prices of house
depend on many factors that are demand and supply, market condition, economic growth, loan
policy and many others. so, any change in all these factors led to fluctuate in prices of house.
moreover, there are 3 types of economic determinant due to which average price of house
fluctuate that is supply and demand side and other factors. in supply side they are number of
houses built. On demand side they are affordability and demand and other factors are interest
rate, market condition, etc. alongside, hence, several actions were taken in order to maintain
growth such as Department plan 2019, supply and demand etc. besides that, there will be adverse
impact of covid 19 on housing sector in UK as there will be decline up to 4% in its growth.
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REFERENCES
Books and journals
Alencastro, J., Fuertes, A. and de Wilde, P., 2017. Delivering energy-efficient social housing:
implications of the procurement process. Procedia Engineering, 182, pp.10-17.
Alqaralleh, H., 2019. Asymmetric sensitivities of house prices to housing fundamentals:
Evidence from UK regions. International Journal of Housing Markets and Analysis.
Ambrose, J., 2018. An holistic approach to the housing shortage. Property Journal, pp.38-39.
Bruff, G. and Kumi-Ampofo, F., 2019. Housing, growth and infrastructure: Supporting the
delivery of new homes in the Sheffield City Region, UK. Local Economy, 34(2), pp.167-
180.
Byrne, M., 2019. The financialization of housing and the growth of the private rental sector in
Ireland, the UK and Spain (No. 201902).
French, N., Bhat, G. and Solomon, D., 2018. Investment opportunities for student housing in
Europe. Journal of Property Investment & Finance.
Kilpatrick, B. and Patel, M., 2020. ESTATE REGENERATION: Learning from the Past, Housing
Communities of the Future. Routledge.
Martindale, K., 2020. Industry driven innovation in healthy housing delivery: the case for Cross
Laminated Timber. Cities & Health, pp.1-7.
Pathan, A., Mavrogianni, A. and Davies, M., 2017. Monitoring summer indoor overheating in
the London housing stock. Energy and Buildings, 141, pp.361-378.
Preece, J., Bimpson, E. and Flint, J., 2019. Forms and mechanisms of exclusion in contemporary
housing systems.
Rispoli, M. and Organ, S., 2019. The drivers and challenges of improving the energy efficiency
performance of listed pre-1919 housing. International Journal of Building Pathology
and Adaptation.
Sagoo, A. and Khalfan, M.M., 2017. What do customers expect from social housing providers in
the UK?. International Journal of Sustainable Society, 9(4), pp.294-310.
Stone, J. and Berrington, A., 2017. Income, welfare, housing and the transition to higher order
births in the UK.
Online
UK Housing Market at its Weakest Point in a Decade. 2019. [Online]. Available through
<https://www.theguardian.com/business/2019/aug/08/uk-housing-market-at-its-weakest-
point-in-a-decade-brexit-says-savills>
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