The Uk Houseing Market Essay

1345 words - 5 pages

2. AssignmentTopic:It has been estimated by the government that Britain will need an extra 4.5 million new homes in the next 25 years.Q1: Examine the possible reasons for this anticipated extra demand for houses. Use supply and demand analysis to illustrate how these factors will affect the British housing market.Q2: Analyze the costs and benefits likely to be associated with a regional buoyant housing market.What is the housing market?The housing market is the overall market, where houses and other properties are bought and sold. Like any other market it can be modelled by using demand and supply analysis. When the number of houses being offered for sale at a given price matches the number of houses wanted at that price, the market is said to be in equilibrium. If demand or supply change, the equilibrium price will change, too.What could be the reasons for an extra 4.5 Million houses in the next 25 years?There is excess demand for houses, because the UK has been under-supplying new houses for years, and this is because planning restrictions are very tight, and it is difficult to get permission to use land for more housing.There are many reasons for an increase in demand. One of the reasons is the level of income that people have. The faster the level of income people earn, grows, the more money they have to invest in their houses (income elasticity). The overall level of income in the whole economy is known as GDP (Gross Domestic Product) and so if we look at the behaviour of the GDP we can see how the level of income on average has grown. The income elasticity of demand (YED) measures the responsiveness of a change in the quantity demanded to a change in the level of consumer income.Another reason is the low unemployment rate in England these days (see statistics below). Less people are unemployed and therefore they have more money to spend. And who does not dream of his own house?That leads me straight to my next point. More and more people want to realize their desires, to own a house. That has also to do with the confidence people have in the economy, as there has been a constant economic growth for the last few years.Another reason for increasing demand is the falling mortgage and interest rates (see statistics below). Also more mortgage suppliers are available. It is simply easier for people to borrow money.The currently low interest rates lead to decreasing cost of mortgage payments. During 2001, interest rates fell from 6% to 4% in a series of seven rate cuts. Somebody on a £100,000 interest-only mortgage, who has benefited from the full 2% cut, will now be £166.67 better off each month. People with increasing income would demand owner-occupied houses rather than renting houses (income elasticity of demand). If the mortgage rate is cheaper than the current rent for a flat or house, people tend to buy their own homes.Lots of people also think of a house purchase as a major financial investment that they expect to gain money...

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