The Uk Housing Market Essay

1422 words - 6 pages

Business Economics and Management Science"By considering the factors that affect the demand and supply of houses and apartments explain what has led to the changes in the prices of houses and apartments in the UK over the last three years. What would affect the sizes of different elasticities of demand for houses?"November 20091.IntroductionThe Demand and Supply of properties in the market is the main reason for the fluctuation of the properties' prices. During the last three years many different factors have led the house prices in the UK to a huge drop. I begin by examining which factors affect the demand and supply of houses, how they influenced the UK market, and finally, I will examine what affects the elasticities of demand for houses.2.Factors determining the Demand of HousesThere are many factors that affect the demand and supply of houses and apartments, some in greater and some in smaller extent. The most important factors are:•IncomeIncome is a very important factor that affects the demand for houses. A growth in income would increase the demand of houses, while a decrease would lower the demand. (Davies and Lam, 2001)•Interest RatesPeople usually buy houses with money that they borrow from banks. An increase in the real interest rates of loans, means more expensive borrowed money. This causes a drop in demand of houses. A decrease in the interest rates would lead to higher demand of houses, as the investors would have to pay a reduced interest to the bank (Levin et al., 2009).•Consumer confidenceWhen the consumers feel pessimistic about their future, they usually stop spending money and consequently, demand for goods reduces. Consumer confidence is also related to unemployment, because in periods of high unemployment and uncertainty, people have low confidence and spend less. As a result, demand and house prices decrease. The opposite happens when the economic climate is good and the economy flourishes.• Expectations of future price movementsMany investors buy and sell properties according to their expectations of future price movements. When they predict, that prices in a particular area will rise in the future, they buy properties now, causing an increase in demand. (Davies and Lam, 2001)3.Factors determining the Supply of Houses•Own priceThe price of houses is on its own a factor that affects the supply. If the current price is low, building companies are not motivated to build new houses, because they cannot make profits, therefore the supply is low. If the current prices in the housing market are high, companies build more houses in order to make more profits, leading supply to higher levels.•Input PricesA change in the input prices like labor costs, building materials etc., would change the supply of houses, as contractors would have to cut costs to remain profitable. By cutting out costs, fewer houses would be built.•TechnologyA new technology, which would for example shorten the time needed...

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