...evolution of house price in the UK and the factors affecting 3 supply and demand 3. The price and income elasticity of housing demand 9 4. Literature 11 1. Introduction The aim of this study is to explain the changes in the prices of houses by shedding light on factors affecting the demand and supply of houses in the UK. Firstly, we will look at the evolution of house prices in the UK since 2006 and examine relations between house prices and output, employment and mortgage interest rate. Also, supply of houses will be discussed by noting changes in the number of new houses and factors such as land cost, building cost. Then, in the next section we will proceed to examine the factors affecting the sizes of different elasticity of demand 2. The evolution of house price in the UK and the factors affecting supply and demand Over the last four decades, the UK housing market has been subject to boom/bust cycles and Stephens (2011) indicates that UK has one of the most persistently volatile markets in the world. Especially, since 1997 there has been a record growth in UK house prices. The above chart indicates that there are significant fluctuations the in UK housing market. House prices experienced steady growth during both 2006 and 2007 and reached their peak in late 2007. As the end of the 2008, the average house prices had fallen by around 15% (Osborne, 2008). In 2009 prices rebounded...
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...Sultana Runa ID—B0279KDKD0412 BA (Hons) SEMESTER-2 Lecturer-- ELLIE SAMSER Contents Pages Introduction 3 Aim 3 Limitation 3 UK Housing Market 3 Review of UK housing market 3-6 Factors effect in UK housing market price 7-14 a) Demand 7-11 b) Supply 12-14 Present situation/scenario 15 Government innovation 19-21 Conclusion 22 References 23-24 INTRODUCTION The UK housing market has experienced a varied rate of ups and downs in house prices for past few decades. During the past 30-year period, the nominal and real average annual price in UK has undergone volatile changes. There were three boom periods: 1980s, late 1990s and early 2000 and a bust in early 1990s (Sloman, John2006). These rise and falls in house prices had been primarily caused by the changes in demand for housing. Being a big open economy, UK is not really affected by external shocks caused by changes in international prices and currencies but by various internal and associated factors. Money supply and government policies are believed to be important factors behind the booms. The primary reason behind the increase of money supply was continuing high economic growth during the concerned period. From examination of historical development of the UK housing market, it can be argued that house prices fundamentally come under pressure from many aspects: demographic pressure, increasing income, accumulated wealth and so on. However, present trend of the...
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...RECENT DEVELOPMENTS IN THE UK HOUSING MARKET Question 1: Describe how UK house prices have changed since 1998. To what extent have there been regional differences in the behaviour of UK house prices over this period? ANSWER: Since 1998 house prices have raised by 17% in 2002,15.7% in 2003,11.8% in 2004 compare to the price in the 1980s.in the 1970s and late 1980s the growth in the house prices was coincided with the period of the general inflation, so therefore in 1998-2008 hose prices are rising but at different rate but in negative figures. Within this period the UK house prices behaved fairly similarly within the regions. Within this period there have been a regional difference in the uk house prices over this period, whereas London stands out when other house prices are growing at three times in the national average, examples places where house prices are cheaper like wales and northern Ireland have tend to have higher rates of unemployment than places where house prices are more expensive like London and south east. Also in the regional difference there is possibility for people to migrate from north of England to south east and London.in other words it is aid that the k house prices have really gone down recently. Question 2: How have UK house prices behaved relative to general inflation and incomes? How would you describe the current affordability of UK houses? ANSWER: The affordability of the UK house prices depends on two things which are the income and the...
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...Comment on the relative performance of the UK, France, Germany and the USA since 1997. Over the last 10 years the economic performance of the European countries and the US has varied a lot, due to the external shocks (terrorist attacks) and economic policies. While France and Germany do not have control over their monetary policy, the UK and the US do. Therefore the rest of this essay will analyse the difference in the economic performance of those countries over the last 10 year and provide some explanations for the difference that occurred. Graph 1. Relative GDP Performance Source: Euro State, 2007 From Graph 1, it can be seen that the UK has the most stable growth over the last 10 years, while Germany had the highest variation in its GDP performance. All of the countries saw a sharp decline in their GDP growth after the 9th September 2001, with the USA worst affected. However, such a sharp decline has also allowed the US to reshape its GDP the most by 2004. In comparison, Germany’s sharp decline in 2001 has led to a further GDP decline in 2002 and in 2003 the country saw negative economic growth. Over the last 10 years the US saw the highest overall growth in its GDP (28.9%), closely followed by the UK (28.5%) and France (22.8%). Germany struggled with only a 15.5% increase. Graph 2. Relative GDP performance of Germany and France against EU15 Source: Euro State, 2007 Graph 2 shows the performance of France and Germany relative...
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...The housing market is a key issue. With various price rises in renting of houses, consumers have found it harder to afford such places of shelter; the cost of standard living is expensive, Take Bermuda for example. its cost of living index amounting to 133.68. (Jones C. 2017). Will the government intervene once again and restore parity to cost of common residences? I will be viewing the UK housing market system and provide a thorough evaluation as to whether government intervention is mandatory in the aspect of housing market. Free market is a market determined by the consumers and producers. Resources in this type of market are only allocated to those who can afford it, which deduces that there is constant inequality of income amongst individuals, for example, Hong Kong. They’re known to possess the lowest income tax, statistics justifying their tax “starting at 2% and ending at 17%.’’(https://www.guidemehongkong.com/business-guides/staffing-your-business/hong-kong-salaries-tax-guide)...
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...An analysis of the key macro and micro economics factors which impact on the current UK housing market Introduction This paper explores the current situation in the UK housing market. Fundamentally, the paper argues that the current situation in the housing market is a legacy of the way in which the housing market developed over the early 2000s into the 2007 and 2008 financial crisis. As the fall out from this crisis has taken two or three years to properly be felt it can currently be said to be exerting a major influence on the way the housing market in the UK is working today. The paper therefore places a major focus on developing an understanding of how the financial crisis occurred and the impact that this had on the UK housing market, in order to understand the key factors which are shaping the housing market today. The paper begins with a look at the state of the UK economy at the moment. This is only examined in brief but provides a key background to the work. This is then followed by a look at the UK economy and the housing market and how the two link together. The following section is the major section of the work as this focuses on the macroeconomic factors which have shaped the housing market. This section in particular focuses on the legacy of the housing market developments of the early 2000s. The following section briefly explores the microeconomic elements which have shaped the housing market – the major emphasis here is on the role of buy to let mortgages as a...
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...0 Economics - Cost and Prices Over the past 3 months the prices of oil have fallen steeply by around 22% from the same month last year, meaning the the price of oil has fallen to around US $78 per barrel. The graph shows a that in the first quarter prices fell, then picked up again in the second quarter and began to rise, however prices began to fall sharply in the third quarter and fourth quarter. The economic impacts to the UK means that production costs should falls so in microeconomic terms firms should be able to produce more for less, thus increase the capacity in the short term, therefore in macroeconomics terms this will lower the price level, as this would cause the SRAS to shift right. This will therefore put downward pressure on the headline rate of inflation. The sell-off reflects expectations of a continued market surplus owing to weak demand, large supply growth, higher stocks and little indication from OPEC that it will cut production to stem the price slide. Crude oil demand has been weak seasonally because of autumn refinery maintenance, and global oil consumption growth more broadly was very sluggish in the 2nd and 3rd quarters. Surging oil supply growth is at the heart of the surplus, led by shale oil production in the U.S. which has forced out light oil imports from West Africa, and increasingly medium sour crude from the Middle East and elsewhere. A direct effect of lower oil prices might be seen in the form of lower prices paid by households for goods...
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...HOUSE PRICES IN THE UK HUANG ANQI CONTENT: Introduction...................................................2 Method..........................................................3 Findings.........................................................5 Results...........................................................6 Discussion......................................................7 Conclusion......................................................8 References.....................................................9 1 Introduction： Since 2007，The UK housing market entered the most British call the "golden decade" of development in. During this period, prices rise violently is unique not only in the United Kingdom in the historical development. According to the British "entrepreneurship and investment" report, the world's leading real estate agents research department released the latest in 2014 four quarter report shows that in 2014 the British house prices will reach 7%. The central London area of gold prices are undervalued, the prices still showed a continuing rise trend. Especially with the development of the British domestic economy, the increasing influence of British buyers. Although the following 2013 rising, the price of this area growth will slow. But by the end of 2014,housing prices will be close to 6% rather than the previous forecast of 4%. Indeed, according to the Halifax, the UK's largest mortgage lender, 80% of Britain's 667 main towns...
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...The housing market in UK has been effected in many different ways, from immigration to shortages of homes I am looking to discuss these factors in depth. The demand of houses depends on what the interest rates are, as this will decide whether the buyer will be able to get a mortgage at a cheaper rate. The lower the interest rate the more demand of houses and the more demand in houses the higher the price. The supply will depend on what the price of the house is. The higher price seller will get more people would want to sell it. This is short term as when more houses appear on the market it will lead to a reduction in price if there isn’t enough demand. A possibility to why the demand is high could be the issue of immigration. Immigrants are placing huge amounts of pressure on the housing market driving up rents and property prices. The massive influx is also forcing the government to dramatically revise its house building targets, putting greenbelt land at risk. On average 100,000 new houses will be needed every year over the next decade to cope with immigration. Foreigners are also placing demand on council and other social housing taking a minimum of 10,000 properties last year. The UK has seen several changes in the property market over the last decade. Changes in Government policies and cuts have influenced many changes in the property market. The government has tried to keep up with the demand but as the population grows there are more people in the economy and...
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...business. Oil price fluctuations Crude oil is the worlds most traded commodity by value, it is vital for many industries e.g. transportations, polymers and energy production that are closely linked with oil production As you can see in the image above the price of oil has crashed within a few months which has drastically decreased the price of fuels, the cause of this crash was due to new production methods which allowed other people to produce oil rather than the just the few that could before, this new method is called fracking. Assessment of impacts for KI KI are not heavily reliant on oil, they only use fuel for their cars which their main consumption. The price of fuel does influence them though, the biggest benefit is the effect on the customers, the lowering of the price of fuel means that people will, in effect, have a small pay rise, this will help KI as this will increase their customer’s disposable income and increase their consumer confidence. KI will always have oil related costs linked to their business as they use energy that is produced from oil and resources that wouldn’t be possible without oil e.g. polymers. The lowering of the oil price will help KI to maximise profits as they will be spending less on things that are oil based. KI may see people coming from further afield as the customers may thing that this drop in fuel price will allow them to live further away from their jobs or travel further to work. When the oil prices fall this means...
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...the growth of the subprime mortgage market in the United States which was caused due to nonstandard mortgages to individuals with irregular income or unknown credit profiles. Based on subprime and other nonstandard mortgages, new assets were developed which were then sold to investors in the form of repackaged debt securities of increasing sophistication. These new assets received a very high rating and were considered safe compared with more conventional asset classes. These newly developed assets provided good returns compared to other asset classes. However, they were not as safe as the ratings suggested, because their value was closely tied to movement in house prices. While house prices were rising, these assets offered relatively high returns compared with other assets with similar risk ratings; but, when house prices began to fall, foreclosures on mortgages increased. To make matters worse investors had concentrated risks by leveraging their holdings of mortgages in securitized assets, so their losses were multiplied. Investors realized that they had not fully understood the scale of the likely losses on these assets, which sent shock waves through financial markets, and financial institutions struggled to determine the degree of their exposure to potential losses. Banks failed and the financial system was strained for an extended period. The banking system as a whole was strong enough to take these entities onto its balance sheet in 2007-08, but the effect on the demand...
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...Regional outcomes in Britain have exhibited strong signs of divergence and asymmetries on the basis of a North-South divide for over twenty years (lse.ac.uk, 2006). The purpose of this essay is to examine the regional imbalance in the United Kingdom. After first explaining measurable growth by some economic theories, it will analyse actual and potential growth by drawing business cycle and LRAS diagrams. Next, it will analyse the reasons for regional imbalance. Finally, it will evaluate actual supply side policies. Real GDP measures the value of goods and services produced at constant prices, the change of the real GDP only reflects the change of the quantity of production. In addition, people prefer to use real GDP than nominal GDP because real GDP reflects the economy’s ability to satisfy people’s needs and desires (Mankiw and Taylor, 2011:496-497). According to below graph, it shows that UK economy has experienced up-and-down swings in the years since 2003. Before 2008, growth more stable between 0.2 and 1.8 per quarter. However, GDP is more unpredictable after 2009. (Source: BBC news, 2015) The first type is actual growth which refers to “the annual percentage increase in national output produced and measures in real terms” (Bond and Hughes,1994:85). The diagram below shows that the phase of business cycle and how real GDP behaves over a hypothetical business cycle. Dwivedi (2010:409) notes that “business cycle refers to a period of high growth and prosperity in the...
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...11 Introduction The UK property market has experienced remarkable development in the last 50 years; with a notable shift in the trends investors tend to use, (Halifax, 2010). The housing market in the UK has seen great change when comparing the figures over the last 15 years. According to Beckett (2014), the rise of housing prices have led to the creation of a good investing opportunity both in the residential and in the commercial property market. The housing boom has been in chaos since the market crashed in the 2007, but as many industries continue to struggle, the UK housing industry is to experience a recovery, many experts speculate. This is due to the increase in the need for housing due to the increase in demand of properties, both for commercial and residential use; and the decrease in supply. Even with most individuals in the UK still struggling to recover from the 2007 market crash, market watchers estimate that the base line is bound to increase and revive the industry. The property industry though has been experiencing a constant boom through the years. A survey by De Montfort University in 2005 showed that the development finance was at £23 billion; this was up from £9 billion, 6 years earlier, (Gibertson, 2006). The trend has been in constant growth despite a few setbacks due to the strain in the economic pressures the European Union is trying to twist out from, and the unstable political situation globally. Increase in rental prices has been gradually on the...
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...in unemployment and decline in house price . In the United Kingdom, housing prices also dropped, but during August the average cost for a home rose by 1.6%. This is, according to the article, mainly because of low interest rates and shortage of supply. Low interest rate, the rate at which interest is paid by borrowers (debtors) for the use of money that they borrow from lenders (creditors), would create a outward shift in demand, which means the willingness and ability of buying commodity goods would increase. This happens is because low interest rate encourage buyer(consumer) to borrow more, which lead to an increase of spending, therefore this makes the equilibrium moved to a new position, resulting in a increase in price. According the article, the problem of house price is also cased by the mortgage repayments. Low interest rates would lead to lower mortgage repayments, this means that homeowners, usually predicted to sell their homes during a recession, to refrain from doing so. This again create a inward shift in supply of home, the willingness and ability of providing a commodity decreases, as less owners decided to sell their house, which in result the position of the equilibrium would change and lead to a increase in price about 1.6%. As mentioned in the article, someone predicted that when there is a rise in interest rates in the future, the housing market may experience some falls in average price. This is because as interest...
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...economy. The Bank ensures there is a shortage of liquidity and then supplies funds through the repo and discount markets at the chosen rate, this then has a knock on effect throughout the economy. Sloman et al (2007). We have examined how the MPC set “nominal interest rates”, true rates are set by the market, they are just another price: the price of spending today instead of next year, Harford (2006). The following is likely to happen in the economy when the Bank reduces rates '' Saving becomes less attractive to individuals and they are likely to spend more. Borrowing becomes cheaper; individual borrowers then have more disposable income, which they are likely to spend. Over the last decade rates have been at a historically low level, the availability of cheap money has led to increased consumer spending, as result borrowing on credit reached £1.2 TRILLION in the UK. Firms with bank loans or other borrowings will have less interest to pay; they may well spend on other things. In addition firms invest more because any large investment becomes cheaper to finance. Both of these actions will increase the level of spending either in the UK, increasing domestic demand or by purchasing...
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