Factors Affecting Demand for Housing

Readers Question What are the factors that inflence the demand of housing in general.

Some of the most important factors are:

• Affordability. Ratio of house prices to incomes. If affordability improves demand should rise, but, it depends on many other factors. e.g. at moment housing affordability is improving because prices are falling but people don’t want to or can’t buy
• Availability of mortgages. Most people are dependent on getting a large mortgage upto 95% of house value. If mortgages become less available then demand will fall. E.g. since credit crunch availability of cheap 95% mortgages has declined. Banks are demanding bigger deposits that many first time buyers don’t have therefore demand for housing has fallen.
• Price expectations / confidence. People don’t like to buy when house prices are falling because they will be able to buy it later for cheaper.
• Interest rates. These determine the cost of paying a variable mortgage. Lower rates make interest payments more affordable.

• Speculative demand for housing
• The law of demand for housing
• Factors that affect housing market