How the housing market affects the economy

A look at how the housing market and changes in house prices affect the rest of the economy. In summary:Rising house prices, generally encourage consumer spending and lead to higher economic growth. A sharp drop in house prices adversely affects consumer confidence, construction and leads to lower economic growth. (falling house prices can contribute to economic recession) Rising house prices can also redistribute wealth within an economy – increasing the wealth of homeowners (primarily older people), but reducing effective living standards for those who do not own a…

Problems of high house prices in the UK

Problems of high house prices in the UK

In the UK, house prices have shrugged off both the credit crunch and the longest recession on record. After a blip in 2007-08, house prices are at record levels. It means that UK house prices are relatively very expensive; UK house price to earning ratios are amongst the highest in the developed world. Unfortunately, there are many problems with expensive house prices – it creates a nation of winners and losers – between those who own a house and those who are renting. There has been a sharp rise…


History of UK Housing

A look at the major trends in UK housing in the past century, including the trends on housing tenure, house prices and the supply of new houses. Victorian housing The Industrial Revolution saw rapid growth in inner cities as people flocked to the city for new factory jobs. This accommodation was often hurriedly built by private enterprise and was often squalid, with large factory populations squeezed into small areas, leading to the classical slums of ‘Dickensian’ Britain.

Housing supply in UK

Housing supply in UK

One measure announced in this years budget was government support for mortgages loans. A new Help to Buy scheme will allow people to obtain a 20% interest-free loan from the government, as long as they put down a 5% deposit and buy a newly-built property However, some have suggested the fundamental problem in the UK housing market is the persistent shortage of housing – and increasing the availability of credit doesn’t directly address this problem. The number of households is forecast to grow by 232,000 a year until 2033, and…


Factors affecting supply and demand of housing

A look at factors affecting the demand and supply of housing. In summary, some of the main factors include:1. Affordability. Rising incomes mean that people are able to afford to spend more on housing. During periods of economic growth, demand for houses tends to rise. Also, demand for housing tends to be a luxury good. So a rise in income causes a bigger % rise in demand.This graph shows…


External benefits in housing market

Readers Question: Could you please explain how positive externality (external benefit) lead to market failure in property industry? A positive externality occurs when a third party benefits from the production or consumption of a good. In many cases, building the right kind of housing can have benefits to the rest of society. Therefore, the social benefit of good quality housing can be greater than the private benefit that property developers gain. The property industry (building new homes) can have several positive externalities:Good quality housing helps to reduce social problems, such…

Factors that affect the housing market

Factors that affect the housing market

The housing market is influenced by the state of the economy, interest rates, real income and changes in the size of the population. As well as these demand-side factors, house prices will be determined by available supply. With periods of rising demand and limited supply, we will see rising house prices, rising rents and increased risk of homelessness. Factors determining house pricesMain factors that affect the housing marketEconomic growth. Demand for housing is dependent upon income. With higher economic growth…


UK House Price to income ratio and affordability

An examination of UK house price affordability.This shows that for first-time buyers the average house price is over five times average earnings. This is much higher than previous historical trends. There is also a regional disparity. WIth the ratio of house price to earnings over 10 times in London. In many parts of the country, potential buyers are being kept out of the market due to house prices being much higher than average incomes. For young people especially, owning a home has…