Demand for housing in the United Kingdom is determined by a lot of factors for example house prices. There is an inverse relationship between the house prices, and demand. The inverse relationship can be compared to that of goods. The inverse relationship of housing can be demonstrated using the income and substitution effect.
When the prices are high, real income goes down making the demand to decrease. At higher prices, individuals choose other alternatives for example renting and forego owning property. When the house prices are low, individuals are encouraged to buy because of increase in their income and they forego renting property.
Unlike the rest of the continent, the majority of homeowners in the United Kingdom prefer taking out variable mortgages. If the Bank of England effects any changes in the base rate, it will automatically affect mortgage interest payments. This greatly affects the ability of an individual to be able to afford to buy a house. Mortgage payments account for a high percentage of peoples’ income.
When the interest rates got to 15% in 1992, the demanding for houses badly collapsed leading to a sharp decline in housing demand. Demand increased in the 1990s and 2000s when the interest rates became low. In 2008-2009, the interest rates were reduced to 0.5%. Even though they were low, demand did not increase. Factors such as rising unemployment and recession led to reduced demand for houses ("The UK Housing Market").
The shortage of houses in the United Kingdom greatly affects demand for housing and increasing credit availability does not help in solving the problem. By 2033, the number of households are expected to grow by 232,000. However, home construction struggles to build above 1000,000 units a year.
2.
For years, it has been clear that the United Kingdom is not building enough new houses to cater for the growing demand and aging population. The main aim of the government is to ensure that there is enough supply for repurposed vacant homes and new-build homes. In the year 2012, England built a total of 118,190 new houses which was an increase of 90% from 2011. However, it was a decrease of 31% compared to 2008 when it peaked at 170,610. In the last five years, only 610,000 new homes have been built compared to the 8000,000 that were built in the preceding five years. It illustrates a drop of 23%.
There are different ways in which the government of the United Kingdom intervenes in the housing market. The first example is when it gives financial incentives to construction companies to build on land that had been previously developed (brown-field sites). Another way in which the United Kingdom government intervenes is by increasing productivity and innovations in the house building industry. It is done by finding innovations which make it possible for the construction of new homes at locations of higher density.
The third way that the national government intervenes is by allowing each council to have the freedom of borrowing money to construct social housing. It helps improve the construction of council properties which had been declining for the last twenty years. The government also helps in the funding of the housing associations which build more than three million homes in the United Kingdom. Lastly, the government also gives tax breaks to investors who are willing to rent out their properties at affordable rates.
Works Cited
"The UK Housing Market". Pwc, 2018, https://www.pwc.co.uk/services/strategy/our-services/ips/the-uk-housing-market.html. Accessed 29 Apr 2018.
