MBA business environment

UNITED KINGDOM HOUSING MARKET

05 April 2006

Introduction

Compared to other factors , the public sector (government ) is the major factor that affects house prices . For a thorough understanding of this assertion , we will classify the public sector into the national and local governments . This classification is essential because each government type profoundly affects the price of houses . To further strengthen the hypothesis , we will also list and describe the other factors that affect house prices . A comparative analysis will provide support to our assertion . We will classify these other factors

into demand factors and supply factors . Demand factors will consist of consumers and their characteristics such as population growth productive age , income , psychology , and global competition in trade or services . Supply factors will include the housing stock producers housing stock suppliers and materials technology geographic location financing for acquisition of houses and global competition in supply

The diagram in the next page (Figure 1 ) shows the relationships of these factors that positively or negatively affect UK house prices . The arrows that point downward represent forward linkages , while those arrows that point upward represent backward linkages . The horizontal arrows with two heads represent economic osmosis , which may or may not achieve equilibrium or market efficiency as changes occur due to the public sector , due to supply factors , and /or due to demand factors

Figure 1 . Factors that Determine House Prices in the UK

1 . How and to What Extent Could Government Policies Affect House Prices

The public sector affects house price through (1 ) foreign policies (2 ) monetary policies (3 ) taxation and (4 ) regulation . Foreign policies and monetary policies fall within the realm of the national government while property taxation , or its equivalent , usually covers local governments . Meanwhile , regulation applies to both national and local governments

Foreign policies have a major effect on UK house prices . A policy of war with another country can contract or expand the housing supply through several means , and this war policy leads to a drastic imbalance of demand versus supply , which can ultimately lead to an increase or decrease in real house prices . Meanwhile , a lax immigration policy can open the doors of the United Kingdom from hordes of foreign immigrants eager to settle urban areas that have a scarcity of land space and limited supply of houses . This immigration can lead to a considerable rise in housing demand that can leave behind a slow rate of house constructions . Foreign trade policies can also affect house prices in the long term due to impacts on employment and rates of growth in individual income . Trade policies that are favourable to the UK eventually speed up and expand monetary circulation in local economies

In a war policy , for instance , bombing from the enemy , which can severely damage houses or flatten these through the ground , can be recognized as a destructive means that contracts the housing supply . War can drastically reduce the number of housing that is available to the population . This is best exemplified when Great Britain and...