The Housing Market

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Transcript The Housing Market

The Housing Market
Housing market
Regional differences in house prices
Changes in pattern of housing tenure
Market failure and government intervention
Housing market and the national economy
Housing Market
• The UK housing market covers accommodation in
the following sectors:
Private rented
Housing association
Local authority housing
Regional Differences In House Prices
• In the UK there are regional differences in house
• The most expensive places to buy houses are
London and the south east
• The least expensive are the north, northern island,
Scotland and Wales
Impact of Regional Differences On The
• These differences impact the economy in two ways:
– Impact on labour mobility
• Differences mean that labour is less geographically mobile – people from
places with lower house prices cant afford to move to the south east /
• People from the South east / London are
– Macroeconomic impacts
• Greater house price inflation increases consumers wealth which increases
the level of consumer borrowing increasing consumer demand leading to
an increase in price levels and regional inflation
Reasons for Regional Differences
• The following factors cause regional differences:
– Differences in regional incomes – these are generally higher in
the South East due to differences in regional economic growth
and GDP
– Differences in regional unemployment – places where house
prices are cheaper e.g. Wales, Northern England tend to have
higher rates of unemployment than places where house prices
are more expensive, this is due to a decline in primary and
secondary industries e.g. coal mining, manufacturing
Reasons for Regional Differences
• Movement of population- there is a tendency for
people to migrate from the North of England to the
South East and London
• Regional variations in the cost of land and its
availability for new housing and in the wages of
construction workers
Government Intervention to Decrease
Regional Differences
• Regional differences in house prices are a major problem in
the UK economy as they cause geographical immobility to
• The government can use the following strategies to
decrease the regional differences:
– Demand side policies:
• Regional policies
• Regional reductions in stamp duty
– Supply side policies
• More relaxed planning controls where there is high demand for housing
• New towns etc to improve supply of housing
• Changes to taxation for homebuilders in different regions
Changes in Pattern of Housing Tenure
• There has been a trend towards increasing owner
occupation in the UK economy
• This has grown from 56% in 1980 to 71% in 2000
• Corresponding to this increase in owner occupancy
the rented sector has been in decline
• The largest decline in the rented sector has been in
the social renting sector where people rent from
housing associations and local authorities
Factors behind the change in tenure
• Government incentives – the conservative government of
the 1980s gave local authority residents the right to buy
their houses at a discounted rate increasing house
• A rise in living standards has been more people are able to
afford to buy their own houses
• Shortages of affordable and good quality rented
• Deregulation of mortgage finance – mortgages are now
available from many different providers for all types of
buyers meaning it is easier to buy your own home
Market failure and government intervention
• Governments intervene in the housing market to try and
allocate resources more effectively and make the markets
work more efficiently
• The government have intervened in the UK market in the
following ways:
Through legislation
Home buy scheme
Stamp duty
Taxation and benefits scheme
MIRAS – Mortgage interest relief
Government subsidies
Interest rates
Government Intervention In Housing
• Through legislation – this has helped deregulate
mortgages (1983 banking act, 1986 building
societies act) and to increase ownership of local
authority housing by tenants (1980 housing act)
• Home Buy Scheme – This allows social tenants to
borrow up to 25% of the value of their home through
an interest free loan
Government Intervention In The Housing
• Stamp duty – The government recently increased
stamp duty to 3% for properties over £250,000
• Properties from £60,000 - £250,000 pay 1%
• Properties under £60,000 pay 0%
• The increase in stamp duty was aimed to decrease
the demand for properties over £250,000 especially
in property hotspots such as London
Government Intervention In The Housing
• Taxation and benefits systems – The government
provides means tested housing benefit for people in
low income households, this is mainly used for
rental accommodation
• MIRAS this was mortgage interest relief at source
and provided tax relief on the interest people paid
on their mortgages, this scheme was not effective
and was scrapped in 2000
Government Intervention In The Housing
• Subsidies – the government can provide subsidies for
housing developments to increase the supply of housing in
areas where there is high demand. By increasing supply
they hope to decrease the price of houses
• Interest rates – these are set by the Bank of England,
When interest rates increase they make the cost of
mortgages higher and should therefore reduce demand for
housing although this has not been the case in recent years
House market inflation
• Since 2000 the housing market in the UK has experienced
growth of up to 20% a year in some regions
• The causes of such increases have included:
Low unemployment
Increase in real incomes
Low rates of interest for mortgages
Strong speculative demand for housing – people are expecting
prices to grow even more
Lack of supply of new housing
Social housing is limited in supply
Land has increased in price
Wages in construction sector have increased
House price inflation
• The combination of these factors has lead to a shift
in the supply and demand curves pushing up the
equilibrium price of housing
Impact of a rise in house prices on the
macro economy
• Consumption – as house prices have increased
consumption has increased due to wealth effects and
equity withdrawal
• This increase in consumption can lead to greater
consumption of imports increasing the deficit on the
balance of payments
• As the price of houses increases it leads to positive effects
on the construction industry which can create economic
growth especially if there is a large multiplier effect
• As house prices increase and more people move house
then complimentary industries e.g. furniture shops, estate
agents also boom
• There are regional differences in the house market in the
UK which result in the geographical immobility of labour
• More people now own their own homes in the UK and less
people rent
• The government intervenes in the housing market in a
number of ways including by changing stamp duty,
providing subsidies and providing housing benefits
• Rising house prices lead to an increase in the level of
consumption in the economy which can increase AD