Demand And Supply Of Houses And Apartments Economics Essay

Demand And Supply Of Houses And Apartments Economics analyseBy considering the factors that affect the pauperism and affix of kins and apartments explain what has led to the changes in the prices of domiciles and apartments in the UK over the in the end three years. What would affect the sizes of diametrical tensileities of select for nursing homes?IntroductionThe past couple of years have seen prominent fluctuations in the quest and supply of houses. It has been observed that movement in house prices is a balance of the amount of money inquireed and supplied. In this essay, we first look into the factors that modify the prices of houses in UK in the past three years. then(prenominal), we will talk over factors that affect the sizes of elasticities of convey of houses.Factors affecting demand of housesThe turn off be lower-ranking shows the variant factors that affect demand of houses. accede 1 Factors affecting demand of houses.S. no.FactorTrend precedentChange i n the demand curve1.AffordabilityAs feedability of houses adds, demand for houses amplifications and ungodliness versa.Because when the price of houses goes down more flock can afford to buy houses.Movement along the demand curve. FIG. 12.Disposable IncomeAs the disposable income of the heap increase the demand for houses increases and vice versa.People tend to buy houses when they have sufficient disposable income with them so that their hebdomadary work out is not modify significantly.Shift in the demand curve. FIG. 23.Economic TrendsIf the economy is booming, thence in that respect is a web increase in demand for houses. Similarly, in case of a recession, the demand for houses go downs.A booming economy means a good overall health of the economy which translates into greater demand of all goods.Shift in the demand curve. FIG. 24.Supply of substitutesIf the supply of substitutes such as rented accommodation decreases, then on that point is a net increase in demand for houses and vice versa.If the supply of rented accommodation is less, then there is an increase in the price of rented apartments. Therefore, in the long run people find that it is cheaper to buy houses than to hold water in a rented accommodation. Hence, then they will tend to purchase a house. Thereby, increasing the net demand for houses.Shift in the demand curve. FIG. 25.Availability of mortgage financeIf the mortgage finance is easily available then this imparts in a net increase in demand and vice versa.This is because it is easier for people to arrange for money to finance their houses.Shift in the demand curve. FIG. 26.Interest ratesIf the interest rates are high, then there is a net decrease in demand and vice versa.This is because at higher(prenominal) interests rates people will have to knock down out more money to repay their loan. As people have a fixed periodical income, a higher interest rate would mean that the loan instalment would form a higher portion of their monthly income. Thereby, decreasing the demand for houses.Shift in the demand curve. FIG. 27.Consumer dominanceAs consumer confidence in the housing market increases, the demand for houses increases and vice versa.If prices of houses are expected to essays then consumers count on it is profitable to enter the market. However, if the prices fall or remain static then consumers find no requirement to enter the market.Shift in the demand curve. FIG. 28.Demographic factorsAs increase in immigration, tote up of divorces, life prevision, upshots in an increase in demand for houses.An increase in immigration, number of divorces, life expectancy will result in more people needing independent houses.Shift in the demand curve. FIG. 29.Inherited wealthinessAn increase in number of people inheriting a huge wealth would result in an increase in demand of houses.Because these people have more money to run on luxury products, such as houses.Shift in the demand curve. FIG. 210.Tax benefitsI f people receive greater tax benefits by buying houses, then this would result in a net increase in demand for houses.This is because people prefer to use their hard earned money on themselves rather than paying it to the government.Shift in the demand curve. FIG. 2Source Nationwide, Besanko et. al 2007FIG. 2 switching of the demand curve.DD termsP1Q2Q1DDQuantityFIG. 1 Movement along the demand curve.PriceP1P2Q2Q1DDQuantityFactors affecting the supply of housesThe table below shows the various factors that affect the supply of houses.Table 2 Factors affecting supply of housesS no.FactorsTrendReasonChange in supply curve1.PriceIf the price of houses increases then there is an increase in supply of houses and vice versa.Because sellers can then sell houses at higher rates consequently devising more profit.Movement along the supply curve.2.Cost of create a houseIf the cost of building a house increases then there is a net decrease in supply of houses and vice versa.As this would me an a larger initial investment for the builder.Shift in the supply curve.3. government activity regulationsIf government regulations are inclined towards building/selling of houses then there is a net increase in supply of houses and vice versa.This would mean lower costs from the perspective of a builder/seller, which would result in more building/selling of houses.Shift in the supply curve.Source Nationwide, Besanko et. al 2007FIG. 1 Movement along the Supply curve.PriceP1P2Q2Q1SSQuantityFIG. 2 Showing dismissioning of the supply curve.SSPriceP1Q2Q1SSQuantityFactors that have led to changes in the prices of house in UK over the last 3 yearsSource NationwideFIG. 5 reasonable house rates in UK from 2008 to 2010During the first half of 2008 there was a 5.1% drop in house prices. With the financial crisis and a looming economic recession this price fall was expected. This was evident from the clear change in the consumers housing market sentiments, with people universe more reluct ant to buy houses. It should be noted that there is a direct relationship between the demand of houses and the confidence consumers have in the market (See table 1). In addition, factors such as high mortgage rates, tighter lending criteria, and higher interest rates affected the house prices in early 2008. The fall in demand from the buyers was also due to the rise in unemployment and associated job insecurity. Further, the problems in the credit market led to tighter lending conditions which made it difficult to obtain loans at higher loan-to-value ratios. However, these strict rules were predicted to lead to a more stable housing market.FIG. 6 Consumer House Price Expectations and House Purchase ApprovalsAn anomaly in this trend was the slight increase in the prices in June and July 2008. This was in all probability because the suppliers had responded to price decline by reducing the supply of property. The minify supply unite with an increased demand from potential buyers, who had been priced out previously, translated into a slight price rise of houses. In addition, the slight increase in prices was because of latent demand for houses. Earlier, due to the banking crisis there was reluctance among buyers to purchase houses. However, once the buyers saw that the government was fetching corrective actions to stabilize the banking system, they re-entered the market along with the added assistance of low interest rates. (Nationwide, 2008)However, this was a mere hallucination and between August 2008 and March 2009 the house prices fell by 10.1% due to the overall lack of consumer confidence in the economic and market conditions. In addition, there was an additional supply of houses from homeowners, whose financial positions were impacted by higher unemployment and lower income levels.FIG. 7 UK GDP and House Price Growth between 1985 and 2007With UK slipping into recession, tied(p) drastic cuts in interest rates didnt help in increasing the demand for hous es. The reduced coming to credit resulting from the financial crises catalysed the fall in prices. Then, a combination of initial fall in prices, widespread news of financial turbulence, and slowdown in the real economy prompted consumers to expect elevate price falls. As consumers expectations turned negative, the incentive to enter the market reduced and this led to a sharp price fall. (Nationwide 2008, 2009)Then in June 2009, the low interest rates and extension of stamp duty holidays were welcomed by borrowers as they reduced the costs of already high priced housing market.Further, notwithstanding the economic downturn, there was a notable shift in house price expectation from negative to positive. These two factors resulted in increasing the demand for houses and thus increasing the price of houses. (Guardian 2009, Nationwide 2009)The second half of 2009 was marked by rebound in house prices. This was contributed by the better than expected performance of the labour market. Even though workers were forced from full-time to half-time work resulting in a reduction in income, the impact was less severe than if they had lost their jobs completely. In addition, reduction in mortgage rates meant that fewer borrowers had fallen into arrears than expected. This led to lesser number of second-hand properties being on sale and thus stabilizing the housing markets. (Nationwide 2009)The first half of 2010 also saw a 4.1% rise in prices of houses. An important factor of price rise during this period was the low level of impart for sale as many homeowners and buy-to-let landlords preferred to wait for prices to rise. And this approach was supported by the very low levels of interest rates. As a result, many potential sellers could easily afford to wait for prices to recover further before they decided to sell.Between July and October, there was a fall in the prices of houses. The impact of increasing capital of the United States gains tax from 18% to 28% was seen in the housing market, with many second homeowners choosing to sell them in result to the tax increase. Further, the spending cuts by the new government had clearly put a pressure on the disposable incomes of households. As a result there was a decrease in the prices of houses during this period. (Nationwide 2010)Factors that affect the sizes of different elasticities of demand for housesThe responsiveness of the quantity of houses demanded to the change in prices, income, price of other goods, etc. is measured by the corresponding elasticities, i.e., Price elasticity of demand of houses, Income elasticity of demand of houses, or Cross prices elasticity of demand of houses. Factors that affect the sizes of different elasticities are as followsAvailability of substitutes It is observed that more the number of substitutes, more elastic the demand will be. If the approachability of rented accommodations is high, then a slight price rise will result in a large change in demand for ho uses because people will prefer to live in a rented apartment than to buy a house. Therefore, making the demand for houses elastic. On the other hand, if availability of rented accommodations is low, then even a large change in price would not affect the demand because everyone needs a place to live. Therefore, the demand for houses will be inelastic.Importance of the good in the consumers budget Expenditure on housing, according to R.K. Wilkinson (1973), is an outcome of three sets of influences on the consumer, i.e., their needs, their aspirations, and their ability to realize their needs and aspirations. The latter(prenominal) is measured by the consumers income and the two former qualify the way in which income and changes in income affects housing expenditure. If there is a need for a house and consumers have the ability to realize that need, then the demand of houses would be inelastic. In contrast, if there is no real need and an aspiration to buy a (bigger) house combined wi th no real income to realize that aspiration, then the demand for houses will be highly elastic.Time It was observed by Hanushek and Quigley (1980) that the demand for houses is elastic in the short-run. However, in the long-run the demand tended to be inelastic. This was because higher prices rede buyers to buy houses in the short-run. However, in the long-run he may realize that the price of houses will rise and thus he finds it better to buy a house.ConclusionIn this essay we determined the factors that affected the prices of houses in UK during the last three years and the various factors that affect the elasticities of demand of houses. Based on the higher up discussion, I think consumer expectation of house prices is one of the most important drivers of prices in the short-run. As for the long-run, the drivers of house prices are the economic conditions, the fiscal policies, and supply of houses.