Business Economic Factors of Private Housing Sector

MAIN BODY

TASK 1

1. Factors that impact price of private housing with the help of Demand & Supply analysis

Economics suggest to the different speculate which made for the examination of demand and supply of item in the market among the shoppers. It helps the association in basic leadership procedure and future systems. So it is essential to dissect the whole market and comprehend the request just as supply of the item in the market (Davidson and Davidson, 2016). So before defining nay start for the business, chief comprehend the economic situation, buyer's interest, monetary approach and so forth.

Law of Demand: It is an economic theory which help the organization to evaluate the market trend of any product along with its demand among the consumers. According to demand law, price and quantity has inverse relationship like, when product price increases then demand of goods decreases. On the other hand, when price decreases then demand automatic increases due to inverse relationship (Law of Demand, 2019). other than price, all the factors are constant but in long run all the factors affect the demand of commodity. In the UK, there are various factors which affect the price of private housing which further impact the demand of customers regarding housing.

Demand curve is the graphical representation which shows that how demand will affected due to change in product price. Because price and demanded quantity have inverse relation, so when price increases, demand decreases and vice versa. Below mention graphical representation will provide better understanding.        

 (Source: Demand Curve, 2019)

With the help of above demand curve, readers able to understand the relationship between price or demanded quantity. Q denote the demanded quantity, P represent the price of private housing and D is for demand curve. In the UK, in context of price of private housing  when it increases from £200,000 to £250,000 then demanded quantity of housing reduced Q to Q1 and vice versa. 

There are various factor which impact the price of private housing in the UK which impact the demand also. So UK marketers have to analyse these factors and make sure to consider into their business strategy. Some of the factors discussed below:

Factors that impact the demand of private housing:

• Affordability: When individual can afford to buy new house then it will increases the demand of consumers or make then able to increase predictability of an individual (Elgelal and Noermijati, 2015). At the time of growing economy, demand of private housing in the UK also increases and affect the price of housing as well. Basically increase in the individual income will encourage people to afford their own house.

• Interest Rate: IT is one of the major factors which affect the price of private housing in the UK. Low interest rate motivate people to buy new houses because mortgage interest payment is less which they can afford. But when rate of interest increases then it will reduce the purchasing power of an individual. Demand will increases when interest rate is low because it motivate people to buy more. 

• Population: Change in the population also affect the demand of housing sector which further impact the price of private housing in the UK. There are various ways that change the population such as demographic change, high diverse rate, individual prefer to live alone, birth & death etc.  High population develop high demand and low population reduce the demand of private housing in the UK.  

• Household income: Demand of any product is based on the willpower and it is possible when people have income to spend on goods & services. High household income increase the willingness to spend more and low income will limit the spending. This factor affect the price as well as demand of private housing in the UK (Evans and et.al., 2017). In the boom situation, economy face the huge growth where income is elastic.

• Cost of renting: Demand of private housing also affected due to cost of renting, high renting cost of housing will encourage to but new house which increase the demand of private housing. Similarly, low cost of renting house will reduce the demand of properties which affect the overall construction industry.

All the above mention factors influence the demand of housing sector in the UK. In order to increase the demand of private housing organization have to analyse all the above mention factors such as change in population, interest rate, renting cost, affordability etc.    

Law of Supply: It is an microeconomic theory which help the organization to understand their production process as per the change in the price of commodity. In context of supply, price of goods and supply quantity have positive relation. When price of commodity increases, then supply also incarnates in order to meet the demand of consumers. Similarly, when prices reduces, production of goods also reduces due to positive relation with each other. There are various factors which affect the supply of goods but in the short run all the factors are constant rather than price. But in long run all the factors affect the supply of goods (Fell and Kaffine, 2014). In context of UK housing market, builders have to analyse the relationship (Law of Supply, 2019). With the help of supply curve, people able to understand the relations of price and quantity of supply.

Supply curve is the graphical representation which show the relationship between price and quantity. They have positive relation which evaluated in effective way with the help of below mention supply curve.      

(Source: Supply Curve, 2019)

With the help of above supply curve, which shows the positive relation between price or quantify supply for private housing. Increase in the price of private housing from £ 200,000 to £ 250,000 will automatically increase the supply also increases. Q denote the quantity, P demand the price of private housing and S represent the supply curve that is in upward direction.  There are various factors which affect the supply of new housing but rather than price all the factors are constant in short run. But, in long run all the factors affect the supply of private housing in the UK.  

Some of the factors that influence the supply of private housing in the UK (Factors which impact the Demand & Supply of Private Housing, 2019). Some of them discussed below:                  

 (Source: Factors which impact the Supply of Private Housing, 2019)

Factors which impact the supply of private housing in the UK:

• Planning restriction: In the construction industry, there are various restrictions which builders haver to adopt and take permission before developing any buildings. Authoritative body or agency for construction industry restrict the development due to limited availability of green belt land (Hummel, Pfaff and Rost, 2018). It is one of the biggest issue, which they have to face and it will further affect the supply of new houses in the UK. Further it become barrier for the company which affect the supply of private housing in the UK. 

• Build new home: Regulator construction of new buildings will on the size of population which change according to the time (Build New Homes, 2019). Change in the population affect the supply of new houses. So builders have to evaluate these factors before formulating any strategy in context of their organization. With the help of below statistics, it shows the construction of new houses in the Britain which further affect the supply of private sector housing in the UK.

(Source: New buildings, 2019)

• Profitability of developing new houses: It is one of the major factor which motivate the suppliers to build more buildings in the UK. Profitability totally depend upon the demand of private housing and supply accordingly (Granger, 2014). At the time of economic growth, suppliers increase the supply of new buildings and satisfy the consumers needs. High price of housing increase the supply as well as profitability.  

• Local opposition: Every sector have some opposition that become barrier for the company in order to maximise their production or provability. In context of private housing in the UK, local community still prefer to live in village area due to avoiding congestion because they wanted to live in the peaceful location with nature. This factory also affect the supply of housing sector in the UK. 

All the above mention factor affect the supply of housing such as government restriction on construction, profitability, building new houses etc. So construction organization have to evaluate these factors which affect the supply of private housing in the UK.     

TASK 2

1. Economic policy that formulated to stimulate the demand for private housing in the UK

Economic policy formulate by the government which also known as government policy.   Here they focus on the broad area of country and make sure to cover all the problems in their strategy. It includes the political activities, strategy, plans and change in the regulations according to the requirement of market condition (Maier, Meyer and Steinbereithner, 2016). With the help of demand & supply analyse, government try to balance the demand of private housing. There are majorly two policy such as fiscal or monetary which helps in boosting demand of housing sector in the UK. In order to maximise demand, government increase their spending, reduce tax rates and interest rate as well.    Fiscal or monetary policy discussed below in context of demand of private housing in the UK.

Fiscal policy: It is the use of government revenue or expenditure for the development of country which influence the economy. It include the various aspects such as adjustment of government spendings or income tax. At the time of formulating these strategy they have to make sure that it will helps in economic growth or reduce the negative aspect. In order to boost the demand of housing sector in the UK (Salvatore, 2015). Government have to increase their spending through providing various benefits and other schemes which is beneficial for the individual. On the other hand, they reduce the tax rates which make a person capable to afford to buy new house. Because low tax rate helps in saving money which used as investment for the future. If tax rates increases, than it will reduce the saving which enable the person to spend more on anything.            High tax rate reduce the demand of private housing so in order to increase demand government have to reduce the tax rates. Along with this, government adjust their spending as per the economic condition.  Cutting tax and increase in the government spending supposed to raise the aggregate demand of private housing in the UK.                  

Monetary policy: This policy followed by the authorised body where they focus on interest rate which can be change according to the short term or long term borrowings. It is an microeconomic policy which managed by the central government. In the economy, in order to maintain the demand or supply of commodity as per the needs of consumers. So government have to build strategy which helps in maximising the demand of goods & services which make organization profitable or provide huge market growth. In order to boost demand in private housing sector, government have to reduce interest rate which increase the affordability power of an individual. Low intestine rate will encourage individual to increase their spending and also increase the willingness to buy more so they spend on private housing. High interest rate will reduce the will of purchase houses because they have to pay more mortgage interest. Basically change in the basic rate of mortgage will impact the demand of housing sector (Saviotti and Metcalfe, 2018). With the help of monetary policy economy able to increase the liquidity of economy. In the boom satiation, they have to implement these economic policy for the stability of private housing in the UK. 

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Factors that impact the demand of private housing: 

Purchase houses as future investment: People invest in the housing sector when they have enough money to spend and it will possible when real income of consumers increases which motivate them to save and invest in the properties. Basically increase in the individual income will increase the demand of private housing and similarly low income reduce the demand. More savings will encourage people to invest in the housing sector. Low tax rate or interest rate increase the investment due to high saving in their real income.

Renting  not affect the interest rate: Those people who live on renting houses will affect the does not impacted due to change in interest rate. But if consumers wanted to buy new house then interest rate will impact the demand. High renting cost will helps in increasing demand of private housing in the UK. On the the hand, low cost of renting reduce the demand of housing sector because people prefer to live on renting houses because of their low cost (Spieth, Schneckenberg and Ricart, 2014). If individual willing to buy new house than it will affect the demand of private housing in the UK.

Supply of renting house more elastic: In the private housing sector, supply of new houses are elastic which can be change according to the demand of consumers as well as price. It is also depend upon the various factors such as cost of renting, population, affordability, real income etc. Increase in the renting house cost will raise the demand but increase the tax rates or interest rate will reduce the individual demand of private hosting in the UK. With the help of various economic policy, government able to balance the demand as well as supply of private house in the UK.

CONCLUSION

From the above discussion it has been concluded that, there are various factors which affect the demand of private housing in the UK. So they have to measure those factors with the help of demand & supply analysis. Demand of housing sector get affected due to change in population, interest rate, cost of renting etc. Supply will affected because of planning restriction, local opposition etc. In order to boost demand of housing sector, government introduce some policies such as fiscal or monetary. They have to adjust their spending, cut the interest rate as well as tax rates.

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