ECONOMY

Impact of Economic Factors on UK Housing Market



Table of Contents

Introduction1

Macroeconomic issues2

The global financial crisis2

Unemployment3

Interest Rates5

Property prices6

Microeconomic factors7

Demand for houses in the UK7

Consumer confidence8

Demand and Supply Imbalance9

Conclusion11

References12

Impact of Economic Factors on UK Housing Market

Introduction

The housing industry in the United Kingdom consists of four types of houses. These include privately owned houses, privately rented houses, government houses or public holding of houses and those in the control and under the management of housing associations. The holding of each of the groups is shown in the graph below (NHPAU, 2011, p. 5):

The global financial crisis that hit the world has also had a very bad impact on the economy in the UK. This has affected nearly all the sectors and the situation for the housing sector is no different. As the country entered recession, there were changes in the credit markets, the lending criterion for mortgage was revised and it became strict and there was a major reduction in the building industry's output.

The paper discusses the numerous economic factors in the macro and micro environment that have an interface with the housing industry in UK. On a very broad level there has been growth in the rental market and the prices of houses have also surged considerably compared with the recent past.

Factors affecting the housing market in UK

There are numerous factors that affect the housing industry in the UK. These include both the micro and macro economic factors. These are discussed hereunder.

Macroeconomic issues

The global financial crisis

The global financial crisis has hit the economies world over. The case of the UK economy is no different. As a consequence of the recession there is a need to regulate and restructure the economy. This is the only way for sustainable growth. A few sectors of the economy have suffered more than the other sectors. These include asset management, wholesale finance and housing finance. This is so because the financial sector is one of the key sectors of the UK economy. The UK economy slowly started to recover from the recession at the start of 2010. Before that the trend in the economic growth remained largely contractionary (Seager 2008, p. 6). One of the reasons for this contraction was the ever high rate of unemployment. This jobless rate is the highest in the past 17 years. This was a serious disappointment as one in every five person was found to be searching for a job. The government took several initiatives to support the job search of about 721,000 unemployed people.

Change in the economic growth figures has an impact on multiple sectors in the economy. When the economy is doing good people have more income available with them and hence the demand in the various sectors increases. When the demand for the housing sector increases, so will the prices of the houses. The economic condition in the UK has been very bad. But things have changed for the better and the purchasing power is on the rise (Hall, 2003, ...