UK HOUSING MARKET

UK Housing Market

[Name of the Institute]

UK Housing Market

Introduction

In this paper I will be discussing the current happening, problems and crisis of housing market in United Kingdom and the overall impact on the economy of the country. UK economy has experienced recession in the last decade; this economic downfall is because of a number of factors and variable. The rate of inflation has increased considerably which also has an impact over the housing market. This results in limiting the affordability of a common man with an average income to purchase a personal accommodation. The impeding economic trends resulted in moving the population towards rental possibilities. On the other hand, housing finances, loans and taxes have participated in deteriorating the overall economic conditions in the housing market. Therefore, all issues related to UK housing market and the influences of micro and macro economic factors will be discussed in detail, in this paper.

UK Housing Market Economics (Supply and Demand)

A combination of favourable economic and financial conditions and a tight housing supply led to sharp increases in real house prices in the United Kingdom between the mid- 1990s and end-2007. Demand for housing was pushed up by strong income growth and a rise in mortgage lending as real interest rates declined and lending standards were loosened. Investment in housing is also encouraged by the tax system, which favours homeownership over other tenures. The excessively restrictive land use planning policy left supply unresponsive to demand, contributing to housing shortages and reduced affordability (White, Willock, 2007, pp. 54-61). Deteriorating affordability had halted the increase in homeownership by 2003. While additional supply in the private rental market provided an alternative to homeownership for a significant number of households, social housing waiting list numbers have increased rapidly. Rising house prices were partly a symptom of growing economic imbalances and made the economy vulnerable to the global financial crisis. As the crisis unfolded, weaknesses in financial institutions were revealed, residential investment collapsed and lower house prices weighed on private consumption. A well functioning housing market is essential for economic prosperity and well-being. Developments in the housing market can affect macro-economic volatility, financial stability, competitiveness and growth, distribution of wealth, social conditions and the quality of the environment (Gretton, Steven, 2009, pp. 174-176). To respond to housing needs and enhance the stability of the housing market, both supply and demand side policies should be considered. Following sections provides an overview of recent developments in the UK housing market and discusses policy options to improve the effectiveness and stability of the housing system, including planning, taxation and social and subsidised housing policies.

Micro Factors

Housing Prices and Personal Income

Between the mid-1990s and the end of 2007 real house prices in the United Kingdom were multiplied by more than two and a half, which was among the sharpest rises in the OECD. The price-to-income and price-to-rent ratios are currently around 40% above their long-term averages, suggesting overvaluation. It has become impossible for an averaged income person to afford a ...