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The UK Housing Market Is it actually working? UK house price inflation (annual percentage rates, adjusted quarterly) Source: based on Halifax House Price Index (HBOS) UK house price inflation (annual percentage rates, adjusted quarterly) Source: based on Halifax House Price Index (HBOS)

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The UK Housing Market Is it actually working?

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The uk housing market is it actually working l.jpg

The UK Housing Market

Is it actually working?


Slide3 l.jpg

UK house price inflation(annual percentage rates, adjusted quarterly)

Source: based on Halifax House Price Index (HBOS)


Slide4 l.jpg

UK house price inflation(annual percentage rates, adjusted quarterly)

Source: based on Halifax House Price Index (HBOS)


Slide5 l.jpg

UK house price inflation(annual percentage rates, adjusted quarterly)

Source: based on Halifax House Price Index (HBOS)


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UK house price inflation(annual percentage rates, adjusted quarterly)

Source: based on Halifax House Price Index (HBOS)


Who benefit from rising house prices l.jpg

Who benefit from rising house prices?

  • The losers

  • The first-time buyer

  • Those upscaling

  • The gainers

    • Downsizers

    • Elderly going into homes

    • Emigrants

  • Those largely unaffected

    • Those not moving

    • Those moving to another areawhere house prices are similar


    Causes of rising house prices l.jpg

    Causes of rising house prices

    • Equilibrium in the housing market

      • Where supply of houses equals demand

        • Many different segments of the market

      • Price changes caused by shifts in D and/or S

        • D and/or S P

        • D and/or S P

        • Problem of inelasticity of supply


    Supply curves with different price elasticity of supply l.jpg

    Supply curves with different price elasticity of supply

    S2

    P2

    P1

    D1

    Q1

    Q2

    P

    S1

    P0

    D0

    Q0

    O

    Q


    Causes of rising house prices10 l.jpg

    Causes of rising house prices

    • Equilibrium in the housing market

      • Where supply of houses equals demand

        • Many different segments of the market

      • Price changes caused by shifts in D and/or S

        • D and/or S P

        • D and/or S P

        • Problem of inelasticity of supply

    • Some lags in price adjustment

      • Especially when markets are turning

      • Currently there is a glut of properties, especially flats, because sellers are reluctant to reduce prices


    Causes of rising house prices11 l.jpg

    Causes of rising house prices

    • Shifts in demand: short-term causes

      • Incomes

        • Current and expected

      • Interest rates

        • Current and expected


    Slide12 l.jpg

    Halifax variable mortgage rate


    Causes of rising house prices13 l.jpg

    Causes of rising house prices

    • Shifts in demand: short-term causes

      • Incomes

        • Current and expected

      • Interest rates

        • Current and expected

      • Availability of mortgages

        • Credit rating of applicants

        • Multiple of income


    Slide14 l.jpg

    £000s

    Ratio of average house prices to average earnings

    Source: based on Halifax House Price Index (HBOS)


    Slide15 l.jpg

    £000s

    Ratio of average house prices to average earnings

    Source: based on Halifax House Price Index (HBOS)


    Slide16 l.jpg

    £000s

    Ratio of average house prices to average earnings

    Source: based on Halifax House Price Index (HBOS)


    Slide17 l.jpg

    £000s

    Ratio of average house prices to average earnings

    Source: based on Halifax House Price Index (HBOS)


    Causes of rising house prices18 l.jpg

    Causes of rising house prices

    • Shifts in demand: short-term causes

      • Incomes

        • Current and expected

      • Interest rates

        • Current and expected

      • Availability of mortgages

        • Credit rating of applicants

        • Multiple of income

    • Rents (rental property is a substitute good)

    • Taxation: stamp duty

    • Speculation about future house prices


    Slide19 l.jpg

    Speculation compounding a price rise

    b

    P2

    D2

    P

    Assume an initial rise in demand

    S1

    People believe that the rise in price to P2 signifies a trend.

    a

    P1

    D1

    O

    Q


    Slide20 l.jpg

    Speculation compounding a price rise

    S2

    c

    P3

    D3

    P

    S1

    The effects of these shifts is a price rise to P3

    The rise in price to P2 is compounded by speculation

    Sellers hold back, waiting for prices to rise.

    Buyers rush to buy now before prices rise any further.

    b

    P2

    a

    P1

    D2

    D1

    O

    Q


    Slide21 l.jpg

    Mortgage Advances for Buy-to-let Properties


    Causes of rising house prices22 l.jpg

    Causes of rising house prices

    • Shifts in demand: long-term causes

      • Population growth

      • Population distribution

        • Family size

        • Regional trends

        • Income distribution


    Causes of rising house prices23 l.jpg

    Causes of rising house prices

    • Shifts in supply: short-term causes

      • Speculation

      • Rents (letting property isa substitute)

    • Shifts in supply: long-term causes

    • House building

      • Costs

      • Availability of land

      • Planning regulations


    What will happen to house prices is there going to be a crash l.jpg

    What will happen to House Prices?

    Is there going to be a crash?


    What will happen to house prices l.jpg

    What will happen to house prices?

    • Short-term: probably fall

      • Credit crunch

      • Buy-to-let is now much less profitable

        • In many cases rents do not cover the mortgage interest

      • Renting is now relatively more affordable

      • Speculation

      • Interest rates: actual and expected

        • Problem of inflation

      • Flats fall more than houses


    Slide27 l.jpg

    Inflation rates for (a) flats and(b) semi-detached houses

    (b)

    (a)

    Source: based on Halifax House Price Index (HBOS)


    What will happen to house prices28 l.jpg

    What will happen to house prices?

    • Short-term: probably fall

      • Credit crunch

      • Buy-to-let is now much less profitable

      • Renting is now relatively more affordable

      • Speculation

      • Interest rates: actual and expected

      • Flats fall more than houses

      • North fall more than the south


    Slide29 l.jpg

    Quarterly inflation rates for(a) the northand(b) the south east

    (a)

    (b)

    Source: based on Halifax House Price Index (HBOS)


    What will happen to house prices30 l.jpg

    What will happen to house prices?

    • Short-term: probably fall

      • Credit crunch

      • Buy-to-let is now much less profitable

      • Renting is now relatively more affordable

      • Speculation

      • Interest rates: actual and expected

      • Flats fall more than houses

      • North fall more than the south

    • Long-term: probably rise

      • Demand will probably outstrip supply


    What can the government do l.jpg

    What can the government do?

    • Demand

      • Making house ownership more affordable

        • Tax relief

    • Schemes for mortgage sharing

  • But ultimately increases demand

  • Supply


  • What can the government do32 l.jpg

    What can the government do?

    • Demand

      • Making house ownership more affordable

        • Tax relief

    • Schemes for mortgage sharing

  • But ultimately increases demand

  • Supply

    • Relaxing planning regulations

    • Public housing


    You can find these powerpoint slides on www economicsnetwork ac uk archive a level dec07 l.jpg

    You can find these PowerPoint slides on

    www.economicsnetwork.ac.uk/archive/A-level_Dec07


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