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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
The UK Housing Market

Is it actually working?

slide3

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

Source: based on Halifax House Price Index (HBOS)

slide4

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

Source: based on Halifax House Price Index (HBOS)

slide5

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

Source: based on Halifax House Price Index (HBOS)

slide6

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

Source: based on Halifax House Price Index (HBOS)

who benefit from rising house prices
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
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
causes of rising house prices10
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
Causes of rising house prices
  • Shifts in demand: short-term causes
    • Incomes
      • Current and expected
    • Interest rates
      • Current and expected
causes of rising house prices13
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

£000s

Ratio of average house prices to average earnings

Source: based on Halifax House Price Index (HBOS)

slide15

£000s

Ratio of average house prices to average earnings

Source: based on Halifax House Price Index (HBOS)

slide16

£000s

Ratio of average house prices to average earnings

Source: based on Halifax House Price Index (HBOS)

slide17

£000s

Ratio of average house prices to average earnings

Source: based on Halifax House Price Index (HBOS)

causes of rising house prices18
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

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

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

causes of rising house prices22
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
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
What will happen to House Prices?

Is there going to be a crash?

what will happen to house prices
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

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
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

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
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
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
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
You can find these PowerPoint slides on

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

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