London being so close is another major pull factor for people wanting to live as near as possible to where work is more likely to be found. Commuting times and facilities like trains and motorways play a major role in opening up areas as ‘commuter land’. People often put up with long commuting distances in order to escape from city living as a family, or to find more affordable housing at greater distance from where they work. This is why Saffron Walden has become so posh, since people have realised the benefits of life in a town of this size in a manageable distance to London.
Hypothesis:
If interest rates are going down, will increase demand for housing which will then in turn increase house prices.
When one buys a house, one is paying for the actual house price, a mortgage, and the interest rates on the mortgage unless one has savings to cover the buying cost straight away. In the long run the cost of borrowing plays a major role in the evaluation of the house prices.
For example, if a house costs £200,000 and to buy this house a mortgage is needed of £100,000 and the interest is 4%, this makes an annual interest rate of £4000 per year. Although 5% may not sound like a big difference, if we calculate the difference it would increase the interest rates per year by £1000 in this situation making a grand total of £5000. Since they have taken £100,000 out of their savings, they no longer receive interest for this money, which would have otherwise been in the bank. If the savings interest was 3% they not only miss out £3000 interest rates. Instead, they have to pay interest, which means altogether they have £7000 less. (-£4000 mortgage - £3000 loss of interest)
This money is found especially difficult to give out by first time homeowners since they already may have to pay tuition fees and are only on very low paid salaries, (usually £200,00.) Therefore if interest rates go down, house prices increases will slow down because people know that’s costs are higher so demand for houses decreases. Less demand means lower prices.
If people want to buy a new house after 5 years a 4% they will have paid £2000 there for would need to sell their house at a minimum of £220,000 just to cut even with their expenditure. However, this does not take into account the loss of interest on the savings. So this would mean they would need a house price increase by a further £15000 (5 x 3000) interest on the savings. – 235000 for a house, which they had bought for £200000. This is how inflation is fuelled by house price increases. After taking this into account we can now understand why the prices of houses are so high in East Anglia, since interest rates are so low.
Tax relief on mortgages (although this has been phased out recently), changes in the population (especially if a certain area has a large influx of people) and, most importantly of all some would say, speculation.
Since there are endless wants and limited resources people are attempting to cope with the problem, partly by increasing prices. Since the demand has increased for housing in the area, prices are able to increase since there are now more people willing and able to pay the higher prices.
factors will cause a shift in the supply and demand curves in the housing market? On the demand side we have. The boom of the late 80s was fuelled, to a large extent, by people buying houses as investments rather than as places to live.
On the supply side we have to think what will affect the number of properties available to purchase. In other words, the state of the rental sector will have a large effect on the owner-occupied sector. Are more people becoming landlords, especially with the new ‘buy-to-let’ mortgages? Obviously the number of new homes being built will affect the supply curve. Are builders given incentives by the government? Perhaps, if they reclaim a ‘Brownfield’ site rather than build on the more convenient ‘Greenfield’ sites. They may even be prevented from building on the latter. What about the cost of building new homes? Changes in the cost of land, materials and workers will affect the supply curve.
The threat of Stanstead expansion will also enticed people into the area.
The government is planning to build 47,000 new houses along the M11 ‘corridor’ to service accommodation needs caused by the housing shortage.
Since the demand for housing is higher than there is a supply, the prices are able to increase since there will be more people willing to pay the higher amounts. Schooling facilities have also got an influence in the area, which is another pull factor for people moving within the southeast. There are also relatively low borrowing costs for mortgages, which will encourage people to buy and sell their houses.
According to ‘The Hometrack’ Property Company, house prices in England and Wales fell in May for the second month in a row. The percentage change in prices over the last year in each region can be seen in the chart.
In conclusion prices for housing are high in the southeast due to a number of factors:
- The demand for housing in an area,
- The supply of houses,
- Reputation for the area,
- General interest rates influence the house-shopping behaviour,
- Low interest rates enables people to buy better or bigger houses,
- Facilities in the area,
- Local employment chances.
Higher prices are less desirable, and this may mean many families do not have the economic ability to live in the area. The demand refers to the quantity of houses that purchasers are willing and able to buy at a certain price. Houses are scarce in relation to demand.
