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Demand and Supply for housing

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Introduction

Demand and Supply for housing The determination of prices in local and regional housing markets is a classic example of microeconomics in action! We are seeing the interaction between buyer and seller with prices being offered and agreed before a final transaction is made. In this section we focus on the demand and supply side factors that determine the value of properties in a market. Each housing transaction in the UK depends on (a) The price that the seller is willing to agree for their property with the prospective buyer (b) The actual price that the buyer is willing and able to pay. Buyers place offers for a property that the seller can either accept or reject A Sellers Market When the market demand for properties in a particular area is high and when there is a shortage of good quality properties (i.e. supply is scarce) then the balance of power in the market shifts towards the seller. ...read more.

Middle

As supply becomes more elastic over time, assuming the conditions of demand remain unchanged, we expect to see downward pressure on prices and a further increase in the equilibrium quantity of houses bought and sold. The Aggregate Demand for Housing in the UK The market for owner-occupied housing is sensitive to changes in market demand and supply. The strength of these factors often explains disparities in house price inflation between and within the major regions of the United Kingdom. Demand conditions for housing influence both the willingness and ability of people to make house purchases. Some of the most important conditions of demand are listed below Growth of real incomes - privately owned housing is a normal good for most people. As average living standards rise, the total demand for housing expands, as does the demand for more expensive properties as people look to move "up market". Consumer confidence - confidence is vital in the housing sector. ...read more.

Conclusion

Expectations of future price movements - is housing to be regarded as a consumer durable that provides a flow of services to the owner over a long period? Or should we think of a house purchase, as a major financial investment that we expect will provide us with substantial capital gains in the long run? The answer is probably a mix of the two! Certainly in the 1980s the housing sector boomed because of a strong speculative demand for properties. Changes to the system of housing taxes and subsidies - government policies affect the housing sector in a myriad of different ways ranging from benefits for council taxpayers on low incomes to the payment of stamp duty on the most expensive properties. Throughout most of the 1980s and 1990s the government offered home buyers an explicit subsidy in the shape of mortgage interest relief at source or MIRAS. Chancellor Brown decided to phase this subsidy out of the system - MIRAS has now disappeared. The effect has been to dampen down housing demand, but do little substantial to stop house prices rising. Economics/AS/Unit 1 Housing market Paul Ibram http://www.tutor2u.net 04/05/2007 1 ...read more.

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4 star(s)

Response to the question

This essay responds to the question superbly, offering insight into how market forces and microeconomic concepts can be applied to the housing market. I liked how other factors are considered, as this shows strong evaluating skills. If this essay wanted ...

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Response to the question

This essay responds to the question superbly, offering insight into how market forces and microeconomic concepts can be applied to the housing market. I liked how other factors are considered, as this shows strong evaluating skills. If this essay wanted to go further, a discussion of the extent to which factors are most significant would've been useful.

Level of analysis

The analysis in this essay is strong. I liked how the essay tackles changes of demand and supply separately. Sometimes diagrams in Economics essays can get ridiculously crowded, and its best to look at them separately. I was pleased to see a shift in each diagram, which shows good analysis skills. However, to strengthen the analysis, I think the shifts needed to be explained. For example "A shift of demand from D1 to D2 may have been caused by increased income, which has resulted in an increase in equilibrium price from P1 to P2 and quantity from Q1 to Q2". In exams and coursework, it is not enough to simply show the changes on a diagram and it would surprise most people to know that a simple sentence can gain a number of marks. The concept of elasticity is used well, but I would've liked a simple definition regarding the responsiveness of supply to a change in price. Key determinants of housing prices are mentioned, and these are well explained. If I were doing this essay, I would've made a judgement to which has been the most important determinant in recent years, and why it has been most significant.

Quality of writing

The essay is structured well, first showing knowledge of the housing market and then going onto diagrammatical analysis. Clear subheadings and diagrams allow for focussed and strong analysis. Punctuation, spelling and grammar is faultless and the style flows well. A strong essay!


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