These key public sector workers are essential for our society. For example, teachers are needed to educate our children and doctors are needed to provide healthcare for our population. Because they are so essential, changes in salary will not affect the government’s demand for these workers, therefore demand for public sector workers is inelastic and their jobs are much more secure than private sector jobs. This is represented by the diagram on the right. If workers are demanding a higher salary, P1 to P2, demand will only decrease by a small amount from Q1 to Q2.
This means it is essential for the government to have enough key public sector workers. The whole country needs public sector workers so the government will want to ensure houses everywhere are affordable so key public sector workers are not deterred from seeking work. If public sector workers are unable to afford houses then there may be many costs to society, such as a poorly educated population and higher crime.
Public sector salaries
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An average annual salary of £34,552 in 2009 for full-time teachers (SOC 2314/2315) in primary and secondary school roles.
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An average salary of £28,858 for full-time nurses (SOC 3211).
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An average salary of £39,944 for full-time police officers (SOC 3312) who hold the rank of sergeant or below.
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An average salary of £32,058 for full-time fire fighters (SOC 3313) at the rank of leading fire officer or below.
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An average salary of £38,792 for full-time paramedics (SOC 3213). [6]
The average salary in the UK is £26,020 and for only full time employees £31,323. [9]
How are house prices determined?
House prices are determined by supply and demand (above): how much people are demanding houses and how many houses there are for sale (supply). Prices will increase if there is a decrease in supply (below left) or increase in demand (below left)
Demand for housing is how much people want to buy houses in the area. This is affected by a number of factors.
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Population: If there are more people in the area then there will be a higher demand for housing. Trafford, along with all of Greater Manchester, has seen its population continuously decline since 1971. Trafford’s population has decreased from 227,792 in 1971 to 210,145 in 2001. [1] This means more people are leaving Trafford than coming into Trafford. The population decline in Trafford means that demand will decrease. This is shown on the supply and demand diagram below: the demand curve shifts inward, from D1 to D2, making the demand decrease from Q1 to Q2 and price decrease from P1 to P2.
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Crime levels in the area: In an area where crime occurs frequently fewer people will want to live there so there will be a decrease in demand. Violent offences in Trafford are below the national average, while burglaries and thefts are above average. [8] Despite this, Trafford does not have a reputation for high crime levels like other areas of Manchester.
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Local environment: People do not want to live in areas with noise pollution, traffic, air pollution.
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Transport links: In an area with many transport links people will want to live there more. There are major roads and highways in Trafford such as the M56, M60 and the A56. Trafford also has the Metrolink and is close to Manchester Airport. The Metrolink is being improved and it will connect to more places, which may cause demand to increase.
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Availability of jobs: If there are many job opportunities in and around an area demand for housing in that area will increase. If a large employer sets up in an area then demand for housing in that area may increase. Trafford is in close proximity to Manchester city centre and also Trafford Park which provide plenty of jobs. There are many new developments in Trafford and Manchester, these will provide jobs. This will cause the demand to increase. On the supply and demand diagram below, the demand curve shifts from D1 to D2, resulting in an increase in demand from Q1 to Q2 and an increase in price.
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Education: Families with children will want to live in an area with many good schools. Trafford has some good schools such as Altrincham Grammar and Sale Grammar. If the schools in the area get better, this might increase demand for families with children. The diagram below shows an increase in demand and price. The demand curve shifts to the right and the demand increases from Q1 to Q2. The price increases from P1 to P2.
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Income: As peoples’ incomes increase, they may want to buy a house, maybe in a more up market area. Trafford has the highest house prices in Greater Manchester so people may like to move there as incomes increase.
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Other amenities, including shops and entertainment. There is the Trafford Centre which has a huge variety of shops and entertainment and also provides jobs. There are also other things such as the Old Trafford football ground. This makes Trafford a very attractive area to live in and may cause demand to increase.
Supply in the housing market refers to how many houses there are available for sale in the area. This is affected by a few factors:
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Availability of land: If there is no land available then no new houses will be built.
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Factors of production: If there is a lack of or increase in cost of the 4 factors of production (land, labour, capital, enterprise) then fewer houses will be built.
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Resales: If less people are selling their old houses then there will be fewer houses available. In the current recession house prices are very low so few people will sell their houses. Similarly because of the low house prices few new houses will be built as they won’t sell for much. This means there is a decrease in supply. The supply curve shifts from S1 to S2 on the diagram below, and the supply decreases from Q1 to Q2. This makes the price increase from P1 to P2.
Supply of housing is relatively inelastic because it takes some time to build new houses, and people do not move house that often. This means that a change in price will not change supply by much. This is shown on the diagram. If the demand decreases from D1 to D2, the price decreases from P1 to P2. However because of the inelasticity of supply, there is only a small decrease in supply and demand, from Q1 to Q2.
Primary Research
I have chosen to conduct some primary research. I have done this in the form of a questionnaire, for key public sector workers to complete. This is the questionnaire that was used. Most of the people who completed the questionnaire were teachers from our school; there were very few public sector workers from other professions.
Questionnaire results
There were 45 public sector workers who filled out this questionnaire. Almost all of them are aged between 26 and 55. The mean age is 41.
5 of the 45 people surveyed chose not to answer. The modal group for salary is £30,000 - £44,999. There is also a significant amount earning £15,000 to £29,999. Few of the workers surveyed earned outside this range. The average salary in the UK is £26,020 and for full time employees only £31,323. [9] The public sector workers’ salaries are all close to this amount. However this figure is the national average, and house prices are higher than the national average in Trafford. This suggests that houses in Trafford are more unaffordable to key public sector workers working in Trafford; however people may choose to live in a neighbouring borough and commute to work in Trafford, so this does not answer the hypothesis.
A large number of the key workers surveyed live in detached houses, which have far higher prices, as seen on page 4. In Trafford, detached houses, on average, cost over twice as much as semi detached houses. This suggests house prices may not be a great issue for some public sector workers because they choose a more expensive house.
20 of the workers surveyed do not live in Trafford. The most common reason given for not living in Trafford was that they lived outside the area previously. This may show that high house prices in Trafford are not an issue because they do not need to live in Trafford in order to work in Trafford; instead they may choose to live in a neighbouring area with lower house prices. 8 said that house prices did deter them from seeking a house in Trafford, which is the second most common reason. However this does not mean that it deterred them from seeking work in Trafford.
Out of the 5 factors, House Prices was listed as the least important factor the most number of times, and there were very few listing it as the most important factor. This supports the idea that house prices do not have much of an effect on choosing a job.
Many of the public sector workers did not want to seek a new house, and chose to continue living outside Trafford. This may be an example of geographical immobility of labour – people do not want to or are unable to move to take up work. [10] People may not be able to move at this time because the low how prices now mean their house won’t sell for much. However house prices have increased in the last quarter as seen on page 4 and they may increase further.
Interview
I have decided to interview a key public sector worker as another research source. This way I can more in depth answers than in a questionnaire. I have chosen to interview a teacher at Ashton on Mersey School (a secondary school) in Sale called Sam Smith. I asked him about his salary: about £30,000.
First I asked him about his job and his house. “I think it was about £200,000. I moved in about half a year ago. It’s a pretty average house but it’s a good deal, similar houses sell for more usually and the price of houses here on average is quite a bit higher. Some of my friends have had less luck getting a house in Trafford. Combined with my girlfriend’s salary only it’s just affordable.”
“I have considered buying a house elsewhere and driving in to the school, but luckily that didn’t happen. I don’t really want to live in any of the surrounding areas, plus my family live here.”
I asked him whether house prices deter public sector workers here from seeking work here. “No, I don’t think so, quite a few of my colleagues live outside Trafford in areas with lower house prices. I’ve also heard how some people I know who work in the public sector have had trouble getting an affordable house here. But people can live in other areas and work here, so it’s not really problem in choosing to work here in Trafford.” Then I asked what the factors most important to choosing a job were. “Well obviously there’s the salary, and who the employer is. The location and distance matters as well and then there’s house prices which isn’t really a major factor.”
Finally I asked him about what the government should do. “Yeah, I think the government needs to work to make sure we can afford houses. They’re not doing much now; they have the shared ownership schemes, but I’ve heard that they’re pretty bad – you get a poor quality council house that you aren’t even allowed to maintain. A friend of mine is on a shared ownership scheme and he had a very negative experience. The government needs to do more to lower house prices instead of things like the shared ownership scheme.”
Market Failure
“Market failure is the failure of individual markets to operate efficiently leading to a misallocation of resources. When market failure occurs, there is allocative inefficiency i.e. it is possible to make someone better off without making someone else worse off” [11]
Market failure in the labour market, for public sector workers, is when the workforce is not allocated efficiently. However public sector workers are not deterred from working in Trafford by house prices so this is not an example of market failure in the labour market in Trafford.
There may be market failure in the housing market, because there are homeless people while many houses are unaffordable. Homelessness implies that there is a housing shortage, and housing is a scarce resource, however there are empty homes around. Reasons why they are empty include that they are unaffordable, they are unprofitable so are not being sold out rented out, or the housing could be very low quality. This is evidence of a scarce resource – housing – not being allocated efficiently.
This table from the BBC website shows the price to income ratio for workers in two areas of Trafford. High house prices, such as what is seen in Trafford, cause many problems to society and the individual. According to a BBC article from the same year, 4.46 is the average multiple of income a first time buyer pays for a property, so the figures for Trafford are all above average and may be unaffordable to some people. High house prices can cause many external costs or negative externalities. “Negative externalities occur when production and/or consumption impose external costs on third parties outside of the market for which no appropriate compensation is paid. Many of them are environmental.” [14]
If house prices are higher in relation to someone’s income, they will have less disposable income and then a lower standard of living. Less disposable income means the government will make less money through taxes, and they will either have to increase taxes or cut spending, which will both have major effects. They may have to take riskier mortgages, which make home repossessions more likely, and also these may cause stress and anxiety. There is less social mobility as young people may not be able to afford a house and may not be able to move elsewhere easily.
If houses are unaffordable the key public sector workers may be unable to find work, which has many effects. Less public sector workers will have effects like more crime and poor education. Unemployed people will get benefits which are paid for by the taxpayer, and they may even turn to crime which is even more damaging to society. Therefore it is beneficial for the government to intervene to make houses more affordable.
Government Intervention
The government can intervene to make sure houses are affordable to public sector workers. They have already set up shared ownership schemes: these are where the buyer and the government will buy the house together. The homebuyer must buy at least a 25% share. The residents are not allowed to maintain the house as it is the responsibility of the housing association. [15] The government claims "No government has done more to help key workers; since 1997 almost 25,000 key workers have got their first step on the property ladder through government shared equity and shared ownership schemes." [13] Shared ownership schemes can work because they reduce the cost of the property to the buyer whilst the supplier gets the same amount of money. This way the low prices are possible, however the government has to spend money. Some people complain about these shared ownership schemes because their houses are low quality and poorly maintained, and are hard to sell. [15] Also they are not in place everywhere in country so the scheme has not had that much success.
The government could build council housing for the public sector workers. This would be good for the workers however it would be expensive and possibly a waste; and the houses may be very low quality as some council houses are. This will cost the taxpayer large amounts of money.
They could allow houses to be built on land that was previously empty, such as green belt land. This has the effect of increasing supply of housing, which will cause prices to fall because there are more houses available. This is shown in the diagram, where the price decreases from P1 to P2.
Another way is they could encourage more people to buy houses and reduce the mortgage by changing the interest rates. The interest rates now are very low because of the recession and so are house prices so at this present time houses are more affordable than they were previously.
Conclusion
In conclusion, my investigation shows that while the high house prices in Trafford do discourage people from purchasing houses in the area, they do not have much of an effect on where key public sectors choose to work. In Trafford house prices are generally higher than those in other areas, due to the qualities of the area which mean people want to live there. This could be a problem; however my research has shown that high house prices do not tend to deter key public sector workers from seeking work in Trafford. In my questionnaire, the highest proportion of the people surveyed felt that house prices were not an important factor in choosing a job, while very few felt that it was the most important. However, roughly half of the people surveyed lived outside Trafford, possibly in places where house prices are lower. Many houses are unaffordable to public sector workers working in Trafford however they still choose to work there. My interview suggests that they may live in an area with cheaper living costs and commute to work. Also there is often no need to move house to Trafford if getting a job there, as in the questionnaire, a high percentage of the public sector workers who lived outside Trafford lived there because they had previously lived outside Trafford. However more than a few of the workers surveyed said they lived outside of the Trafford because of the high house prices, so it is evident that high house prices in Trafford do cause problems, even though public sector workers will still choose to work there. So from my investigation I can conclude that house prices do not deter key public sector workers from seeking work in Trafford although high house prices are a problem nevertheless as they are unaffordable to many people. It can have many costs to the economy and society, and the government should intervene to make houses more affordable.
Evaluation of sources
Questionnaire
The data obtained from my questionnaire will probably be reliable because it was done recently; it isn’t out of date. The data will reliable because we know how it was obtained. However there are disadvantages; the sample size was very small, as there were only 45 completed questionnaires. The sample is not particularly representative either as most of the sample were teachers at our grammar school, with very few public sector workers from other professions, who may earn higher or lower salaries. Also some people may live with a partner whose salary also goes towards paying for the house; the questionnaire doesn’t take this into account.
Interview
The interview I carried out was a useful source because the subject was a public sector worker and he had lived in Trafford for a long time so he probably knows the area well. It was done recently so it will be reliable to use. The answers were more detailed and in depth than the questionnaire. However only one person was interviewed so it might not be representative of the all the public sector workers, the subject did mention some of his colleagues though. His situation could be very different to other public sector workers working in Trafford.
BBC house prices data - The BBC is a very well known and large company so information it publishes on its website should be very reliable. The figures from this page are from April to June 2009 which is not that long ago. The data on the page is from the Land Registry of England and Wales, which part of the government and should be reliable and accurate.
House price data from home.co.uk - Home.co.uk claims to be ‘the UK’s most comprehensive property search’. The prices on the page are calculated daily from the properties found by their search in a certain area, so it is up to date and should be reliable.
Lloyds banking group public sector worker salary data - Lloyds are a very large financial institution whose data published should be very reliable. It was published May 09 which is less than a year ago, so it is usable.
BBC article on housing affordability for public sector workers – Unlike the other BBC page, this article, while reliable, is from April 2007, over 2 years ago. Therefore it could be very unreliable.
http://www.thisismoney.co.uk/mortgages-and-homes/article.html?in_article_id=449444
ThisIsMoney.co.uk article on shared ownership schemes – ThisIsMoney.co.uk is ‘the financial website of the year’ so it should be quite reliable. However this article is from August 2008, a long time ago so it could be out of date. Also the article deals with one particular case, one family’s troubles with shared ownership schemes so it is biased and not representative.
Tutor2u.net
Tutor2u is written by teachers so information should be correct.
Bibliography
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- http://www.thisismoney.co.uk/mortgages-and-homes/article.html?in_article_id=449444