This graph shows the rise in price of properties in the UK
There are many reasons that are able to explain why there is such a difference in price, which would be outlined below.
In the UK, demographical studies have shown that there is an uneven distribution of population and employment. Businesses finds means to reducing running cost and by establishing themselves in the southeast, they benefit in a great deal. This is due to that be being in the southeast they are relatively closer to Europe which would help to reduce the cost of commuting to other countries than if they were based in the north of the country. Businesses start to concentrate themselves in to these districts in order to compete closely with rival companies as well as the additional benefit of the ease of commuting with a larger population of potential customers. The amount of jobs has therefore decreased in the north, which is another driving force for people to leave these areas to look for work and move to the southeast.
But the boom is far from good news for everyone - and it could be bad news for the economy. A survey by FPD Savills suggests that as many as 800,000 households in London cannot afford to buy a home at current entry-level prices of £75,000 plus. In addition, that total of households, earning less the £20,000 a year, excludes those who are already being housed in the social sector by either local authorities or housing associations.
Many of those people will fall into the category of key workers like teachers and nurses or they will be working in low-paid service industry jobs. If those people can't afford to live in the Capital then the labour shortage, which already exists, and is hampering business activity, will get worse.
The Mayor's recent Housing Commission recommended building an extra 43,000 houses each year to meet projected demand with 29,000 of them in the affordable to those on moderate to low incomes. But FPD Savills' Director of Residential Research, Richard Donnell, said, "This will require London's current housing output to be increased by a factor of three and sustained for the next 10 years. This is simply not realistic or feasible given the chronic lack of suitable land."
The population of the country has risen from 52.8 million to 58.2 million in the period of 32 years between 1961to 1993 and the number of households has increased from 16.2 to 22.9, due to the increase in small pensioner’s households, one-parent families, divorced units and people moving away from their family at an earlier age. Still, since there are more of these types of households in the southeast, there is a greater shift in the demand curve for housing affecting the increase in price in the southeast.
When Thatcher’s government was in power, in the 1980, the trend in home ownership was boosted by her incentives of less government inventions in the market. One-step was to encourage people to buy their own property instead of living of the state as well as those of low income to buy rather than rent and the change in law that allowed council tenant to buy off the council property they lived in. This change in legislation helped to fuel the trend in individual homeownership and less rental of properties.
The demand curve under ceteris paribus states that as the price of a good decrease, the demand for it increases. So in order to reduce the amount of excess demand of properties by job commuters, prices have to be increased to an equilibrium price that allows the planned demand to meet the planned supply. Yet, suppliers want to make use of the amount of profit that they can make from the risen price they aim to increase supplies. Whereas there may be an excess supply of properties in the north, prices are decreased
However, some individuals are willing to commute into the cities to work in order to have cheaper housing. The opportunity cost of living in London is less pollution, less traffic, more community spirit, more space and bigger houses for the same price of a smaller one in the city. In addition, the loss time spent travelling and cost of travelling is accountable.
In conclusion, a general assumption can be made that whilst the rich established and single younger working generation are able to afford to pay the rising house prices. Those disadvantaged, are ones that have a family to look after, as well as the old and retired population that do not necessary need to live in the city in the first place. For most, house prices are too high for people to afford. The Halifax survey said: "Low mortgage rates and a continuing strengthening in economic activity should underpin a relatively strong housing market during the remainder of this year and through 2000."
The Mayor of London, Ken Livingstone has made a proposal to build more properties to meet the demands, we just have to wait and see whether price inequality in the different regions of the country would ever balance out.
