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The Housing Project

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The Housing Project The UK housing market is a very simple but yet very important market and affects us all considerably. As a new comer to economics this market was underestimated in the huge impact it has on the rest of the economy. Il start with the late 1980's when there was a huge boom in the property market called the Lawson Boom and drove prices up by about 35% per anum. This seemingly endless boom was later followed by a devastating crash in the early 1990's, with houses falling at an average rate of 5% and there seemed to be no stop to this because unemployment went up, mortgages could not be paid and people had negative equity we can see this being a cyclical economy where one move affects many other sectors of the economy. The ones suffering from this had to sell their house quickly in order to get them selves out of financial difficulty and therefore drove prices even lower. ...read more.


Properties form the main party of everybody's wealth, so when house prices rise so does peoples wealth. And this leads to consumer confidence which means they spend more on other goods because they are financially secure with the price of their house to lean back on. When houses prices were falling in the beginning of the 90's the growth for demand was very slow and as an affect of this consumer spending fell by nearly 2% in the recession of 1991. And vice versa in the late 90's when prices started to grow rapidly and demand went up people started to buy more goods as their house (their main asset) began to grow in price. And from this we can see a multiplier effect where other businesses are influenced by how well the housing market is doing. The government play a role in affecting the housing market through taxation in interest rates e.t.c. Say if the government set a low interest rate the demand will go up as more people will feel they can afford to take out a mortgage to buy a house. ...read more.


And other effect being increased homelessness , declining affordability and social division. The Bank of England are a major player in controlling not only the housing market but the economy as a whole. And they achieve this by using monetary policy to control interest rates along side with the government. The government has set an inflation target 2.5% +/-1%, which now forms the basis for monetary policy decisions. To meet these government requirements a Monetary policy committee meet every month, and their job is to set interest rates at an appropriate level to control the economy. High interest rates increase the cost of mortgages and reduce the demand for most types of housing. Alternatively, a fall in interest rates should stimulate higher market demand and push house prices up. This should increase consumption associated with house-buying and the rise in prices will increase total housing wealth and make buyers more confident about their personal finances. Max Pobol Economics 07/05/2007 ...read more.

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