I also predict that houses in the inner city, with the exception of London will be cheaper than houses in the country because people have previously moved to the city from the countryside in search of work and now the cities are becoming too crowded and people are starting to migrate from urban areas to rural areas and the demand for houses in the country will be starting to rise.
If there are few houses available in a location where there is high demand then I predict that the price will increase because people will compete with each other in order to buy a house in a sought after area. An example of an area like this would be London.
I predict that houses in ideal locations will be more expensive than houses near to undesirable features, for example airports, as there is low demand for houses near to them, therefore we can assume that the price will be relatively low also.
Size, Facilities and Age Of A House
Below is a table of house prices for different types of houses with different facilities in Caterham. The average price for a dwelling in Caterham is in the region of £235, 000 - £245, 000.
As we can see, as the facilities and the size of the houses increase, so does the price. This is because a five bedroom detached house costs more to build and is limited in supply. Also, a converted 3-bedroom townhouse is quite expensive because of its age, therefore also limited. It will have period features not seen in buildings built nowadays and as it is uncommon yet desirable, supply is limited and therefore price is high.
The demand and supply curve for a 3-bedroom conversion.
Local Location and Surrounding Areas
If a house is near to the railway station or a school then it is very convenient for travelling, education or whatever it may be. But convenience comes at a price because people will want to buy the house because convenience appeals to people, so the price of the house will be high.
The price of a semi-detached house in Croydon is more than twice the price of one in Carlisle. This could be due to the surrounding area of the house. According to the National Statistics website, Croydon has 245 communal establishments whereas Carlisle has just 97. I think this is one of the major factors in determining the price of a house.
However, if a house is built near to an airport, there is lots of noise pollution and a high traffic density so this will put buyers off and as there is not much demand then the price will be relatively low.
In the shadow of the world’s busiest airport, there are too few sales for houses, although there are in fact a number of houses near to Heathrow. However, in Ipswich, where there is no airport for miles around, the prices are fairly reflective of the National average. This demonstrates that having an airport in your local surroundings really can determine the price of your house.
Cities, Suburbs and the country
Below is a table comparing house prices in a city, a suburb and a place in the country.
Houses in the city tend to be expensive because they are ideally located for work and other amenities.
But, cities are overcrowded and there is a problem with supplying housing for the increasing population because previously people moved from the rural areas to urban areas in search of work.
However, people are now starting to move to the countryside where there is a demand for houses and prices are not so high as in the city or the suburbs. St. Ives is by the sea, in a picturesque location in the country where mostly elderly people populate it. From looking at the prices there is clearly great demand for houses in a nice location where there is peace and quiet.
Commuters, commuting to work everyday live in the suburbs. For example East Croydon is the busiest train station in Britain for commuters starting off their journey to work. There is therefore high demand for accommodation in Croydon, which may explain the high rise in prices.
Mortgage Rates
A mortgage is a loan to buy a house. It is secured against the property. You pay the loan over a period of time with interest. Because most people buy a house using borrowing, a high rate of interest means high loan repayments, which will decrease the demand for housing.
Above is a table showing house prices from 1986 to 2001
From the two tables, there is a link between interest rates and house prices. From 1989 to 1994, there was a high interest rate due to high inflation. There was a recession and also increases in unemployment which caused the decrease in demand for houses.
From 1999 to 2001, there was sustained growth within the economy and the low interest rates put pressure on the housing market and house prices were soon rising at an alarming rate, by 2002 reaching £128,265 from £92,521 just 3 years before.
Conclusions
From the explanation, I think that the biggest factor in determining the price of a house overall is mortgage rates. If demand is high for housing, then the price should be low, according to the demand curve.
However, if mortgage rates are high then demand is suppressed as high loan repayments mean that spending power is lowered and vice versa.
I did not predict that mortgage rates would be the main factor in determining the price of a house but I think that my conclusions have matched my hypothesis to a certain extent because the location of a house will not determine its price if you look at it from the wider picture. However, when you look at house prices in specific areas, then the location becomes a main factor.
I believe my evidence and material that I used to be quite reliable. Although my evidence for house prices in Caterham were not averages so anyone of the prices could be an anomaly but the prices reflected what I had previously predicted.
Bibliography
Sources of Data I used were:
- www.bized.ac.uk
- www.statistics.gov.uk
- www.upmystreet.co.uk
- The website for the deputy prime ministers office
- HM Treasury website.
- Property Guardian July 2004
Sources of Information I used were:
- www.bized.ac.uk
- Economics for GCSE by Alain Anderton
- Foundations of Economics by David Begg
