In addition when it's relatively inexpensive to borrow money, such as when interest rates are low, more people may try to qualify for mortgages. Also, improvements in the UK economy will mean more homebuyers as the unemployment rate will decrease and therefore people will feel more confident and may be choose to buy a house. Lower interest rates combined with greater numbers of people with jobs can convince lenders to give more mortgage loans, increasing the number of homebuyers increasing demand and therefore price.
Home owners in the UK make about 70% of the population. In this sense rising house prices will benefit the economy as the majority of the population gains from this rise. They benefit from the wealth effect as their houses are worth more. This will lead to a rise in consumption and net export as they feel wealthier. This will have a positive effect on the economy as aggregate demand will increase and in turn so will real gdp leading to actual economic growth. However this increase in real gdp does not mean gdp per capita increase and this true as only the rich or the home owners will benefit from the wealth effect
The old, particularly, also benefit from the ability to realize the capital in their house. They can and in retirement often do downsize to a smaller house and use the money realized to fund a more comfortable old age.
On the other hand some may argue that the rise in house price is not beneficial to society. The 30 per cent of the population who don't own a house do not, the young and those who overstretch themselves with a mortgage that is too big are all made worse off due to rises in house prices
Those too poor to own a house rent either privately or from their local council. They find it much harder to move house than homeowners do. As house prices rise, they find it increasingly difficult to get out of this poverty trap and climb onto the property ladder. Since house prices are rising faster than wages they find it even harder
Young people find it increasingly difficult to get their first foot on the ladder too. Those who are taking on their first property mortgages are stretching themselves more and more to take out that first loan. The average price paid for a first home was up by 5.6 per cent in a year to just over £150,000. Young buyers are being forced to take out mega-mortgages. This illustrates how rise in house prices benefit homeowners who are likely to be older and not the young.
Buyers with large mortgages are extremely vulnerable to financial shocks - such as interest rate rises, illness or redundancy.
Rising prices is considered an ill. But with houses most of us see ourselves, for most of the time, as latent sellers, and only occasionally as active buyers. Nevertheless ever higher prices have some ill effects. They effectively transfer wealth from those without houses to those who have them. Rising house prices make the rich richer and the poor poorer.
However it can have positive effects. High house prices also force wage costs up. Employers have to pay salaries sufficient to enable their staff to live in the area where they work. High house prices tend to cut the rate at which the nation saves. When homeowners feel confident that they are sitting on a profit they save less and spend more. High house prices thus fuel consumer spending.
The need to calm the housing market is one of the factors the Bank of England's Monetary Policy Committee takes into account when it decides to raise interest rates. And if we were really concerned about rising house prices we could relax planning laws. But that is unlikely to happen. The truth is that rising house prices, for all their downside, make the majority of the population feel good.
In conclusion rising house prices can be seen as beneficial as the majority of the population, those who are homeowners, gain confidence which stimulates consumer spending. However the home owners who benefit from to rise in price are generally older whereas the young who are likely to be first time buyers are disadvantaged by this therefore means that the economy cannot achieve one of its macroeconomic objectives of sustainable economic growth as the young who are the next generation are put into a worse situation.