HOUSE PRICING

House Pricing



House Pricing

Housing is of great importance to the economic development and the social welfare of a region because it produces a type of goods that besides being considered an asset, are indispensable in satisfying a basic necessity within individuals. (Boissiere 2005)

For this reason the housing analysis is highly important from the point of view of the economic and social policy, because it is not only part of the wealth of the families but also of a country itself. This work will analyse the different factors that affect demand and supply when buying a house in London. (Antoniades 2007)

The diverse population of London leads to a wide range of types of housing being available: houses, flats, bungalows, maisonettes among some others, having the majority of its housing market as a second hand one. (Betsky 2004)

This reports will make a detail analysis of the London housing market, focusing on the main factors that affect the supply and demand during the process of buying a house and finding where the free market fails and therefore the government as to intervene. (Anon 2005)

Demand of Housing

For every housing transaction there is a seller and a buyer. The seller will decided the price that they are willing to accept for the property and that they think the property can achieve. The buyer will decide what they are willing to pay for a property. However there are factors that will heavily influence the demand and supply of houses. (Boissiere 2005)

Supply of housing

In order to produce a new housing supply the following factors are required:LandLabourOther Inputs (Electricity, Building Materials )The quantity of housing produced for sales is determined in relation to the cost of the factors mentioned above. Second hand housing supply is determined by the number of people willing to sell their properties and the factors described above don't affect this. (Antoniades 2007)

Demand and Supply

Every time that the demand of houses increase faster than the supply of house, the price tends to go up. The number of new houses built is low compared with the increase of the demand, this situation is one of the main reasons why housing prices rise. (Betsky 2004)

In order to obtain the opposite reaction, which is the decrease in the prices of housing, the demand will also have to fall. This is the current situation of the market in the UK, where “UK house prices fell by more than 10% during the year 2007 to end Q3 2008 (-10.3% according to Nationwide and -12.4% according to Halifax). (Antoniades 2007)

An increase in the cost of building new houses will shift supply to the left5.In the UK, it is argued there is a significant shortage of housing and this explains why house prices have risen much faster than inflation and earnings. However, it is important to note that house prices can still fall, even if there is a shortage of supply. In 1992, house prices in London fell over 20%, even though we can say supply was ...