BUSINESS ECONOMICS

Business Economics: Coursework Assignment



Business Economics: Coursework Assignment

Introduction

Housing is a vital part of the UK's national infrastructure and a crucial component of our economy. Alongside its significant contribution to overall economic output, the housing market is critically linked to the stability of the macro economy (Barker 2004). The importances of housing's direct and indirect economic impact can perhaps be best illustrated by the fact that it accounted for around a third of the overall 6% fall in GDP during this recession. The UK housing market is facing serious challenges of both a cyclical and structural nature. The recent market slump has served to intensify the economic downturn and has subsequently dragged on the recovery. However, this immediate problem is underpinned by a greater structural problem resulting from a chronic under-supply of housing, which has played a major part in fuelling successive housing bubbles and driving up house prices over the long term. Government and industry must tackle these different, but related, problems in order to create a well-functioning housing market which can underpin a healthy and stable economy. This paper provides an analysis of the key macro and micro economic factors which impact on the current UK Housing Market. In doing so, I link up the demand and supply theory as it relates to the performance of UK's economy, and, in turn, the housing industry.

Housing Market Overview

Growth in the UK private housing market peaked in 1997, and the market has declined in subsequent years. Volume growth was negative at this time, but will recover in the future. Value growth will be much stronger than volume growth. The decline in volume growth was due to heavy restrictions on construction on green field sites. These restrictions are in place in an attempt to preserve the environment, and also regenerate industrial and urban sites (Meen and Andrew 2008).

The United Kingdom private housing market has experienced mixed fortunes in recent years, declining in 1998 and 1999, only to grow at increasing rates up to 2002. In 2001, the market grew to reach a volume of 176,000 new households per annum. Growth is forecast to decline to a marginal level, with the market forecast to reach a volume of 182,950 new households per annum (Meen and Andrew 2008). Value growth will be driven by an increasing demand in the market due to lower interest rates, which will cause house prices to rise. The residential property market in the UK displays great regional variations, however. The highest demand will be in the southeast, where some of the most severe building restrictions are in place. This will cause house prices to be significantly greater in this area, and they will continue to rise.

Market Volume

The market volume determines the level of activity in the housing industry. The United Kingdom Private Housing market grew by 2.9% in 2001, to reach a volume of 176,000 New Units Per Annum. The compound annual growth rate of the market in the period 1996-2002 was ...