Supply and Demand in London Housing Market

Essay Title : Supply and Demand in London Housing Market

1Introduction 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. 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

1will analyse the different factors that affect demand and supply when buying a house in London. 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. 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. 1. 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.

These factors are :Demographic

2,Income Price of Housing Interest Rate Cost and Availability of credit /Mortgage Consumer preferences Price of substitutes Price of

compliments 2

1.Supply of housing: In order to produce a new housing supply the following factors are required: Land Labour Other 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. 3. 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. 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).

34This is the biggest annual decline since the housing crash of 1992".:

10http://www.globalpropertyguide.com/Europe/United-Kingdom/Price- History

15-02-09Source graph

11:http://enthusiasm.cozy.org/wp- content/uploads/2008/07/supply_and_demand.gif

15-02-09If demand remains high, more properties will tend to come into the market (Supply) and this will help to put a downward the pressure on prices, as is better shown in the graphics below. Figures for House Price Change, annual

40(%)Source:http://www.globalpropertyguide.com/Europe/United-Kingdom/Price- History

15-02-09Figures for Total Homes Sales as Percent of Owners Occupied Unitshttp

27://www.guardian.co.uk/society/2005/may/27/housingdemand

10-02- 094.Buyers and Sellers Power :Prices in area vary for different reasons. When demand in housing is higher in some areas than others

36and when also there is shortage of high quality properties, the seller will be in charge of the market

which will establish a balance

23in the market biased towards the seller. When this happens is because is likely to be excess of demand in the market for good properties and sellers can wait for

an offer for the property that they intend sell

18to reach or exceed their minimum selling price. Opposite to this in the case

where

18demand for new and older houses is weak and there is an over supply of properties available in the market. In this case the power will switch to potential buyers, who will have

more options of properties available and will have the power

47to negotiate a price lower than