UK housing market: supply and demand, price elasticity
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Course
Business Economics
Institution
Anglia Ruskin University (ARU)
The document focuses on the housing market during the last years in the UK and how the interaction between supply and demand is used to determine the prices of the properties. It clearly describes the different effect on the market based on the supply and demand and it has detailed diagrams to repr...
Introduction
In this report I will be focusing on the housing market during the last years in the UK and
how the interaction between supply and demand is used to determine the prices of the
1
, properties. I will use relevant diagrams to present my ideas and support my points.
Additionally, I will select 5 different government policies that can be used in order to
encourage the demand for housing in the UK and talk about the most efficacious one.
Task 1
Equilibrium
As the price of any good/service is determined by the interaction of supply and demand, on
graph 1, we can see that the forces are balanced, and they are at equilibrium state. Price is at
Pe and Quantity is at Qe, when they meet they form equilibrium. Therefore, the prices of the
housing market are determined by this interaction and represented in graph 1.
(Graph 1)
(VLE)
When we look at the property prices in the UK, the equilibrium will be the price at which the
suppliers can sell as much as they want, and the demanders of the properties can buy as much
as they wish. There will be no disappointment within the buyers or the sellers. (Market
Equilibrium, 2016) Graph 1 exactly represents what equilibrium is and how both supply and
demand are meeting at one point, which is when Pe and Qe are meeting.
The demand for housing in the UK will be determined by factors such as income, interest,
availability of substitutes etc, and the supply will be linked to factors which can influence
building, constructing new houses. When there is a change in one of the forces (supply or
demand), there should be a change in the other one in order for them to balance out and
create new equilibrium. For example, when there is price growth in a response to scarcity, the
building contractors will react to the situation by adding attractive priced and newly
constructed houses to the market, so this new supply will reduce housing prices and create
one new equilibrium to the market. (Vries and Boelhouwer 2009)
Increase in demand
2
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