Housing Industry - Essay Example

Demand and supply in the housing industry: Demand and supply in the housing industry: Introduction: This paper focuses on the implication of housing data on the demand and supply theory, the law of demand states that an increase in demand will result into an increase in the price, when the price increases the suppliers are encouraged to invest more due to the high price which results into higher profits. As supply increase due to more suppliers increasing their output the market supply curve shift downwards meaning that suppliers are willing to supply their products at a lower price. We analyze the demand of houses which is depicted by the number of households in each region, the growth in the demand which is depicted by the change in the number of households over the years in each region and the market equilibrium price depicted by the average rent rates over the years in each region. The increase in the number of household is as a result of population growth and migration and this in turn results inot an increase in the demand for houses. Number of dwellings across regions as at 2006: In 2006 the total number of houses in England was 21,989 thousand according to table 3.1, an analysis of the various regions it was evident that majority of these dwellings which is 16% were located in south east while only 5% of these dwellings were located in the north east region. (Calculations in appendixes 1) The following chart demonstrates the total number of dwellings in thousands for each region in 2006. It is evident from the chart that majority of dwellings are located in the south east and London which is 16% and 15% respectively of total dwellings in England. The following is an analysis of the total number of dwellings in the regions for the year 1996 and the year 2006(calculations in appendixes 2). From the above chart it is evident that each region has experienced an increase in the number of dwellings, however some regions have higher increase than other regions especially the South east region has the highest increase in the number of houses while the north east region has the lowest increase in the number of the years. We now investigate why there has been an increase in the number of houses in the some area while others still experience low levels of increase in the number of houses. The north east region and the south east region: Percentages of the total for each year: From the above chart it is evident that there has been a decline in the percentage of the total for the South east region whereas there has been a relatively low decline in the percentage of the total for the North East region, however from the trend it is evident that the South east region has maintained a relatively high percentage of the total over the years compared to the North East region. Calculations in appendix 3. Trend in the number of houses in the N. east region and the S. east region: The following chart summarizes the trend in the number of houses in the N. east region: From the above chart it is evident that there has been an increase in the number of houses in the N. east region over the years. From the above chart it is evident that there has been a gradual increase in the number of houses in the S. east region over the years. Moving averages: We now analyze the moving average for the two regions over the years. The following table summarizes the simple centered 3 step moving average for the N. east region from the year 1997 to 2005: (calculations in appendix 4) N. East N. East moving average 1996 1,094 1997 1,100 1099.333 1998 1,104 1104 1999 1,108 1108 2000 1,112 1111.667 2001 1,115 1115 2002 1,118 1118.333 2003 1,122 1122 2004 1,126 1126.333 2005 1,131 1131.333 2006 1,137 The data is summarized by the following chart: The above line chart shows the 3 period centered moving average and the total number of houses in the N. East region. The following table summarizes the simple centered 3 step moving average for the S. east region from the year 1997 to 2005: (calculations in appendix 4) S. East S. East moving average 1996 3,250 1997 3,280 3280 1998 3,310 3309.333 1999 3,338 3338 2000 3,366 3365.333 2001 3,392 3391.667 2002 3,417 3417.333 2003 3,443 3443.667 2004 3,471 3472.333 2005 3,503 3503.333 2006 3,536 The data is summarized by the following chart: The above line chart shows the 3 period centered moving average and the total number of houses in the S. East region Ratio analysis: We analyze the ratio of the N. east region and the S. east region to the total which is England, the following table summarizes the ratios. N. East ratio to England ratio S. East to England ratio 0.053449 0.158784 0.053341 0.159053 0.053133 0.159303 0.052946 0.159507 0.052764 0.159715 0.052577 0.159947 0.052397 0.160144 0.052232 0.160281 0.052043 0.160427 0.051871 0.160659 0.051708 0.160808 The ratio of the south east region to the total is greater than the ratio of the north east region to the total, also that the ratio of south east region to the total has increased over time while the ratio of the north east region to the total has declined over time. (Calculations in appendix 5) Economic implication: Increase in households: The increase in the number of houses can be explained by the increase in population in these regions, the increase in population in this case will be analyzed using the number of household in the regions, according to table 4.3 the number of households in England was approximately to be 19,727 thousand, in 2006 this number was approximately 21,519 thousand, this is a 1,792 thousand increase which is 9% increase in the number of households from 1996, the 1,792 thousand increase can be subdivided in the various region and the following chart summarizes the results: (calculation in appendix 6) The above chart demonstrates the percentage change in each region over the total change in households in England, it is evident that London and South east have 21% and 16% which is the highest proportion of change, north east has the lowest percentage which is 3%. For this reason therefore there it is evident that the increase in the number of dwellings in the regions is attributed to the increase in the number of households. In this case therefore it is evident that demand which is households affect the supply, high demand will mean that there need to increase the supply. In the above case the increase in the level of supply in this region is attributed to the increase in the demand for houses, as a result of this increase in the supply of houses has increased in the regions with high demand than regions with lower demand, however an increase in demand will mean that prices will increases, an increase in price is attributed to the fact that demand exceeds supply and therefore we expect the price to increase in the regions with high demand. Rent and price of houses: Due to the high number of households in the south east region than the north east region it is evident that this high demand has led inot an increase in the rent rates over the years, the chart below summarizes the average rent rates from the year 1997 to 2006 data was retrieved from table 6.2 It is therefore evident that the high demand for houses in the south east region has resulted into the high average rent rate for the years, the north east region has experienced low demand for houses and this has resulted into low average rent rates for the years. We now analyze the percentage increase or decline in the rent rates for the two regions. The rent rate for the north east region in 1997 was 39.56 and 51.64 for the South east region, in 2007 the rent rate in the south east region was 77.36 and this is an increase of 25.72, for the north east region the increase was 16.33, the following chart summarizes the percentage change in the rent rates for the two regions. (Calculations in appendix 7) 1997 2007 change N. East 39.56 55.89 16.33 S. East 51.64 77.36 25.72 From the chart it is evident that rent rates in the south east region is higher than the north east region, for this reason therefore we conclude that the high demand in the south east region has resulted into the high increase in rent rates compared to the north east region. Conclusion: From the above discussion it is evident that the demand for houses in the regions is increased by the increase in the number of households in the region, this increase is as a result of population growth and migration. This increase in demand results into an increase in the equilibrium price of products in the market and this is depicted by the higher percentage increase in the rent rates in the regions with high demand. For this reason therefore it is evident that the house market is a market whereby the price and rent is determined by market forces. References: Communities and Local Government Statistics. 2004. Housing Statistics. 29th January. Hardwick, P. Introduction to Modern Economics. New York: McGraw Hill Press, 2004. Appendixes: 1. 2006 Total (England) 21989 percentage N. East 1137 = [1137/ 21989] X 100 = 5.17% N.West 3027 =[3027/ 21989] X 100 = 13.77% Yorkshire and the Humber 2218 =[2218/ 21989] X 100 = 10.09% E. Midlands 1880 =[1880/ 21989] X 100 = 8.55% W. Midlands 2293 =[2293/ 21989] X 100 = 10.43% East 2414 =[2414/ 21989] X 100 = 10.98% London 3192 =[3192/ 21989] X 100 = 14.52% S. East 3536 =[3536/ 21989] X 100 = 16.08% S. West 2291 =[2291/ 21989] X 100 = 10.42% 2. 1996 2006 Increase(change) change percentage change N. East 1,094 1,137 1,094-1,137= 43 [43/1,094]X100 E. Midlands 1,717 1,880 1,717-1,880= 163 [163/1,717] X100 S. West 2,072 2,291 2,072-2,291= 219 [219/2,072] X100 Yorkshire and the Humber 2,090 2,218 2,090-2,218= 128 [128/2,090] X100 W. Midlands 2,156 2,293 2,156-2,293= 137 [137/2,156] X100 East 2,205 2,414 2,205-2,414= 209 [209/2,205] X100 N.West 2,874 3,027 2,874-3,027= 153 [153/2,874] X100 London 3,009 3,192 3,009-3,192= 183 [183/3,009] X100 S. East 3,250 3,536 3,250-3,536= 286 [286/3,250] X100 3. ENGLAND N. East S. East N. East percentage S. East percentage 20,468 1,094 3,250 (1,094/ 20,468) X 100 = 5.34% (3,250/20,468) X 100 = 33.66% 20,622 1,100 3,280 (1,100/ 20,622 ) X 100 = 5.33% (3,280/20,622) X 100 = 33.54% 20,778 1,104 3,310 (1,104/ 20,778 ) X 100 = 5.31% (3,310/20,778) X 100 = 33.35% 20,927 1,108 3,338 (1,108/ 20,927 ) X 100 = 5.29% (3,338/20,927 ) X 100 = 33.19% 21,075 1,112 3,366 (1,112/ 21,075 ) X 100 = 5.28% (3,366/21,075 ) X 100 = 33.04% 21,207 1,115 3,392 (1,115/ 21,207 ) X 100 = 5.26% (3,392/21,207) X 100 = 32.87% 21,337 1,118 3,417 (1,118/ 21,337 ) X 100 = 5.24% (3,417/21,337) X 100 = 32.72% 21,481 1,122 3,443 (1,122/ 21,481) X 100 = 5.22% (3,443/21,481 ) X 100 = 32.59% 21,636 1,126 3,471 (1,126/ 21,636 ) X 100 = 5.20% (3,471/21,636 ) X 100 = 32.44% 21,804 1,131 3,503 (1,131/ 21,804 ) X 100 = 5.19% (3,503/21,804 ) X 100 = 32.29% 21,989 1,137 3,536 (1,137/ 21,989 ) X 100 = 5.17% (3,536/21,989) X 100 = 32.15% 4. Moving average Centered moving average: Claualting a three period moving average, we have ten years data y1, y2, y3, y4, y5, y6, y7, y8, y9 and y10. to get the centered moving average for year 2 we use the formula: (Y1+y2+y3)/3 example we determine the centered 3 period moving average of the N. east region for the year 2005: (1,126+1,131+1,137)/3 = 1131.333 5. Calculation of ratio: The ratio of N.east to the total which is England N. east: England Calculated as N. east value/ England value Example 1996 N.east to the total which is England is 1,094/ 20,468 = 0.053449 The ratio of S.east to the total which is England S. east: England Calculated as S. east value/ England value Example 2006 S.east to the total which is England is 3,536/ 21,989= 0.160808 6. 1996 2006 change N. East 1094 1137 (43/1094)x100=3.93% N.West 2874 3027 (153/2874)x100=5.32% Yorkshire and the Humber 2090 2218 (128/2090)x100=6.12% E. Midlands 1717 1880 (163/1717)x100=9.49% W. Midlands 2156 2293 (137/2156)x100=6.35% East 2205 2414 (209/2205)x100=9.48% London 3009 3192 (183/3009)x100=6.08% S. East 3250 3536 (286/3250)x100=8.80% S. West 2072 2291 (219/2072)x100=10.57% 7. N. East 39.56+41.65+43.37+44.52+45.57+46.24+47.35+48.83+51.51+54.47+55.89=518.96/11=47.178182 N.West 38.61+41.8+43.66+45.61+46.27+48.97+49.9+51.58+54.59+56.56+58.99=536.54/11=48.776364 Yorkshire and the Humber 41.69+43.95+46.12+48.15+47.49+49.23+49.04+50.41+51.07+53.9+54.7=535.75/11=48.704545 E. Midlands 45.43+47.67+48.24+48.48+49.34+49.94+51.13+52.51+55.96+58.9+61.31=568.91/11=51.719091 W. Midlands 43.57+45.35+48.2+47.68+47.62+49.87+50.7852.39+55.5+58.16+60.58=559.7/11=50.881818 East 46.81+49.54+52.58+54.28+55.73+.45+58.94+60.5+63.54+66.16+68.73=634.26/11=57.66 London 53.12+56.87+59.3+61.26+62.6+65.25+67.47+69.86+74.67+78.07+81.36=729.83/11=66.348182 S. East 51.64+55.27+58.09+59.96+61.23+63.67+65.35+66.68+71.37+74.69+77.36=705.31/11=64.119091 S. West 48.52+51.13+50.98+52.31+53.29+55.53+57.05+58.34+62.02+64.59+66.74=620.5/11=56.409091 Read More