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Problems in the Housing Market - Assignment Example

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In the report, it is stated that according to Erdman (1992, p.3) ‘the UK property market is highly sophisticated and based on well-established traditions, customs and codes of practice, and it is widely recognized within the UK – as  elsewhere – that every major business decision has a property dimension.’…
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Problems in the Housing Market
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Download file to see previous pages In this essay, the problems faced by the housing market in the UK are examined and evaluated. These are discussed with the help of specific examples.
This essay is organized as follows. Section 2 discusses the theoretical views in this regard. Section 3 discusses the property market development mainly housing market development and macroeconomy in the UK in the early 1990s. Section 4 discusses the property market development especially housing market development and the macroeconomy in the UK since 2007 and section 5 concludes the report.
An ideal property cycle according to Ball et al (1998) can be characterized as business upturn and development, business downturn and overbuild, adjustment, slump, and the next cycle. Many economic theories have been put forward to explain these five patterns like the business cycle approach (Barras, 1994; Key et al, 1994), based on accelerator principle. The two major factors affecting property development cycles are exogenous occupier demand for space and pro-cyclical exogenous availability of finance according to this approach. However, this approach does not account for the construction completion lags. Further, there can be causalities from development cycles to economic activity also. Hence the building lag model developed by Baras(1983,1994) tries to produce an endogenous mechanism to explain development cycles. Here, the lag between demand and supply together with the accelerator principle explains the development cycles.
The dynamic model based on historical data for UK property development by Barras and Ferguson (1987a, 1987 b) establishes an endogenous development cycle mechanism. This model identifies the level of user activity and the level of investment activity as the two major economic factors affecting property cycles. This model, however, explicitly includes an endogenous cycle mechanism, which is problematic. Further, the homogeneity assumption for variables like rent, capitalization rates, building costs etc is also questionable.  ...Download file to see next pagesRead More
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