Housing Marketing between Cardiff and Aberystwyth in Wales - Research Paper Example

Microeconomics 10th January, Housing Marketing between Cardiff and Aberystwyth inWales There are few basic concepts of economics and demand and supply are the most vital among them. However these two cannot operate in isolation there are certain other factors that have their direct or indirect impact. Factors affecting demand and supply of products are different. For example increase in income level, changing in fashion trends or increase in population can have impact on the demand and supply of products especially if they are not luxury goods. The focus of this research paper will be mainly on the demand and supply trends in reference to the property (housing) markets. This will cover various factors that can affect the prices of the houses in UK, the spending pattern of people and their preferences. For better understanding graphical representation has also been taken into account. Analysis of the situation is also part of the research paper and in the end a brief conclusion is given based on the research made on the research paper. Literature Review: Demand: Demand of any product or service is defined as the amount required by people/buyers at a particular price. The demand of various products vary with age ,income level, availability of substitute products, change in fashion trends and the overall economy of a country in which buyers are operating. Supply: Supply of product is defined as the amount which a market can offer to its buyers at a particular price. The supply of product varies with the increasing and decreasing demands. In a market where two parties (buyers and sellers) are operating there comes time when the amount of product demand becomes equal to the quantity of product supplied. This is called the state of equilibrium. Choice and Value Fetter in his book “Principles of Economics” there are few choices that are developed consciously and others unconsciously. Desires related to luxury goods are usually made consciously. Therefore we can safely say that people desire to buy house or bid certain prices for a house are purely made consciously and they are totally aware of the fact and market trends before such conscious desires are made. According to him humans try to secure things that they value, and for this they keep on assessing things over one another. Principles of Price: Whenever buyers and sellers come in the market they have certain price ceiling (in buyers mind) and floor (in sellers mind) below which they cannot trade. If observed clearly these indicators can clearly tell the attitude of buyer as well as of the seller towards the purchase of a particular product or market. Therefore while operating in a market it is also important to understand the psychology of both players operating in a market. Secondly the desire of buyer to buy product is higher than seller will be at profit as there are chances that he will agree to the price what seller is asking for. Consumptive and Non Consumptive uses of Goods: There are two essential aspects that every good exhibits (Fetter). Either a good has a direct effect on person using it or it can indirectly transmit its effect on the person using it. House is an example of “duration relation of goods “. Therefore factors playing role in determining the price of such goods are entirely different from those determining the consumptive items. Problem of Population: Fetter explains “Dynamic changes in economic society” Every person of a society wants best adjustment for himself for this he/she strives hard to achieve objectives. This is an example of dynamic society where is competition because of increasing population. On the other hand there is a society called “static society” according to Fetter where numbers of deaths are balanced by number of births. In such economies number of resources the demand for resources will remain unchanged year after year. Therefore normal driving factors of demand and supply will not affect them and there will be state of equilibrium as the rate of interest, prices everything will remain same or change in accordance to each other thus resulting in null effect. Housing Market Trends in UK By now this research paper has clearly mentioned the relation between the demand and supply of goods the effect of prices and other factors that can have their impact on the housing market of UK. But before going forward it is necessary to observe the trends that have been prevailing in UK market in last year so a conclusion can be drawn and factors can be identified other than price that drove the housing market of UK. TRENDS: “Premier global property news service" the average UK property prices dropped only by 0.23% in 2011 However, if compared to the trends in 2010, the prices of houses and the cost of letting them is higher in 2011 which is a positive sign for the real state dealers. If compared the price trend of Wales and Cardiff with rest of UK then there is slight decline in both. As annual drop of 0.7% is observed in Wales compared to 1.5% increase in rest of UK. (Henry) . Cardiff saw 0.6% of decrease as compared to other parts of London. According to the analysts the property trends in the first half of 2012 show slight decline whereas it is expected that second half of the year will show positive trend towards housing prices. The graph below shows the most recent trends of property in Cardiff.(real estate: 2011) The above graph shows that the supply side is above the demand referring to the fact that there are more sellers or lenders as compared to the buyers. These trends show a steady decline at the end of year 2011. Analysis and Findings: Looking at the market conditions and trends of UK it has become evident that there exist a small difference between demand and supply side which is creating state of in equilibrium. However for any situation of in equilibrium there are certain factors responsible for it. Similarly beside price which is no doubted the most important player in driving demand and supply of any commodity there are certain other factors which are playing their role. Therefore it will be injustice if we consider price as the only responsible player for creating this gap. From literature review it has been concluded there are various factors according to different economist that are important in playing their role in economy. In addition to those factors there are few other factors (Henry) that can be considered responsible for this small gap. Real Income: Due to recession in economy real income of people has showed negative trend. (Ropke:1936) people in crisis minimize their spending to necessities only therefore people avoid spending on housing and major chunk of their income was spent on food and other necessities. Rate of Interest and Consumer Confidence: Since with rise of interest rate the buying power of people decline as interest on mortgage also increased. Secondly economy conditions have affected the consumers’ confidence which affect the buying power. Changing Demographics Change in demographics has an important role to play especially in housing market. Increase in divorce rates and small percentage of marriage are the major demographic changes that has affected the housing market. On the other hand if we look at the supply side of the market it can be observed that supply/availability of new houses with different variations to cater the need of buyers is not possible in small time period. As it requires time to build houses therefore if demand of houses increases suddenly it will not be possible for the suppliers to meet it .But this condition is very difficult to reach since for the past few years there is steady increase in supply of houses as compared to its demand. CONCLUSION: Price of a commodity is a major player in deciding the demand of a product because if price is too high the demand of the product will be affected, and people will shift to substitute or lessen their spending on the particular good or service this will lower the demand automatically. On the other hand if the supplier of charge prices on which buyers agree the demand will not be affected and market will be observed in equilibrium which is observed rarely. But in addition to price there are many other factors that are affecting the demand of the product. This has been observed in housing market that price is not only the key player in driving the market there are other players as well which has been mentioned in the analysis section of the paper. However it is important to mention again that these factors again vary from culture to culture and country to country. Moreover the factors affecting the supply demand functions also different for different products and even entirely different for service industries. Therefore it is important to understand the driving forces responsible for driving the market trends. Work Cited Top of Form Fetter, Frank A. The Principles of Economics, with Applications to Practical Problems. New York: The Century co, 1904. Print. Bottom of Form Fall in house prices in Wales bucks UK trend. Graham Henry. Wales Online. Western Mail 2011 "Priemier global property news service": propertywire.com, 5 Jan 2012. Web.11 Jan 2012 "Real Estate ": real estate.com.au, November 2011.Web. Jan 2012 Top of Form Röpke, Wilhelm, and Vera C. Smith. Crisis and Cycles. London, William Hodge, 1936. Print. Bottom of Form Read More