House prices in the UK - Essay Example

?Running head: HOUSE PRICES IN THE UK House Prices in the UK Insert Insert Grade 17th March Using economic theory, explain why houseprices differ between different regions in the UK and what does the UK Government do, to address these differences? Introduction In today’s world, it is everyone’s wish to own a house; indeed, this is not an impossible mission when funds are available. Citizens are normally differentiated by the amount of money they hold, their salary, and investments or savings they make. That is why real estate owners construct houses of different quality and different sizes, with an aim to cater for every citizen of a country. With the constructors work done, it is up to the owners to decide on house prices, depending on the quality, location, and prestige among other factors. Most people opt for cheaper houses or flats and give up their dream of a mansions or bungalows, depending on their income and financial capability. In most cases, a rise in inflation usually leads to an increase in the mortgages rates and high interest rates associated with the mortgage. In the United Kingdom, high prices of houses may render some citizens to failure of affording to purchase a house. In addition, high house prices have caused shortage of workers in London and the South East, as most people are unable to afford such high prices. Therefore, the high level of unemployment is another factor that has led to low demand for house purchase (Newnes, 2011). According to Williams and Pannell (2006 pp 352), “housing is not an ordinary commodity and does not behave in an ordinary way since it is a long–term asset, requires heavy machinery, it is geographically fixed, and involves legal procedures.” The authors further argue that, it is not obvious that houses built are always affordable. According to Braham (2002 pp 328), a wide division of house classes in the UK has occurred due to changes in the building of houses in relation to design, location and the size.. This leads to only a few numbers of people being able to buy private homes. He also states, “The in-equality in housing has led to in-equality in house gain.” Theorists however argue that, when housing has a similarity with factors like health and education such that they shape one’s life, housing stands out in determining the level of consumption since the owner occupation has to consider wealth, to occupy a certain house. When inflation is high, energy and transport prices increase, leading to a rise in bank rates and definitely on mortgages interest rates. According to right move website (N.d) in the United Kingdom, houses vary in prices between different regions due to the different class of people living there, and the types of houses that are available. For instance, the following property in MK6 region, differ from those of MK7 region. a flat cost ? 95,689 has had only forty five purchases, while a semi- detached costs 135,446 had sixty one purchases , Detached houses costs ?262, 759 and had only fifty two purchases and Terraced that costs ?122,765 had a pleasant number of buyers who were one hundred and thirty six. Below are two tables that illustrate how some house prices vary in different regions. Table: MK6 region property House type flats Semi- detached Detached Terraced Number of sales 45 61 52 136 Price paid ?95,689 ?135,446 ?262,759 ?122,765 For MK7 region, a flat costs ?119,598 and the purchases made are 49, while a semi- detached property goes for ?115,900 and has approximately 86 purchases. A detached property costs ?290, 618 and has a total purchase of 124 and finally, a terraced property costs ?126,351, with only 83 purchases. If we compare these same properties but from different regions, we can agree that house, prices differ in different regions of the United Kingdom. Table 2: MK 7 region House type flats Semi- detached Detached Terraced house Number of sales 49 86 124 83 Price paid ?119,598 ? 115,900 ? 290, 618 ?126,351 Source: http://www.rightmove.co.uk/house-prices/find.html?outcode=MK6&country=england&incode=&index=0&propertyType=0&buildType=1. Nevertheless, there are factors that lead to demand of houses in certain regions, one being the rise in income whereby, one is able to purchase a house regardless of where the house is situated. Secondly, the interest rates in a market would cause a rise in the cost of houses. Consumer confidence is another factor that determines the level of demand in that, sometimes, consumers are willing to take the risk despite the high interest rates. Cases of divorce and separation also lead to demand of houses to some extent. Economic theory determines how much value a country will generate if it increases the output. The economic theory is related to theories such as neo-classical and Keynesian theory, which explain the levels of inflation and unemployment that may cause house price to increase. There is a likelihood of variation of prices as a result. According to Snow and Vane (1997, pp 337), “the neo-classical economic theory rose as a result of the inflation in 1960’s and 1970’s.; it provides a framework to support the fact that neither fiscal nor monetary policy is effective in altering output and employment levels.” According to Boyes (2007, pp 379), this theory believes in the flexibility of wages and that the economy is at equilibrium. It further states that since wages are low during a recession, individuals are willing to substitute by working from home, early retirement and going back to school. According to Boyes (2007, pp 381), “this theory holds that wages are flexible and expectations are formed rationally so that only the expected change in prices have an effect on Gross Domestic Product. According to Boyes (2007, pp 383), the Keynesians believe the government should intervene to stabilize the economy. Investment and consumption demand are affected by monetary policy. For instance, when there is an increase in the money supply, this situation will lead to a decrease in the interest rate. The result is a low cost of borrowing and an increase in private investment and consumption, thus boosting the rising demand in an economy. The Keynesian economists argue that a disequilibrium in the market calls for government intervention (Boyes, 2007, pp 379). According to an article by Cook (2003, pp 2286), UK may have a ripple effect due to its rising house costs gradually. How is the government addressing the issue of house price differences? The government intervention in the UK case of house price varying in different region is important, since it is the government responsibility to ensure that a country is run fairly and common people can afford the basic needs, which include shelter among others. According to Pallock (2010) "People in financial distress are still not having to sell houses, it's a big difference from the recession of the early 1990s," says Martin Ellis, chief economist at the Halifax, one of the UK's biggest mortgage lenders. The government has established housing policies whose aim is to make sure that every citizen of the UK should at least manage to buy or rent a house at an affordable price, depending on where they want to live and work. Due to the rising population, definitely new homes are required. The government has set a target to provide new homes in the country by the 2020. This strategy aims at focusing more on affordable homes for the citizens. According to Anon (2011), government figures shows that the house prices in United Kingdom dropped by 1.4% in January compared to the end of last year. The figures indicated that in the east part of England, the house prices rose by 2.8%. Further, the United Kingdom house price of a typical home now is ?208,552. In addition, England price of the same typical home rose by 1%, while in Wales the price decreased by 1.8%. In addition, the typical house price fell by 3.2% in Scotland, while in Northern Ireland, the price dropped by 14.1% (Anon, 20111). Conclusion According to Great B, (2006, pp 352), the government should make sure that affordable houses are built, tackling demand issues by relocating jobs from higher to lower demands for housing areas. When it comes to the house prices, we have seen in the illustrated tables that the same types of houses may vary in prices, according to where they are located. The famous places, houses tend to cost much higher than in common areas. The UK government should make sure that there are affordable homes for the middle- class citizens. The government should work on coordinating house prices, in order to avoid a ripple effect. Reference List Anon. UK house prices see mixed picture, DCLG says. BBC News, March 15, 2011. (Online). Available from: http://www.bbc.co.uk/news/business-12746556 (Accessed March 18, 2011). Boyes, W. and Melvin, M., 2006. Economics. Seventh Edition. London: Cengage learning publisher. Braham, P. Janes, L., 2002. Social differences and divisions. Sixth Edition. London: Wiley –Blackwell. Cook. S., 2003. An article on convergence of regional house prices in the UK. Urban Studies, Vol. 40, No. 11, pp. 2285-2294. Routledge. (Online) Available from: http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?hid=7&sid=0a4aad0e-4b2a-49a1-91a7-b58e78d247d6%40sessionmgr11&vid=9 (Accessed March 18, 2011). Newnes, D., Housing market 'stuck in a rut' says CML. BBC News. (Online). Available from: http://www.bbc.co.uk/news/business-12783514 (Accessed March 18, 2011) Pallock, I., 2010. House prices: will they start falling again? BBC News, September 06, 2010. (Online) Available from: http://www.bbc.co.uk/news/mobile/business-11164971 (Accessed March 18, 2011). Right Move Website. N.d. (Online) Available from: http://www.rightmove.co.uk/house-prices/find.html?outcode=MK6&country=england&incode=&index=0&propertyType=0&buildType=1 (Accessed March 18, 2011). Snow B, and Vane, H., 1997. History of economic thought. London: Routledge publishers. Williams, P. and Pannell, B., 2006. Affordability and the Supply of Housing, Session 2005-06: House of Commons Papers 703-ii 2005-06. London: The stationary office. Read More