The Effect of the Governments Efficiency Drive on the Social Housing Sector in the UK - Research Paper Example

The average house price, in fact, has been nearly worth $309,000 in 2004, also according to the Halifax index. The house price bubble is largely attributed to the over-optimism of house buyers, speculators, and investors. Farrow (2004) explains that bubble-type behavior takes place in varying degrees in different markets such as stock, bond, currency, and real estate. A market bubble can be described as “a situation in which temporarily high prices are sustained largely by investors’ enthusiasm rather than by consistent estimation of real value”.

Many speculators and investors in UK real estate market have been exaggeratingly touting of making more money on properties rather than going to the office (online CNN.com). As more and more speculators and investors bid in the housing market, the more the house price has gone up to new highs. This overly optimistic psychological factor in investing has led to the housing bubble in the UK real estate market (Farrow 2004). As many people are taken in with the UK house market mania, many households have also acquired considerable debt in the process.

Average UK household had, in fact, debt that stands at £ 900 billion in 2002, and is growing 14 percent annually (Farrow 2002). Farrow (2002) explains that the growth in household debt has largely been due to the 77 increase in mortgage debt. With the belief that house price will not fall, this phenomenon is also fueled by the “money illusion”, in which additional risks are acquired by most investors (Farrow 2004). The prevalent buyer’s optimism can be seen in the low-interest rate environment in the UK, whereby buyers are given the “affordability” illusion of acquiring real estate property using mortgage debt.