Changes in UK Property Markets - Essay Example

? CHANGES IN UK PROPERTY MARKETS Introduction In the UK, real e market represents a significant portion of the nation’s economic output and people’s wealth. In 2012, the entire UK property market was valued at approximately ? 10 trillion. Stakeholders within this market include individual property developers and multibillion real estate organizations. The massive scale of investment opportunities present within this economic environment of property development has made it lucrative and attractive. Ghosh (2010) agrees that the UK property market qualifies as one of the economic indicators used to gauge performance of the nation. This essay seeks to develop a comprehensive appraisal on two sample sections of the market, and ascertain the cause of dynamics experienced by stakeholders within UK’s real estate investment platform. Appraisal involves extrapolation of both economic and political forces that plays a significant role in shaping the property markets. In order to substantiate effects of these forces, we will derive rational conclusions by analyzing quantitative statistical data from government websites. Residential Housing Market In the past two decades, the UK property market has demonstrated considerable degree of volatility. This volatile trend is characterized by consistent booms in aspects of housing demand, and housing prices. Data contained within one of the government statistical website shows that demand for housing units keep fluctuating. Within the metropolitan district of Manchester, total residential units available in 1992 were 490,070. Of these available units, only 134, 470 were sold out within the same year. According to Regulated Mortgage Survey (2012), stakeholders added 102, 090 units from 1992 to 1995, out of which 95,728 of these new units were sold out. In the period from 1995-2000, Manchester metropolitan experienced a surge in new housing units, but a drop in demand for the additional units. In the five-year period, there were 503, 360 new houses and only 109, 490 were sold to new tenants. Regulated Mortgage Survey (2012) shows that between 2008 and 2011, there were 779, 910 additional units out of which 672,811 were sold out. Based on the trends above, it is evident that demand for residential houses in Manchester, which represents trends of demand in other metropolitan districts across the UK, keeps fluctuating. Sales of new units between 2008 and 2011 were huge with developers having sold out 86% of all new houses. However, 1995 to 2000 was an unprofitable period for developers having sold only 21% of the new houses developed. In 2000, supply of units was high but demand was at its all time low. However, 2011 experiences an increase in both supply and demand. Eccles, Sayce and Smith (1999) say that on the contrary, it is unusual to encounter a situation whereby demand exceeds supply within the residential homes market. However, it is common to experience a situation where property developers fail to meet expected sales for new units. Figure i Change in Housing demand from 1992-2011 Office Space Market Apart from the residential housing market in Manchester, we will evaluate trends witnessed by stakeholders within the office and commercial space markets in the UK. In England and Wales, demand for office space usually equals or exceeds supply. However, one of the most interesting trends on the office and commercial property market is housing prices. In 1992, the average price for a standardized office unit in England and Wales was ?77,360. In 1995, which is three years later, price for the same unit had slightly shifted to ?78, 300. Between 1995 and 1998, prices jumped from ?78,300 to ?94,401. The later period caused a 20% increase in prices of office units as opposed to only 1.2% change in the preceding period. In 2002, price for the same unit in subject had double to ?144,766 with respect to its price back in 1992. As by 2011, office unit space in both Wales and England were retailing at a price of ?208,197. Figure ii Housing Prices from 1992 to 2011 Economic Forces After acknowledging statistical changes within the UK property markets, it is appropriate to account for the observed dynamism. Just like any other commercial market, property market in UK is influenced by the forces of supply and demand. With respect to real estate industry, demand refers to the number of housing units that people are willing to buy at prevailing market prices. On the other hand, supply refers to number of housing units that property developers in UK markets are willing to offer for sale at certain prices. Department of Communities and Local Government (2013) says that apart from the forces of supply and demand, property market is also influenced by competition. Competition by different developers exerts a direct influence on standard market price, thus causing a corresponding effect in the willingness of consumers to purchase property. Based on the statistics, supply for office units are low while supply of residential housing units are usually high. According to Gerhard (2009), supply of goods into a given market is influenced by input factors of production like construction space, raw materials and labor cost. Apparently, UK enjoys consistent supply of building materials and equipment together with friendly cost of labor. This is true in both residential and office markets. However, the two markets differ in availability of construction space. Land for developing office units is scarce when compared to that meant for residential houses. Consequently, there is shortage of office units and a corresponding surplus of residential units. In property markets, demand is usually influenced by both macro and micro economic forces which include employment rate, prevailing interest rates and general economic growth rate. In the UK, interest rates offered by financial institutions on mortgages keep fluctuation. In 2010, interest rate was low, thus most people took mortgages to buy homes. On the other hand, high interest rates discourage UK citizens from taking mortgages; hence causing a slowed demand in properties. According to Eccles, Sayce and Smith (1999), a growing economy induces rise in personal income, which motivate people to buy residential and office units. In addition, a growing economy leads to high employment rates whereby many people can afford to buy homes. With respect to property prices, the UK property market enjoys a perfect form of competition. Koop (2009) say that this is a situation characterized by large number of buyers and sellers. Since product within the market is of a homogenous nature, then buyers and sellers are left with the task of agreeing on price based on factors like income levels and economic growth rate. Political Forces Besides economic forces, politics also plays a significant role in influencing UK property markets. In 2011, the UK government first introduced tax credits for new home buyers. This was a government initiative meant to boost housing sales in a sluggish property market. As a result of the tax credit, many young people flocked into real estate agents in an effort to benefit from the tax break. This accounts for the sharp increase in residential housing sales in the period between 2008 and 2011. Apart from tax breaks, the UK government also introduced legislations meant to strengthen real estate investment trust funds. According to Myers (2004), this initiative offered a perfect opportunity to persons interested in indirect investment into the real estate market. Investment trusts boost liquidity of property markets by facilitating trading of market shares in form of securities. Finally, increase in supply of housing units within UK’s residential estates results from government policies meant to improve attractiveness of real estate industry to potential investors. According to Myers (2004), these policies allow investors to quickly access capital from financial institutions, thus acquiring money for development in a convenient and timely manner. Conclusion At this point, it is true that property market in the UK is influenced by both economic and political forces. Demand for housing units are mostly as a result of change in macro and microeconomic aspects of interest rates, income levels and economic growth rate. On the other hand, supply of housing units is influenced by both economic forces of labor cost, capital and land. Government policies like tax incentives, which fall under the aspect of political forces is instrumental in influencing both development of housing units as well as sale of property within the same market. Reference List Department of Communities and Local Government. (2013). Table 100: Number of Dwellings by Tenure and District in England. GOV.UK. Retrieved from https://www.gov.uk/government/statistical-data-sets/live-tables-on-dwelling-stock-including-vacants#live-tables Eccles, T. Sayce, S. & Smith, J. (1999) Property and Construction Economics. London: International Thomson Business Gerhard, A. (2009). Economic Theory: Supply and Demand. Science20.com. Retrieved from http://www.science20.com/gerhard_adam/blog/economic_theory_%e2%80%93_supply_and_demand Ghosh, B. N. (2010). Economic Theories: Past and Present. Oxford: Oxford University Press. Koop, G. (2009). Analysis of Economic Data. (3rd Ed). New York: Wiley Publishing. Myers, D. (2004). Construction Economics : A New Approach. New York: Spon Press. Regulated Mortgage Survey. (2012). Table 502: Simple Average house prices in United Kingdom from 1992. GOV.UK. Retrieved from https://www.gov.uk/government/statistical-data-sets/live-tables-on-housing-market-and-house-prices Read More