pp.293-307). Finally foreign immigrants have invariably sent the prices of housing in urban centers skyward. As for the supply constraints private builders account for a greater percentage of the total supply while Council Housing is almost defunct.
This paper would place greater emphasis on the supply side problem associated with urban housing problem in the UK. While supply constraints have been responsible largely for the current housing problems in the UK urban sector, some exogenous variables like large scale immigration from the Eastern European countries after the EU enlargement have also contributed in a sizeable measure to them. For instance potential job-seekers from the three first tier countries - Poland, Bulgaria and Romania - have been attracted to prospering urban centers in the UK, including London. Their demand for new houses has driven house prices and rents up thus causing an unprecedented trend in the housing market. The following diagram illustrates the fact that the average rent in London divided into five areas depending on the relative price differentials has been rising considerably fast. The net result is higher house prices and rents caused by falling supply and rising demand. ...
Figure 1: Demand for and Supply of free market housing in selected London locations
The supply constraints can be attributed to five endogenous and exogenous variables,
Rising real interest rates
The current global economic downturn and financial crisis
Falling profit margins
The government's efforts to control inflation
Rising land prices
Real interest rates in the EU in general and the UK in particular has been rising at a steady rate and as a result housing suppliers have been borrowing less and investing less. Coupled with increasing demand the situation has worsened, especially when real interest rates keep on rising housing suppliers tend to increase prices and rents. However the rent might be determined by some other factors as well. For example when Council housing supply is virtually at a standstill private suppliers tend to increase rents unless council restrictions on rents apply (Gibb, 2003. pp.89-114).
Secondly current economic downturn and the financial crisis have forced private suppliers to target only a small group of potential buyers as represented by young executives. Young married couples holding executive jobs have driven up housing prices in almost every urban center in the UK. For example London, Glasgow, Lancaster and York all have experienced rising housing prices and rents. The impact of the economic recession has forced private house builders to reduce not only the area of the apartment but also the facilities (Salins, 1987. pp.67). Suppliers tend to make their forecasts depending on the economic trends such as housing bubbles and cyclical demand fluctuations.
Profit margins of