Renting Resurgence: Unraveling the Dynamics of Private Housing Markets in the UK

Introduction

Rental properties are in high demand in the UK, which increasing in day-by-day. Numbers of the prospective tenants who are registered in this business have risen by 23% in the UK. Housing is one of the basic needs of human beings. The demands for renting private houses are increasing in the modern globalised world. In UK, it can be seen that the rental price of the house regulates as well as control the financial market, resulting in a difference in the capital that is available to the business person. The overall rental business in the UK has strong positive as well as negative impact on economic condition of the UK market. In London the housing rent is higher than the other areas in the UK. The demand of rental house in the London is also higher than the other areas in the unable which is the main reason behind high rental prices of houses in London. This report is going to highlight the demand and supply of the rental houses in the London and other areas in the UK which pose important impact on the overall cost of house rental serve in this country. This report will also discuss the overall factors that are associated with demand and supply in the housing market of the UK. The report will depict the economic and governmental policies that are associated with private rental business in the UK. Finally this report will discuss the taxation, government policies and landlord rights which are associated with maintaining balance between supply and demand of the private rental housing in the London and other countries in the UK. .

History of private rental housing in the UK

In the late 1980s, the rented private sector has seen a decline all over the 20th century. The main reasonfor the decline in the rented sector is due to the fact that access or entering and leaving houses were easy for people who are young (Byrne 2019). The people who use the private rented sector are the older people, people who use rented houses for employment purposes, people related to agriculture and people who cannot afford their own homes. It can be seen that various companies, organisation and individuals are coming up with the diversity that can be related to the demand for houses that are rented privately and the supply of houses that are rented privately.

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Task 1

Demand-

Demand follows a law, which tells that when the price of any product is charged at a higher price the demand that is showed by the customers falls at a huge rate. Various factors affect the demand that is put forward by customers all around the world (Makowskiet al., 2017).

Demand Curve

Supply:

Supply follows a law, which tells that the high price when charged from the customers of a certainproduct then the supply of that particular product increases. The supply that produces changes according to the various factors affects the supply (Buechner, 2018).

Supply Curve dissertationhomework

The demand for houses that are rented for private use can rise when the other factors except forthe price of the houses that are sold for rent have impact demand. In the figure that is given below, as people are demanding more rented houses the demand isboosted and the curve representing demand (D) will be shifting to the right-hand side of the initial demand curve.

Shifting demands (Right):

Shifting demands (Right)

From the graphical representation it can be stated that, of the supply or rental process of private housing in the UK is fixed, the price of the private rental houses in the London and other places in the UK increases with increasing demand. In addition to this it needs to be mentioned that, if the demand of the rental house increases in the UK market, the quantity of the housing properties needs to be increased in order meet the increasing demand of the customers (Walteros et al. 2018). In thus aspects, the UK government needs to focus on increasing the number of rental housing properties in London as we laws in the other places of the UK. Based on this structure, it can be stated that, the UK government will encourage the private property owner to rennet tier own house of possible in order to meet the increasing demand of the tenants. This process will improve the overall economy of the UK the systematic rental service will assist the house owner as well as tenant to have economic benefits in the private rental housing service in the UK.

Shifting demand (Left):

Shifting demands (Left)

From the graphical representation it can be stated that, when the supply is fixed, if the overall demand for the private rental house is reduced then the price for houses in the UK will also reduce. In addition to this, from the graph it can also be stated that the quantity of the rental houses will also reduce if the demand for rental house will reduce with its price. In this context, it can be stated that, UK government can face economic slowdown if the price and demand of the housing properties reduces (van Vlaenderen et al. 2019). Therefore, the UK government needs to focus on creating new demand in the housing market for the rental house.

Shifting supply (right):

Shifting supply (right)

Here in the graph, when the demand of products and services are constant, then if the price of the product in reduces then the overall supply of the product will increase (Walteros et al. 2018). If the price of the housing properties in the UK market reduced then the overall, supply of the rental houses will increase, as many people in the London as well as in the other areas in the UK will be interested in accommodating in the private rental houses.

Shiefting supply (left):

Shiefting supply (left)

The overall supply of the rental private houses in the UK market will reduce when the price of the housing properties will enhance. In this context, the overall supply of the rental service needs to enhance to be enhanced to boost the economic situation in th UK. In this context, teh UK government need to focus on enhancing the demand of the housing properties in the London as well as in other areas.

Demand-side factors

Affordability-

The increase in the income of the people also increases their capacity to devoteto rented houses. The demand for rented houses can be seen increasing due to the growth of the economy at a periodic interval. These lead to the affordability of houses for rented purposes among the people of UK. The rented houses are a classic example of goods that are luxuries in nature. Hence, it can be said that there is a positive linkagebetween the income and demand of houses rented for own use. Figure 3 also is showing the shift in the curve that is represented by demand for rented houses on the right-hand side due to the increase in the income and hence affordability (Dianatiet al., 2018).

Confidence –

Confidence of the customers plays a crucial role in the influencing the need of the houses that are rented for own uses. The confidence in the people who are opting to rent houses depends on the economy’s future andthe market for rental housing. During the boom period, it can be seen that there is a faster boost in the demand for rented houses that the real income of the people. People can predict that there can be increases in the prices that are charged for rented houses, which will result in the upsurge in the demand for the side of the people in the economy.

Interest rate–

The interest rate is a very important factor as it can be used for calculating the cost that is relatedto the interest repayment for the mortgage cost. The variables of the rate of mortgage are taken out by the majority of the people seeking to rent a house. The modification that is made by the Bank of England on the rate that is base rate has an immediate impact on the payment that is done for the interest of the mortgage. The affordability of the houses that are rented for own use is regulated by this factor. High payments are charged for a mortgage, which results in dresses in the percentage of disposable income that people have with them. For example, it renting a house costs£ 15000 mortgage then the monthlypayment that is to make changes by a huge amount for a 0.5% change in the base rate (Milesand Monro, 2019). Hence, it can be said interest rate plays an important role in changing the renting habits of the people. The interest rate at the lower level encourages people to buy to rent for more houses. In some situation such as during increase in unemployment or in economic depression the interest rate at the lower level, do not encourage people to rent houses for private orown uses.

Renting cost–

The renting cost is also an important factor as it can control the demand that is shown by the people renting for houses. In the market of UK, the rent that is charged from the consumers is at a higher price, which makes the consumers increase or expand their budget as the lender is also encouraged. The rise in the renting cost by 22% regardless of the crash in housing and crisis of finance has led to acontinuous increase in the prices from 2011 onwards.

Brexit –

The prices of the housing that are rented are affected due to Brexit’s uncertainty. It can be seen that due to the uncertainty of Brexit, the price connected with renting of houses are decreasing in London and is the rate of decline is low in the south-eastern and eastern part of England. In London, the number of the renter is increasing every single day. The influences of Brexit has caused the rent to fall by £21 in Yorkshire and London by 30 based on the month in the year 2018 (Lastrapesand Lebesmuehlbacher, 2018).

Supply-side factors

The various factors from the side of supply that are affecting the price of the houses that are rented in UK are:

Subsides:

The rent that is charged for the housing is influenced by the subsidies that are provided. It can be generally seen that the builders of the houses that are given rent to the customers are provided by subsidies by the government. These are signs of encouragement that are provided by the government to the producers or builders of houses for renting purposes. The main reason for such encouragement by the government of the UK is because that there will be an increase in the supply of hoses that can be rented easily by the people who work in fire, ambulance and police (Haffneret al., 2018).

Cost of related goods –

The cost of related goods mainly the raw material plays an important role in influencing the price of houses that are rented for own use. The cost of raw material is the labourcost that is associated with building houses for renting purposes. It is important to take into consideration the labour cost because if there arefewer workers engaged in building housing then the payment of the wages given to the labour increases. It will lead to a fall in the supply of houses for renting purposes. The fall of the supply will cause the price to upsurge and the curve that is relatedto supply will be shifting to the leftward direction, as the figure that is given below.

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Government Regulation-

In UK, it can be seen that the government are regulating the planning of the house that built for renting purpose. In UK, it can be seen that the government has created a green belt zone, to limit the planning of houses and restrictions so cope up with environmental issues. To limit the congestion of household that are provided for renting, the Government of UK have put on imposition so that people prefer renting of houses in the outskirts of the cities. These all the above mention factors have led to the decrease in the supply of houses for renting purposes in the cities, which resulted in the upsurge in the price that is charged from the consumers for renting houses for own uses (Balchinand Rhoden, 2019).

Task 2

The demand for rented houses can be influenced by various economic policies. The policies are discussed below:

Affordable housing policies:

The action or the policies that are taken by the Government of UK to regulate the price of rented housing for own uses are:

Over the last two decades, England has set Affordable Housing Policies in order to implement the Land-use planning system. Through these polices, the UK government has set flexible policies regarding the rights of local people, duties of the tenants and price of the housing properties. Through implementing polices and activities the UK government has protected the right of the local people in terms of getting the affordable houses in the urban areas. The government has made various flexible options for the local people on the time for waiting, tenancies type and duties and rights of the social tenants. The government is also helping the local tenant so that they do not indulgethemselves inany behaviour that is anti-social. The government has also a new model that is relatedtothe affordability of rent. It allows the rented housing providers who are registered under the government to charge not more than 80% rent that is prevailing in the market (McCrone. and Stephens, 2017). The government has also implemented policies so that they can help the local builder by funding them to restore the stock that is needed for housing.

Brexit-

It can be seen due to Brexit in the UK, there is a lot ofuncertainty in various activities that are related to the economics background. Brexit impacts on the overall economic situation in the UK housing market (Hunt and Wheeler, 2017). Before Brexit, the British government get massive financial support in the housing market which assists the property dealers to get loans at lower inertest rate in term of increasing their property. On the other hand, after Brexit, the UK government has faced financial crisis which pose adverse impact on the housing market. In thus aspect, the price of the rental houses in the the UK will, enhance due to the scarcity of private property which will make it difficult fir the local people to get rental accommodation at minimal rate. It can be seen that major multinational business organisation can relocate their infrastructure not in the UK, as a result, the demand for the property that is off high-cost decreases mainly in London, which result in the drop in price. The activities that are related to the short-run for renting houses will be stopped as it has taken the people to negotiate freshly and properly due to the various uncertainties of Brexit. The increase in immigration can upsurge the demand for houses that are provided for rent for personal uses., which can result in the shortage of houses (Valverde, and Latorre, 2019).

Subsidizes-

To attract more customers, the government provides subsidies so that the buyers can easily afford the rented houses at an affordable price. The price that is paid by the customers are subsided price to that it will help in boosting the demand for rented houses. The government is aiding the necessary projects that will help thepeople to afford rented houses for private purposes. Government of the UK has subsided the housing as it is considered as the necessity for human being and proper regulation for controlling its finance are done by the government. Earlier it was seen that the government had provided the direct facility for housing subsided was to safeguard that all the resources that were available needs to be used to increase the supply.

To develop regions in the UK, after the election –

The government scheme that is Help-to-Buy helps in encouraging the demand for housing for rental purposes. It can be seenthat in various parts of UK, there is a negative effect that is caused due to the use of subsidies to increase demand, as the income effect is offset by the price effect by the demand that is increased. In the market that is not very much regulated, the positive effect of the subsidies can be seen. This has helped thoseregions that are poor and backward to uplift them and increase the demand among the customers (Disney and Luo, 2017).

Strategies to support key workers-

The government of UK has taken up different policies so that it can help the key workers such as people working in fire stations, ambulance service and construction for finding a place to shelter themselves. It can be seen that these types of workers taken rent asthey are not the permanent habitat of a place. These workers work as social workers and the government takes up various policies that will help them in finding houses to stay in the areas of high-end prices. The government has instructed the local authorities those are associated with planning to take necessary steps so to help the key workers to solve their problems of finding a proper place to stay (Ball2017).

Price caps:

Price hike in the housing market of the UK will pose strong impact on the demand and supply of the rental houses in the London and other areas (Goering and Whitehead, 2017) If there is price hike of the private rental houses in the UK, then the demand of the houses will, slow down. This triggers the supply will also slow down, therefore, it can be stated that, UK government need to focus on setting the justified price in the housing market which will maintain perfect balance between the demand and supply of rental houses in the UK.

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Council tax:

Taxation on the housing properties in the UK will enhance the overall, price if the rental houses in this country (van Vlaenderen et al. 2019). Therefore, if the overall price or rent of the private house will enhance, the demand of the private rental houses in the local market of the UK reduces. In this context, the UK government needs to reduce the taxation on housing properties in order to maintain the perfect flow of the demand and supply in the market. Through maintaining perfect balance between the demand and supply in the housing market the UK government can strengthen the overall, economic condition in the UK.

Conclusion

The demand for renting private houses is increasing in the modern globalised world. In UK, it can be seen that the rental price of the house is regulating and controlling the financial market, resulting in a difference in the capital that is available to the businessperson. The law related to demand and supply help in providing the framework with which we can understand the contrivance ofpricing of the houses that are rented for own use. The various changes in the curves that are related to demand and supply of rented houses help in understanding the influence of the various factors. The factors that change the demand, as a result, the price charged from the customers for rented houses are affordability, renting cost, confidence, interest rate and the presence of Brexit. The factors that change the supply, as a result, the price charged from the customers for rented houses are subsidies, cost of related goods and Government regulation. The various policies that are undertaken by the government are affordable, Brexit, subsidies, support the key workers and enhancing the underdeveloped region.

References

Balchin, P. and Rhoden, M., (2019). Housing policy: an introduction. Routledge.

Ball, M., (2017). Housing policy and economic power: the political economy of owner occupation (Vol. 828). Routledge.

Buechner, M.N., (2018). A comment on the law of supply and demand. Journal of Philosophical Economics, 11(2), pp.67-80.

Byrne, M., (2019). Generation rent and the financialization of housing: a comparative exploration of the growth of the private rental sector in Ireland, the UK and Spain. Housing Studies, pp.1-23.

Dianati, K., Zimmermann, N. and Davies, M., (2018), August. London’s Housing Crisis; A perspective based on the role of financial markets and the UK’s economic growth model. System Dynamics Society.

Disney, R. and Luo, G., (2017). The Right to Buy public housing in Britain: A welfare analysis. Journal of Housing Economics, 35, pp.51-68.

Goering, J. and Whitehead, C.M., 2017. Fiscal austerity and rental housing policy in the United States and United Kingdom, 2010–2016. Housing Policy Debate, 27(6), pp.875-896.

Haffner, M., Hegedüs, J. and Knorr-Siedow, T., (2018). The Private Rental Sector in Western Europe. In Private Rental Housing in Transition Countries (pp. 3-40). Palgrave Macmillan, London.

Hunt, A. and Wheeler, B., 2017. Brexit: All you need to know about the UK leaving the EU. BBC News, 25.

Lastrapes, W.D. and Lebesmuehlbacher, T., (2018). The European refugee crisis and house prices: evidence from the United Kingdom. Available at SSRN 2868420.

Makowski, M., Piotrowski, E.W., Sładkowski, J. and Syska, J., (2017). Profit intensity and cases of non-compliance with the law of demand/supply. Physica A: Statistical Mechanics and its Applications, 473, pp.53-59.

McCrone, G. and Stephens, M., (2017). Housing policy in Britain and Europe. Routledge.

Miles, D. and Monro, V., (2019). UK House Prices and Three Decades of Decline in the Risk-Free Real Interest Rate.

Valverde, G.O. and Latorre, M.C., (2019). Economic Analysis of Multinationals Firms in the UK after Brexit.

van Vlaenderen, A.T.R., Ossokina, I.V., Arentze, T.A. and Borgers, A.W.J., 2019. Demand and Supply of senior housing; A study using NVM data (Doctoral dissertation, Eindhoven University of Technology).

Walteros, C.V., Hoyos, A.N., Ardila, A.D.A. and Ballesteros, A.S.P., 2018. Analysis of demand and supply in the Colombian housing market: impacts and influences 2005-2016. International Journal of Housing Markets and Analysis.


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