Housing market assignment

Housing Market
ARC411 MANAGEMENT IN THE BUILT ENVIRONMENT
Oliver Guest | | Student No. Q12248606

Contents:
1.0 Introduction Page 2
2.0 The history of the UK’s housing market Page 2
3.0 North-South Divide Page 4
4.0 London vs. The North Page 7
5.0 Economic Theory behind the North-South Divide Page 8
6.0 Conclusion Page 8
7.0 References Page 9
8.0 Bibliography Page 9
Appendices Page 10
A1.0 North-South Divide Page 11
A2.0 Supply and demand Page 13
A2.5.1 Non-economic Factors affecting Supply Page 14
A3.0 Income/Salary Page 15
A4.0 Unemployment Page 15

1.0 Introduction
1.1 The housing market plays a key part in the UK’s economy with fluctuations in housing
prices having a considerable impact on the latter and vice versa. Housing is also
important on a more direct level with households relying on homes as not only
providing a place to live, but also as an investment. This means that fluctuations in
house prices can both negatively or positively affect a household’s wealth.
1.2 It is important to consider that house prices not only vary due to the properties
condition and quality, but also location. This can be seen on a regional and local scale
across the UK. This report will look at the general housing situation with a focus on
regional and local differences in pricing.
2.0 The history of the UK’s housing market
2.1 The UK housing market has seen a recovery in prices over recent years since the recession
in 2008. Prices have now recovered past the pre-crash high and are trending to the
positive as seen in Figure 1, although growth has started to slow in some regions.
2.1a Figure 1:
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Average house price per annum across the UK

2.2 The UK average consists of all housing stock which can be broken down into 3
categories: -Older Houses (Pre-World War 2) -Modern Houses (Post
1945) -New Houses (First Sale).
Figure 2 illustrates the average prices for each of these age properties showing that
new houses have a premium over modern and older homes with older properties
being the next most expensive through heritage and history. Modern houses, partly
due to architectural styles and build quality being below that of new and older
properties.
2.2a Figure 2:
2.3 Looking at house prices is just a small part of understanding trends such as growth. It
is important to look at it in another way such as the annual change of house prices
across the UK. Figure 3 shows that the current year on year change is far off what has
been seen in previous years. This can be explained using economic theory that is
discussed in section 3.0 and sections A2 to A4 in the Appendices.
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Average house price per annum across the UK
All Houses (UK) New Houses (UK) Modern Houses (UK) Older Houses (UK)

2.3a Figure 3:
2.4 The UK average doesn’t give the full picture however. House prices vary from region to
region with significant differences between locations. This can be seen as a physical
trend on a map as the South demands higher prices than the north. See Section 3 for
more information on the North-South Divide.
3.0 North-South Divide
3.1 Figure 4 shows the regional house prices across the UK. What this clearly shows is that
there is a substantial difference from the highest priced region to the lowest. These two
are London being the high and the North as the low, further information available in
section 3.3.
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Annual House Price Change

3.1a Figure 4:
3.2 These areas can be plotted on a map of the UK to show the distribution of house prices
across the UK. This gives a map with a very clear divide between all regions to the
north and those to the south, as shown in Figure 5.
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Regional House Price figures from 1973-2017
NORTH YORKS & HSIDE NORTH WEST EAST MIDS WEST MIDS
EAST ANGLIA OUTER S EAST OUTER MET LONDON SOUTH WEST
WALES SCOTLAND N IRELAND UK

3.2a Figure 5:
(Fraser 2016), http://www.telegraph.co.uk/property/house-prices/map-shows-just-stark-north-
south-property-divide/ [Accessed: 16/04/2017]

3.3 The North-South Divide is not a new idea but is now seeing some change taking place.
Growth has started to reduce in the south as house prices stagnate as people can no
longer afford to buy at such high prices, while better job opportunities and increases in
employment in the North has allowed for people to demand a higher price for their
property as demand catches up with supply.
3.4 For more information and a comparison between two houses on the market, one North
and one South, see A1.0 in the Appendix.
4.0 London vs. The North
4.1 Figure 6 Shows the house price difference between the North and London. This
illustrates the growth that London has seen since 1997 compared to the North.
Another interesting point is that London saw a bigger loss during the 2008 recession
but recovered significantly from 2012 onwards. The North however has seen little
growth and is yet to reach post-crash prices.
4.2 Figure 6:
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LONDON

4.3 It can be said that London survived the crash better due to foreign investment staying
reasonably high. Growth is now slowing as the bubble caused by the rapid growth
comes to a peak with prices looking to stagnate or decrease as prices become un-
reasonable. The North on the other hand can expect price increases as government
initiatives create more jobs and redistribute wealth into the North from the South.
5.0 Economic Theory behind the North-South Divide
5.1 Having looked at house prices and the North-South Divide, it is important to understand
why certain trends have occurred and reasons for these fluctuations. This can be
explained using economic theory.
5.2 Economic theory covers a range of theories that drive economic change. When looking
at the housing market, this report will focus on supply and demand, Salary/Income and
Employment.
5.3 With regards Supply and Demand in the North and South, the North is now seeing a
situation where property prices are on the rise as demand increases due to a reduction
in unemployment and an increase of average wages across the board. The South
however is suffering from properties now becoming overpriced when compared to
household incomes causing the affordability of properties to decrease resulting in less
purchasers. As described in section 5.3, this results in a reduction in house prices or at
least a slowing in house price growth as sellers become more and more competitive
with each other.in a reduction in house prices or at least a slowing in house price growth
as sellers become more and more competitive with each other.
5.4 As mentioned previously, increases in salary/income can significantly affect the buying
power of buyers and increase the affordability of properties as income rises faster than
house prices reducing the amount of times the property’s value is compared to the
household income.
5.5 Employment goes hand in hand with the previous point providing the means for more
people to have the money to afford deposits and repayments on mortgages for
example.
5.6 For Further information see the Appendix of this report for a more in depth explanation
of these 3 factors.
6.0 Conclusion
6.1 To conclude, the UK’s housing market is seeing a slowing in growth due to many
factorsfrom supply and demand to employment. However, it is not a black and white picture
with regions being affected in different ways. The South is seeing a slow down in growth whilst
the North is seeing a possible increase due to government spending and the movement of
wealth fromt eh south into the North.

7.0 References:
FRASER, I., 2016. This map shows just how stark the north-south property divide
is. http://www.telegraph.co.uk/property/house-prices/map-shows-just-stark-north-south-
property-divide/, Nov 30 [Accessed: 16/04/2017]
The housing market 2017. [viewed 16 April, 2017]. Available
from: http://www.economicsonline.co.uk/Competitive_markets/The_housing_market.html
MILLIGAN, B., 2016. North-South house price divide hits record high [viewed 10 April, 2017].
Available from: http://www.bbc.co.uk/news/business-35941503
8.0 Bibliography:
MILLIGAN, B., North-South house price divide hits record high [viewed 16 April, 2017]. Available
from: http://www.bbc.co.uk/news/business-35941503
QUIRK, R., 2016. North-South property divide defined [viewed 16 April, 2017]. Available from:
https://www.emoov.co.uk/north-south-property-divide-defined/
THE UNIVERSITY OF SHEFFIELD, 2007. The North-South Divide - Where is the line?
[viewed 16 April, 2017]. Available from: http://www.sasi.group.shef.ac.uk/maps/nsdivide/
NATIONWIDE, 2017. House Price Data [viewed 1 April, 2017]. Available from:
http://www.nationwide.co.uk/about/house-price-index/download-data
ANON., 2016. UK housing market: what to expect in 2017; Round-up of the state of the property
market in 2016 and the outlook for the year ahead. The Guardian (London, England), Dec 26

Appendices:
A1.0 The North-South Divide:
A1.1 Looking at Figure 6 shows that the North and London both experience very different
growth and where affected differently with regards to the 2007/8 Recession. Figure A shows a
more detailed look at how the prices were affected from 2005 to present. London clearly
recovers at a far greater rate than the North which has struggled ever since the recession.
Growth has also become stagnant for the North where London is still experiencing year on year
growth, albeit at a slower rate than previous years possibly showing that London prices are
going to peak over the next few years with the bubble that has been created likely to pop as
Brexit leads to a decrease in foreign investment taking money out of London and into the EU.
A1.1a Figure A:
A1.2 The North-South divide has existed for centuries throughout all aspects of life. When
comparing different statistics and data, there is a clear economic rift between those
living in the North when compared to the South. In 2016, this divide in regard to
house prices hit an all-time high with the North being valued at £163,000 less than the
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The North London

south on average. Along with this, the UK average house price also reached a new
high of £200,251, the first time that the national average has gone above £200,000.
(Milligan 2016)
A1.3 This house price difference can be seen using a comparison between equivalent
properties, one from the North and one from the South. In this case, this report will
look at the cost of a 3 bedroom house of roughly 1500sq/ft. with one being located in
Sheffield up north and one in London. These two properties are displayed below:
A1.3a Figure A:

A1.3b Figure B:
A1.4 Both houses are new builds so that they fall within the new house price range as
shown in Figure 1. This provides some consistency between the two properties
because, as clearly visible in figure 1, the difference in prices between that of a new
build and one that was built Post 1945 can be significant. This allows for more
accurate comparisons between the different locations when looking at prices.
A1.5 Although the London property has a basement, the floor areas work out to be very
similar with the London property coming in at 1,653sq/ft. and the Sheffield property at
1546sq/ft. This small difference can be considered negligible as the Sheffield property
has a garage which holds considerable value in these city locations.
A1.6 Looking at the actual numbers, the London property is demanding £1,000,000 more
than the Sheffield property at £1,250,000 compared to £249,000. This shows a
significant difference between the two properties that can be put down to location.
This assumption can be made because of the similar facilities and sizes of property. It
is important however to consider that these may not be typical examples of properties
on sale in either location.

A2.0 Supply and demand:
A2.1 House Prices as with everything else is affected by the current size of the market.
When demand exceeds supply, this pushes the price up as potential buyers must
compete to successfully buy the house. As prices increase, this creates a bubble that
will eventually burst for a multitude of reasons that include an increase of supply
where households are trying to get in on the higher sale values so put their houses on
the market. Or demand dwindles as people can no longer afford to pay the premium
prices being asked for buy sellers forcing sellers to cut prices unless they are willing to
wait months and sometimes years for a sale which by then the price will either
become more attainable or out of reach to most. When house prices drop, this often
leads to those that have purchased as an investment to sell up as soon as possible
further flooding the market with low priced housing.
A2.2 The relationship between demand and house price is a negative curve on the graph
because demand will usually decrease when prices rise as more and more people
cannot afford to purchase homes at the current prices.
A2.2a Figure C:
(Economics Online, 2017)
http://www.economicsonline.co.uk/Competitive_markets/The_housing_market.html
A2.3 This trend is not always the case as speculative or investment buyers can see that with
increasing house prices, they can try and get in early increasing demand and fuelling
the rise in house prices where ordinary buyers would be looking against purchasing
during this period.

A2.4 The relationship between supply and house price is a positive curve on the graph
because supply will always increase when prices rise as more and more people want to
make some money on their house whether bought as an investment or not.
A2.4a Figure C: See page over
(Economics Online, 2017)
http://www.economicsonline.co.uk/Competitive_markets/The_housing_market.html
A2.5.1 Non-economic Factors affecting Supply
A2.5.2 Not all that affects supply is to do with house prices. There are other factors such as
availability of land, government legislation and subsidies, technology and building
costs.
A2.5.3 The availability or scarcity of land impacts on the supply of new housing. A lack of land
to build on can often be caused by policies held by local councils regarding approving
planning applications for areas of land. Policies that often restrict development
include listed buildings and greenbelt policies. The latter restricts development
considerably as large open areas are denied planning permission by stubborn planning
authorities. Not all policies are against development however with the London
docklands legislation providing funding and lax planning regulations to encourage
development of an area of London that has seen little love since the docks closed.
A2.5.4 Another factor is the availability of raw materials and physical labor. The construction
industry is struggling with regards to having enough skilled bricklayers to complete
projects within planned schedules of work. Material supplies also see problems when
stocks cannot be replenished due to the pound losing value for example resulting in
importing materials from other countries being far too expensive and not economically

viable. Concrete blocks have recently seen shortages across the UK resulting in
changes to specifications to incorporate different block types.
A2.5.5 Where these conventional building methods are hitting shortages, new technologies
such as offsite fabrication or timber frame construction is speeding up the
construction process by reducing times on site and moving it into offsite factories
where work can be carried out at a far greater efficiency with a smaller, more skilled
workforce. This helps to counteract shortages of some materials and helps keep new
stock coming into the housing market.
A4.0 Factors affecting Demand:
A3.1 From the increase in the minimum wage to moving out of recession, these factors
affect the amount of people who will have the ability to front the money for a deposit
on a mortgage. However, it is still considered that the minimum wage is too low to
allow for people to save for their own property often resulting in those households
renting cheaper, smaller accommodation further reducing the amount they can save
toward a mortgage.
A3.2 Instead as job security and income increase, prospective buyers can afford to save
money and move from rented to home ownership. Those already in homes may also
feel they can stretch their budget by moving to a larger property. This in turn in
increases demand for private homes. On the other hand, a decrease in these factors
may lead to an increase of rental properties as those that are better off invest in
houses to rent out. This therefore reduces the demand for private housing whilst
increasing rental and social.
A4.0 Unemployment:
A4.1 Unemployment acts very similar to income/salary as unemployment increases, the
number of people requiring social housing provision increases as people don’t have
the money to buy for themselves. However, when the percentage of people employed
increases, the demand for housing increases as people can now afford to make
repayments on mortgages or save for a deposit in the first place.

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