Introduction
In this modern age we are all greatly affected by the core economic problem, as we know it. Scarceness of resources is the main economic issue, this is made worse by the world’s rapidly expanding population, “Resources are scarce but wants are infinite” (Anderton, 2008 pg. 2). In this essay, we are going to look into the real estate business, and specifically in London. This will enable us to understand the demand, supply and elasticity determinants in this market.
Real estate market is very important, as housing is probably a person’s biggest purchase, which can represent the consumer’s wealth. Also, it is important, as changes in property prices affect the rest of the economy enormously.
Background of product
Real estate
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This is due to the fact that these properties represent a secure shelter for the population, which is considered a basic human need. However the housing market is believed to provide “normal goods”, meaning that as people’s income increases so does their demand for housing (Masron, 2013). Due to the socioeconomic background of a large portion of the population a large segment of the market would be considered a highly differentiated product. Location of the property within London tends to play a large part of the product’s differentiation, as some areas are more desirable than others.
There are main factors that affect the real estate in London, which will greatly influence supply and demand. One of the factors that may affect supply is the lack of free land in desirable areas; this affects both residential and commercial properties alike. However, suppliers still tend to provide a large number of properties each year. During the period of June 2013 and June 2014 there was around 18,900 new buildings completed as provided by the UK government (Government stats, 2014). A factor that may affect demand is the rapid increase in population due to both immigration and migration; with the increase in population there is an increasing number of businesses looking for commercial property.
Supply in the market
Supply conditions in the London real estate market is similar to the rest of the UK. There are
Furthermore, lack of affordable housing has become an issue for additional reasons. 50,000 new homes were built since 1981 but only 8000 were local authority housing, and only 2000 were low income houses. This was worsened by the implementation of the ‘right to buy’ scheme, creating a surge in house prices (a 1 bedroom apartment now costs around £500,000). It could be suggested that this issue counteracts successes of the scheme, as issues still exist including 3500 homeless people in the area and the housing prices are significantly above the UK average, so they have not achieved their aim to ‘make housing affordable to all.’ However, I believe that the Docklands has been a successful example of regeneration as it is now such a significant part of the capital, with it being London’s finance capital providing not only important economic contributions, but also employment to many people in the skilled sector.
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