Business Economics and Management Science"By considering the factors that affect the demand and supply of houses and apartments explain what has led to the changes in the prices of houses and apartments in the UK over the last three years. What would affect the sizes of different elasticities of demand for houses?"November 20091.IntroductionThe Demand and Supply of properties in the market is the main reason for the fluctuation of the properties' prices. During the last three years many different factors have led the house prices in the UK to a huge drop. I begin by examining which factors affect the demand and supply of houses, how they influenced the UK market, and finally, I will examine what affects the elasticities of demand for houses.
2. Factors determining the Demand of HousesThere are many factors that affect the demand and supply of houses and apartments, some in greater and some in smaller extent.
The most important factors are:Ã¢ÂÂ¢IncomeIncome is a very important factor that affects the demand for houses. A growth in income would increase the demand of houses, while a decrease would lower the demand. (Davies and Lam, 2001)Ã¢ÂÂ¢Interest RatesPeople usually buy houses with money that they borrow from banks. An increase in the real interest rates of loans, means more expensive borrowed money. This causes a drop in demand of houses. A decrease in the interest rates would lead to higher demand of houses, as the investors would have to pay a reduced interest to the bank (Levin et al., 2009).
Ã¢ÂÂ¢Consumer confidenceWhen the consumers feel pessimistic about their future, they usually stop spending money and consequently, demand for goods reduces. Consumer confidence is also related to unemployment, because in periods of high unemployment and uncertainty, people have low confidence and spend less. As a result, demand and...