Analysis of the uk housing market

ECONOMICS ARTICLE ANALYSIS

The fact that people in the United Kingdom are buying more houses, means that they are investing their money in the real estate market. This article shows how can achange in the interest rate, changes the consumption function moving it rightwards. The money that people use in order to pay the deposit, can be considered as an investment, because the increase inbuying houses can probably create an increase in the building of houses as well. This could boost up the economy if more people continue to buy more places to live. This could happen due to the multipliereffect. The multiplier effect creates a change in the real national income initiated by an increase in expenditure. Since the investment rises, firms buy more capital goods, and these firms thereforeincrease the demand for the products of other companies. This creates higher profits for the companies which are translated into higher wages for the employees, which in total make up higher incomes.However, since the people who are buying houses are borrowing most of the money they need, if mortgages increase too much in the following months, probably the effect will be completely theopposite. If the interest rates raise, and the people who got the mortgages get more indebted that they did in the beginning, they probably won’t be able to pay and will have to return the houses. On theother side, they might be able to pay but they probably will have to reduce their expenses, which will shift the consumption function leftwards, reducing the real national income of the economy becausethere are less people consuming general products.

Another consequence of the increase of the amount of houses being bought might be a loss for people who rent houses, apartments, flats, etc. Theywill lose because many of their costumers have already a house of their own. This is the consequence of cross elasticity of demand, which in this case the decrease in price of houses, diminishes the...