A house is among the three basic needs of a human being with food and clothing. It is equally important to every human being. Houses can either be built by individuals as part of their homes or can also be purchased. In the UK many people depend mainly on purchasing of houses which have been built by other for sale. To purchase a house are there many considerations one has to under take in order to finally come to a conclusion. These range from the size of the house, purpose for which the house is intended to be used, accessibility of the house i. e. from urban centres as well as from the place of work.
Other considerations include decoration and design of the house, the strength of the house i. e. whether it is permanent or temporary. Above all these considerations there is the big question of price of the house which comes out as the major consideration when deciding and buying a house. In the UK just like many other countries, prices of houses are dependant on many factors which are to be discussed on detail in this paper. With a free market in existence in the UK just like in other parts of the world several factors come into play to determine the price of houses in this kind of market.
In a nutshell the nature of a free market economy involving housing implies that business people are at liberty to determine the prices of the houses. The prices in this kind of an economy are determined by considering the prevailing supply and demand for the house. A free market economy is usually regarded as a theoretical concept because every country up to and including capitalist countries have some restriction on how commodities are owned and exchanged in that market.
Free market economy can also be defined as business which is governed by the laws of demand and supply with no government interference through regulation and giving of subsidies such as reduction in taxes levied on specific sectors of the economy. In this scenario of the free market economy involving the housing sector, the supplier of the houses available i. e. the quantity of houses available and the demand available i. e. the quantity of buyers who are willing to purchase the houses at any given time are considered (http://www. investorwords.
com/2086/free_market. html,) Factors Determining price of houses in UK There are many factors that determine the price of houses in UK and many other parts of the World. Among them one is key and depended upon by others and this is demand and supply. Demand and supply In economics it is argued that when demand is high the supply is low. This can be explained that when many people wish to purchase new homes / houses and the supply or availability is constant then it is deemed that supply is low. In scenario like this the price is likely to be high.
When suppliers or owners of houses (who are willing / or offering to sell their houses sense that there are many buyers or potential buyers they are likely to hike the price in order to take the advantage of the situation. In a situation where by the demand is low and the supply is high then the prevailing circumstances dictate that the price of houses go down. The reason for this could be that the suppliers or owners of houses for sale lower their prices in order to at least get something to keep their business going (http://top7business. com/? id=5293).
Then there is a scenario whereby demand and supply are at equilibrium and in this case the price is called the equilibrium price. The price is not too high neither is it too low i. e. it is actually in the equilibrium situation or condition. Both the three scenarios dictate what the price is to be in the market which is free from government interference. In some parts of the UK either the demand for houses is high which in other areas the demand is low. The supply sometimes is constant while in other areas or sometimes the supply is high and increasing with the new houses being constructed.
It is clear that other factors which influence the price or determine the price of price are dependent or influence the factor of demand and supply. The other part of the paper explores the other factors in depth. Economic growth In the past year UK has experiencing some economic growth which was about 3. 1% (http://www. economicshelp. org/labels/UK%20economy. html, accessed on 5 January 2008) . UK is among the best performing economies in the world. This is according to self congratulating speeches by Pm Gordon Brown and the over chancellor, Alistair Darling.
This clearly shows that the economy of UK has been steadily growing. With the growth of the economy it means that there is likelihood of increased income among the citizens. With disposable income on the increase people are likely to turn to investing in homes or houses. With the economy on the trend of upward growth the housing sector is likely to get a boast with many how coming into existence. This is likely to push the supply for the houses up and lead lower prices in the long run. This means that many people are in position to afford good quality housing.
The growth of economy also means there is likelihood of improvement of infrastructure like roads leading to houses. This is likely to create a higher demand of housing plots which had prevailing lacked demand. This is in turn will mean that supplies in a free market are likely to raise the prices of their houses to take advantage of the situation. It is good to note that any slight change in growth of the economy, be it in the positive or negative direction, there is a likelihood of change in price of housing units in the UK market which is pre dominantly a free market. Location
Despite the fact that in a free market economy, prices are determined based on demand and supply with little or no government interference. Location is also a key factor. In itself location can in one way or another influence demand for houses in a particular region. For instance a rural setting which is accessible via a main arterial road system such as M25 Gatwick . M6 or others is likely to have a higher price compared to one that doesn’t have. In location buyer of homes also take into consideration how close the housing units are to infrastructure such as schools, hospitals, banks among others.
This is seen as the main reason why southwest, south and south east all have higher average prices compared to other areas. Housing units in major towns are highly priced because there is a tendency of people to want live in such towns. This answers the question as to why houses of similar caliber in different parts of the country e. g. town and rural areas may fetch different prices. This means houses in rural areas which may similar in design and quality with those in major towns are priced at lower price than those in the latter. Monopolies
Monopoly is are situation whereby one company is solely in business in a given area or dealing with a particular commodity. In some parts of UK some housing companies have dominated the economy in particular parts. The impact of existence of monopolies in this sector means that the monopolistic companies can take advantage of the situation and raise the price of the house anyhow. This is because they have no fear that their customers can go or shift to their competitors because of the latter does not exist. The buyers are therefore forced to go by the price offered because the demand is high yet supply is low or constant.
This kind of a scenario is not yet very common in the UK but it is dominant in some developing countries. Falling stock market There has been significant drop /fall in stock market in both the US and UK. Severity and length of the fall in stock market is likely to impact on housing market of the concerned countries. Drop in the value of stock market has been observed in other parts of the world to have negative impact on the economic this means that falling stock market can lead to drop in the growth of the economy .
This on its parts can affect many things one of them being lack of sufficient disposable income that could be used to purchase houses by the-would be buyers. This means that the demand for housing units has been affect and the results is reduction of prices. Sellers are likely to reduce the price of their houses in order to keep their business going. Unemployment rates It has been observed over time that when there is how unemployment more people are able to afford houses and this ultimately serves to hoist and kee0p the demand for the houses high.
With this being the case the prices of houses are likely to remain constant or at high . However it has also been observed that some times unemployment goes up and yet the prices for houses does not change much. So unemployment may not authoritatively be cited as a key contributor to falling of house prices when it occurs. This is so because it has been observed despite changes in it the prices for houses may not change mush (Money week, Saturday 26 January 2008) Demand from outside UK There has been an increase in the number of foreigners who are not out to purchase houses in the UK.
This kept houses price high. Foreigners investors or buyers are seen to be more sensitive to fluctuations in currency and usually lack enough interest in investing or buying homes when there signs of such fluctuations. In instance where there is fall in the value of the pound i. e. due to negative impact on the economy such foreigners faced with fear of losing money value usually leave the housing sector. The effect of this could be reduced of demand and lowering of price of house (http://iq. lycos. co. uk/qa/show/1427/which+factors+determine+the+price+of+houses+in+a+free+market+in+the+UK%3F/ ).
Government policies verses house prices. Government policies can have either a negative or positive impact on the prices of houses. A government can formulate and implement certain policies whose effect could be either increasing or lowering of prices of housing units. Example of such policies could involve a government coming up with a plan to build more houses in all major towns and even in rural areas. The impact of this is an increase in supply of the houses and the houses are likely to retail at low prices (http://www. economicshelp. org/2007/04/effect-of-falling-house-prices-on-uk. html,).
Another example of such a government policy is giving subsides to people involved in building houses. In the inverse when the government policy does not involve giving subsides instead they levy or charge high interest rates and task on houses that are being rented out or purchased. The UK government has in the pipeline plans to construct about three millions new homes by the year 2020. To support its plan the government set aside fresh funding intended to boost the planned project(http:www. phyorg. com/news 116517422. html) with the planned project it is expected that prices for houses is likely tom drop by a considerable margins.
An economist professor Daniel Bernhofen a based the Globalisation and Economic Policy centre (GEP) was quoted as saying that “The stakes are high. A miscalculation in increasing the stock of housing will have serious consequences for existing home owners and the economy”. He was giving a warning to the actual outcome of the planned increase in housing units in the UK. A government can also formulate a policy which involves reduction in bank and other lending organization rates with reduced bank rates and prolonged repayment periods many people are able to afford funds to finance purchase of houses.
This is likely to influence prices of houses by slightly going up. This is so because the market is free where by the sellers determine the prices of house by considering demand and supply. Another policy that a government can put into place whereby sufficient infrastructure such as schools, roads, banks hospitals in places new housing schemes/units are constructed. By so doing the government is trying to make the homes/houses more accessible and thus raise their demand.
In a situation like this where the demand is high the sellers in the free market are enabled to charge higher prices for the houses. The Government has influenced demand and supply of houses in the UK by ensuring that there is a steady economic growth. In an atmosphere of positive economic growth citizens are in better position to purchase news homes /houses. This is because people are employed have enough disposable income that can be invested in purchase of houses. This has for long been the reason why houses prices in the UK has remained high.
Through allowing foreigners to invest in the housing sector in the UK the government has ensured that prices for houses don’t go down. There is a government policy that does not have too many restrictions on foreigners willing to conduct or live in the UK (http://www. physorg. com/news116517422. html,). Despite the fact that in a free market economy, prices are determined based on demand and supply with little or no government interference. Location is also a key factor. In itself location can in one way or another influence demand for houses in a particular region.
For instance a rural setting which is accessible via a main arterial road system such as M25 Gatwick . M6 or others is likely to have a higher price compared to one that doesn’t have. In location buyer of homes also take into consideration how close the housing units are to infrastructure such as schools, hospitals, banks among others. This is seen as the main reason why southwest, south and south east all have higher average prices compared to other areas. Housing units in major towns are highly priced because there is a tendency of people to want live in such towns.
This answers the question as to why houses of similar caliber in different parts of the country e. g. town and rural areas may fetch different prices. This means houses in rural areas which may similar in design and quality with those in major towns are priced at lower price than those in the latter. Conclusion From the detailed analysis and explanation it is clearly evident tat price of houses in a free market economy can be determined by several factor. In some cases a single factor influences the price of houses in the UK and other countries.
However in most cases several factors interact in order to determine the prices that are charged by business people. The key factor that determines houses of prices in a free market is the demand and supply. This factor is equally shaped by other sub-factors to eventually influence or determine prices of houses in a particular area. Although a free market is where people contact business with little r no interference from the government, it is possible for the government to formulate and implement certain policies aimed at controlling or shaping prices of houses in a particular country.
In the UK, there are several government policies that have affected or threatened to influence prices of houses. Some of these policies are formulated to have a direct impact on the prices while other are not intended to have impact on prices of house yet they end up influencing how the prices are. In a nut shell determining prices in a free market is dependent on many factors and not only on demand and supply. There are also some differences in the prices charged for houses of similar caliber and design in different parts of the country i. e.
in towns and in rural settings. Also other than economic factors, prices of houses can as well be shaped by other factors. Bibliography Factors Determining Your Home’s True Value in Today’s, available at: http://top7business. com/? id=5293 accessed on 5 January 2008 How supply and demand decides on the price of any commodity, available at: http://iq. lycos. co. uk/qa/show/1427/which+factors+determine+the+price+of+houses+in+a+free+market+in+the+UK%3F/ accessed on 6 January 2008 Reasons to Be Optimistic about UK Economy, available at: http://www.economicshelp. org/labels/UK%20economy.
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