Building Blocks

Housing Price Increase Is Not all About Supply and Demand

In the normal world of the free market system it is easy to see and believe that what really governs housing and property prices will be the demand and supply that exists in the market. Yes that’s what happens in a perfect world.

When you look are the housing stock not only in this country but any other first world country across the EU what you will find is that the demand for housing always outstrips the supply. So what really determines the prices? What other factor works along with the whole demand and supply scenario? Well the answer is not going to be as simple as saying demand and supply, but one of the key factors is the access to credit.

Let’s face it demand and supply may seem to determine housing prices (from a economics point of view) but if people cannot access credit no matter what the price property and housing sales will not go up, at least not significantly.

Another very important factor is earnings or wages. If people are not earning enough money to be able to pay rent or service a home, the market will be seriously affected. This has given rise to the whole phenomenon of multi-occupancy households, which has gone up by just over one million.

People are now in a type of bidding war for properties that are being rented for little to nothing or being sold for well below where they are worth, as can be seen in London when looking at Hounslow flats and houses for rent.

The Global financial crisis that hit the world recently and the effects of which is still lingering throughout the country had its advent in the property market. It was not the demand or supply that caused it, nor was it the prevailing prices in the market. It had in part to do with credit and by loans, primarily to the persons looking to purchase property.

Although the statistics say that the increase in housing prices has a lot do with supply and demand forces, and I agree in part, other factor play a greater if not an equal role I believe. So let’s not oversimplify the whole property market and what the prevailing prices will be. People will or will not buy based on what they can afford.