An Analysis Of The Key Macro And Micro Economics Factors Which Impact On The Current Uk Housing Market

3233 words - 13 pages

An analysis of the key macro and micro economics factors which impact on the current UK housing marketIntroductionThis paper explores the current situation in the UK housing market. Fundamentally, the paper argues that the current situation in the housing market is a legacy of the way in which the housing market developed over the early 2000s into the 2007 and 2008 financial crisis. As the fall out from this crisis has taken two or three years to properly be felt it can currently be said to be exerting a major influence on the way the housing market in the UK is working today. The paper therefore places a major focus on developing an understanding of how the financial crisis occurred and the impact that this had on the UK housing market, in order to understand the key factors which are shaping the housing market today. The paper begins with a look at the state of the UK economy at the moment. This is only examined in brief but provides a key background to the work. This is then followed by a look at the UK economy and the housing market and how the two link together. The following section is the major section of the work as this focuses on the macroeconomic factors which have shaped the housing market. This section in particular focuses on the legacy of the housing market developments of the early 2000s. The following section briefly explores the microeconomic elements which have shaped the housing market - the major emphasis here is on the role of buy to let mortgages as a means of investing. This is then followed by the final critical reflection before the work concludes.The state of the UK economyLike most markets, the housing market is heavily influenced by the state of the wider economy (NEF 2010 p.65). However, interestingly, several economist have noted that in major economies including the UK, the housing market has moved "out of step with the business cycle" (Jones and Watkins 2009 p.1). A similar point is made by Andrew (2004). In 2007, a major financial crisis was triggered in the USA by the collapse of Lehmann Brothers Bank (Brown 2010 p.5). The knock on effect of this had a major influence in the UK, with several major banks teetering on the edge of collapse. Had this been allowed to occur there is significant evidence that the housing market would have collapsed and prices would have changed dramatically. This point has been made very strongly by Brown (2010). However, the government's intervention and bail out prevented the collapse of these banks and so the housing market remained relatively stable. However, the fall out from the bank bail out has seen government fiscal policy heavily contracted and this has caused wider economic problems in its own right. Rising unemployment continues to dog the economy, as does a lack of growth and declining confidence in the policies introduced by the government.Currently, the UK economy is in thrall to the austerity measures which were taken in light of the crisis by the Conservative led...

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