Microeconomics

Major Causes of Rising House Prices in the UK

Over the last thirty years, the housing prices in the UK have increased in real terms by nearly three per cent a year. This is in contrast to other countries like France, Sweden and Germany where real estate prices have remained broadly constant or even declined.
The determination of prices in local and regional housing markets is a classic example of microeconomics in action. Each housing transaction in the UK depends on the price the seller is willing to sell his property and on the price the buyer is able to pay for it. Buyers place offers for a property that the seller can either accept or reject.
When the market demand for properties in a particular area is high and when there is a shortage of quality properties (i.e. supply is scarce) then the seller has the upper hand. This is because there is likely to be excess demand in the market for good properties. Sellers can wait for offers on their property to reach (or exceed) their minimum selling price. Often multiple offers fuel an increase over and above the asking price.
When demand both for new and older housing is weak and when there is a glut of properties available on the market, then the power switches to potential buyers. They have a much wider choice of housing available and they should be able to negotiate a price that is lower than the asking price.When the demand for houses in a particular area increases due to say, an increase in population into the area, or a rise in incomes due to job growth etc., there is upward pressure on market prices.

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