It
is difficult to cause an increase in the supply in the short run and
the land being fixed in supply, it is difficult to increase the
supply of property in the long run also. It is difficult to achieve a
reduction of supply of existing stock. Land being a necessity it is
difficult to bring reduction in demand if the supply falls. Property
valuation is a matter of comparison and valuer must be able to
analyse the study of supply and demand.
A
little of demand, supply and the market.
- Economic growth. Demand for housing is dependent upon income. With higher economic growth and rising incomes people will be able to spend more on houses; this will increase demand and push up prices.
- Unemployment. Related to economic growth is unemployment. Clearly when unemployment is rising, less people will be able to afford a house.
- Interest rates. Interest rates affect the cost of monthly mortgage payments. A period of high interest rates will increase cost of mortgage payments and will cause lower demand for buying a house. High interest rates make renting relatively more attractive to buying.
- Consumer confidence. Confidence is important for determining whether people want to take the risk of taking out a mortgage. In particular expectations towards the housing market is important; if people fear house prices could fall, people will defer buying.
- Mortgage availability. In the boom years of 1996-2006, many banks were very keen to lend mortgages. They allowed people to borrow large income multiples (e.g. five times income). Also banks required very low deposits (e.g. 100% mortgages). This ease of getting a mortgage meant that demand for housing increased as more people were now able to buy.
- Demand. The relationship between a quantity demanded and its market price is called a demand schedule of a commodity. Price and Quantity are inversely related. When price goes up, quantity goes down. And when price goes down quantities goes up.
- Supply. In the 1996-2006 AS an estimated 700,000 new houses were built. When the property market collapsed, the market was left with a fundamental oversupply. Vacancy rates reached 15%, and therefore with supply greater than demand, prices fell.
- Geographical factors. Many housing markets are highly geographical. For example, national house prices may be falling, but some areas (e.g. London, Oxford) may still see rising prices. Desirable areas can buck market trends as demand is high, and supply limited. For example, houses near good schools or a good rail link may have a significant premium to other areas.
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