Relevant quantity and quality of housing are crucial for economic well-being, growth, and social welfare. However, for decades’ supply has fallen short of the level needed to match demand and has been irresponsive to increases in prices. In the UK a significant shortage of housing explains why house prices have risen much faster than inflation and earnings. Housing construction involves more stages than most of other products. New homes building depends on land acquisition, planning and development stages and then the construction itself.
Between 1981 and 2014 there has been a steady growth in total dwelling stock by 30%, and by 13.5% between 1997 and 2014.
However, when looking at the level of housing building we notice a sharp declining trend …show more content…
Another concern is the suitability of housing, as supply must meet both current demand and needs. The housing market is subject to geographical differences (with regional and urban/rural split unique local and consumer-type adjustments). This is why it is so important for the government to keep housing under control to keep the market efficient and demand-meeting. At the same time, because of currently strict planning legislation (determines the level and the rate at which land is released for development), supply of housing is constantly failing to meet government targets. Long lead times in the construction of housing bring another layer of risk, both economic and financial, as they create uncertainties built into the very nature of navigating the planning system. This directly affects construction firms’ supply response and their ability to access …show more content…
The price elasticity of housing supply is influenced by weakening of interchangeability between land and non-land factors, sensibility of land supply, and share of land and non-land expenses. Most of the elements of supply are fixed – especially in the short run - and the high proportion of cost being formed by land means that responsiveness is low due to the different complications in development. Supply reactions to price changes are also asymmetric, as an increase of one does not necessary leads to increase in the other, which only emphasizes supply problems
Between 1981 and 2014 there has been a steady growth in total dwelling stock by 30%, and by 13.5% between 1997 and 2014.
However, when looking at the level of housing building we notice a sharp declining trend …show more content…
Another concern is the suitability of housing, as supply must meet both current demand and needs. The housing market is subject to geographical differences (with regional and urban/rural split unique local and consumer-type adjustments). This is why it is so important for the government to keep housing under control to keep the market efficient and demand-meeting. At the same time, because of currently strict planning legislation (determines the level and the rate at which land is released for development), supply of housing is constantly failing to meet government targets. Long lead times in the construction of housing bring another layer of risk, both economic and financial, as they create uncertainties built into the very nature of navigating the planning system. This directly affects construction firms’ supply response and their ability to access …show more content…
The price elasticity of housing supply is influenced by weakening of interchangeability between land and non-land factors, sensibility of land supply, and share of land and non-land expenses. Most of the elements of supply are fixed – especially in the short run - and the high proportion of cost being formed by land means that responsiveness is low due to the different complications in development. Supply reactions to price changes are also asymmetric, as an increase of one does not necessary leads to increase in the other, which only emphasizes supply problems