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Government Plans to boost the Housing Market

Monday, November 21, 2011
by James Hazeldine

The Government has announced today a scheme to help first time buyers on to the property ladder. It has been reported widely in the press with mixed reactions. The BBC article outlines the main proposals (here is the link to The Daily Telegraph). It is interesting from a political point of view that this government should chose to intervene in this market, though perhaps we should not be too surprised as it was the Conservatives that brought in the ‘Right to Buy’ legislation in 1980.

Is this an example of a market that is now failing and therefore needs this type of intervention?

Are tight planning restrictions the problem and therefore should the market be less regulated?

What are the possible ‘unintended consequences’ on the market, house buyers, the mortgage lenders and the government?

There are lots of good supply and demand questions that can be discussed as well as the role of government in correcting markets. Here are a few I will be using today.

1. What are the factors that influence the demand for housing?

2. What are the factors that influence the supply of housing?

3. Using a demand and supply diagram, explain the reason for rising house prices and rents. (consider the possible price elasticities of supply and demand)

4. Outline the reasons why the government has intervened in the market.

5. Evaluate the impact of the government’s key proposals.

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