gcse economics - the big picture: inflation and the housing market

Inflation in the housing market due to demand pull inflation

Notting Hill is a very popular district of London. In 1999 the average house sold for a price of £200,000. This was satisfactory to both buyers and sellers of houses.

However in the year 2000 houses suddenly became far more popular in Notting Hill. This was due to a number of reasons (page )

• popularity of the area due to Hugh Grants film
• feelgood factor and consumer confidence
• income tax cuts meant that people had more money to spend
• lower interest rates meant that mortgage repayments were lower

Therefore there was a lot more DEMAND for houses in the Notting Hill area. Unfortunately, supply is limited ….. there are only so many houses available.

In order to beat the other rivals, house buyers had to offer lots more money in order to buy the house. As a result PRICES ROSE and there was DEMAND PULL INFLATION

2000 The average price sold to £220,000 (inflation of 10%)