The State Of Housing Market In UK: A Critical Examination And Discussion

Write an essay applying ethical theories to business.

On the 1 st of August 2017, the Guardian published an article entitled ‘House prices stabilise as number of homes on the market falls’W(Collinson, 2017). One commentator responded to the mentioned shortage of affordable housing by saying ‘This won't change till the government takes the bull by the horns and does its job, you can't leave housing policy to the market! Markets are driven by profit not morals' (Collinson, 2017). Comment on this statement from a Libertarian perspective. Should markets be driven by morals? 

Historical background of UK housing system

The UK housing market and the role of the Government

It is found that the house market in Britain is in a dismayed state. The rents of housing in Britain are quite high and are unaffordable for large majority of people. It has been found that as of 2017, the rates of housing in UK has been at an average rate of £226,071 which in turn indicates an increase in the rates of housing is occurring at a rate of 5.1% on an annual basis (Ons.gov.uk. 2018). There has been a disjuncture between the supply and demand of the government’s assistance to purchase new homes. Moreover, various affordable home ownership schemes are being formulated and implemented by the government of UK which is causing in the increase in the demand for housing. These schemes include shared ownership, low interest loans and Help to Buy ISA wherein the government is helping to increase the amount of savings by 25% (GOV.UK. 2018). In London, people who are positioned in the lowest rung of the economy have been worst hit.

Ways to deal with the issue introduced above

The report critically examines the condition of housing market in UK and the changing trend of the market economy that has its impact on housing. The next section of the report examines the role of the government in alleviating the conditions of its citizens and the corresponding criticisms that emerged in that context. This is followed by an invigorating discussion on the different perspectives of people who want more government intervention and those who are opposed to the idea of government intervention. This discussion will be done through the framework of the Libertarian perspective, argument pertaining to the free market, corporate social responsibility and finally an examination of the statement that the housing market cannot be left to the market in the backdrop of United Kingdom. 

Detailed overview of the housing market in UK

Since the 1900, the housing system in the United Kingdom has experienced a tectonic shift and there has been many repercussions regarding the same on other markets and the economy as a whole. The earlier model of housing system was characterized by the monopoly of the landlords (Collinson 2018). However, such monopolized system faced resistance from the new wave of houses that was constructed under the public housing structure and also the various schemes that propelled the increase in demand of the housing market. The local authorities provided such kinds of housing prior to the epoch of home ownership in the interwar period and the period postwar. Over the past few decades, there has been a transformation in the tenure patterns in UK. Even though the demand for housing has increased, the ever increasing prices coupled with stagnating prices of home ownership has led to an increase in the amount of renting in the UK. This is true especially of the young generation residing in UK. The house renting scenario is such that it is being reported that about a total of 5 million households are currently availing privately rented housing  options (21%) and this number is expected to increase to 5.79 million making the percentage go up to 24% in the coming five years (Kollewe 2018). Concerted efforts were made for the resurgence of the housing sector through private ownership of houses but there was not much change. It was only during the mid-1990s that the private sector witnessed a much needed revival (Gov.uk. 2018). However, the amount of investment in the real estate market by the real estate companies has increased by 66% as of the current year. The expansion of housing demand was also propelled by pension funds brought into existence by the collaborative effort of the real estate firms and the government of UK. Thus, the combined effects of the investments and the economic policies in place like the pension funds as well as the schemes introduced by the government ruled out the effect of increased renting, even though both increased substantially.

Current situation of UK housing market

Role of government in the way the housing market has developed and the corresponding criticisms

The government in UK has been proactive in providing patronage for the construction of homes.  As mentioned earlier the government has taken steps to promote the increase in the amount of affordable housing through the schemes of increased savings and lowering the interest rates for the buyers. Further, it has also launched and introduced a specific and differentiated housing agency that provides housing options to citizens at affordable prices. One such example is Homes England which was introduced in January 2018 to occupy lands which are empty and people would prefer to live and also find out means for catering to the needs by innovative and enhanced, cost effective methods (GOV.UK. 2018). Even though the priorities of expanding the housing market in UK by the government still persists, the new focus is to increase the positive impact and returns of the housing market on the overall economy of UK. It has been reported that due to the increase in the supply and affordability of the housing market in UK, consumers are instigated to spend more which automatically provides the drift for higher spending and thus higher amounts of economic growth. 

Sajid Javid, the communities secretary opine that the price of average houses and rents in UK have escalated to 7.5 times than the average incomes and rents (Savage, 2018). He criticized this on the low rates of house building. The number of houses in England has been relatively low than the other parts in Europe compared to the population in other parts of the world for the last three decades. He was of the view that there needs to be a rise in the house buildings to 225000 to 275000 units every year in comparison to 190, 000 houses constructed during the year 2016 (Guardian 2017). He portends that the housing market in UK has broken and there is the urgency to build more homes during the right time (Aalbers 2016). He has warned that the local councils will be compelled to publish projections for the building of local houses whereas the developers will be compelled to utilize or lose control on planning permission that was granted to them, tenants will be provided protection and the older people will be provided incentives that would motivate them to shift to underused houses.

In the context of government taking up initiatives to build houses and provide them at low cost and affordable rates to the citizens, it is very important to discuss few of the schemes provided by the government which are enlisted and discussed as follows:

• The government provides the option of equity wherein the consumer can borrow up to 20% of the total amount needed t buy a new home in UK (gov.uk. 2018).
• The second most important scheme introduced by the UK government for first time buyers is the “Help to Buy: ISA Scheme” under which the buyers are helped in saving up to an amount of £200 which in turn will increase the amount of savings by a minimum of 25% and thus help the citizens in owning homes easily (gov.uk. 2018).
• In the case of council tenants in England the price of homes is reduced by an amount of £78,600 in order to make the prices lower for this section of the population (gov.uk. 2018).
• The scheme of Shared Ownership in turn helps to increase the affordability of homes in England and UK by helping the buyers to take loans for a part of the ownership and allowing them to stay on rent for the rest of the part (gov.uk. 2018).
• The other very interesting and recently framed schemes for housing in UK is Starter Homes scheme which will provide the buyers with a discount of 20% on registration for loans (gov.uk. 2018).
• The last scheme mentioned herein is the Right to Acquirescheme which allows the tenants who live on the basis of rent to acquire the houses with a discount of around £9,000 and £16,000 (gov.uk. 2018).

Government initiatives in the housing sector

In spite of all of these initiatives proposed and taken up and also promised by the government, most of these plans and initiatives have not been worked upon and especially the plans of the Starter Home Scheme have miserably failed and none of the plans have worked the way they were anticipated to (The Independent 2018). Further the availability of land was not taken completely into account while framing these schemes. 

Perspective of those who want more intervention and those who do not want government intervention

The view of the policy framers is very important in this context who claims that the process of framing and implementing schemes especially for the youth is futile. The assertion in this context is that, the housing prices are increased at levels that compensate for the discounts being offered and provided to the tenants or the potential buyers (Ft.com. 2018). Thus, the consumers end up paying the amount that they originally have to pay or even more. Thus, the suppliers are benefitted way more along with the government rather than the consumers. Hence more intervention is inevitably being demanded by the suppliers as compared to the consumers.

In fact, the Social Mobility Commission, has suggested that the plans and schemes of housing introduced by the government are innovative and authentic in the ideas behind them but the execution is very poor. Reports claim that on initiation of the Help to Buy schemes, only 43 more houses were built in comparison to the number of houses that would be built in the absence of the scheme (Fraser 2018).

Theories and Concepts

Adam Smith propounded the concept of the free market. According to this concept, free market can be understood as the new emerging economy. It was argued that in a free market the invisible hand of the market forces would secure the most level of production, distribution and consumption of commodities.  One key feature of the new economy is that its productive side. According to him, the economic productivity in new economy is generated, motivated and sustained by the self-interest. Smith makes an economic, a sociological and a historical observation of the economy of free market. The economic observation pertaining to this kind of economy, the division of labor intensifies the need for exchange. On the sociological front, the observation is that the free market will enhance the living standards of everyone in the society. The historical observation made by smith is that although a peasant might not be economically secure to their middle-class counterparts yet their position is believed to better than the feudal structure of economy. The demand side aspect of the free market is that within the context of the contractual exchange the idea of barter system is embedded (Hodkinson and Robbins 2013). This bartering is indispensable for the sustenance of the free market. The survival of the free market is contingent on the principles of two new social ethics. There needs to be a departure of the Christian philosophy that endorses the values of love and friendship. The new social ethic should be the idea of individualism and driven by self-interest those are non-Christian values. The Libertarian movement is based on the principle that if the private charities like the self-help groups and the aid societies would be effective in transforming the lives of the poor. British economist Maynard Keynes was of the view that state intervention is imperative given the uncertain nature of the free market economy as envisaged by Adam Smith. 

Challenges faced by government initiatives

Another libertarian principle propounded by John Lock is that it is the right of the government to protect the natural rights of the citizens. He pioneered the laissez-faire philosophy and was of the view that there should be free market unrestricted by the government intervention.

CSR and housing in UK: Assessment of the role of the government

The context of Corporate Social Responsibility is very important when it comes to assessing the role of governments with respect to a particular sector, that is the benefits and utilities accrued to the society and community in the context of that sector. The concepts that should be looked into by the government include greater social inclusion, social development and sustainability. The UK government has exhibited an invigorated approach towards the provision of housing supply as decided by the newly elected Secretary of State for Housing, Communities and Local Government. The government is motivated to build homes for the homeless. Brian Berry, the chief executive of the Federation of Masters Builders has supported the move, arguing that it is an inclusive move by the government and underscore on the commitment of the government to focus on creating homes for the homeless. However, the government has received criticism from the opposition, Richard Lambert, the chief executive officer of the National Landlords Association (NLA). He argues that the focus of the government should be to formulate key housing strategies and the government should address the current crisis of housing that has swept across England. The initiatives of the governments taken up in the form of the housing schemes itself prove that steps are increasingly being take up by the UK government to increase the affordability of housing for the population especially belonging to the demographics of the lower cohort of income and the youth. Even though the execution of the plan and the repercussions of the plan are highly criticized the government is increasingly trying to live up to the plans it has framed for the people.  The government has initiated an efficient affordable housing scheme with a funding proposal of 7.1 billion pound. This funding was allocated to the local authorities and housing associations for affordable housing. The government has decided to provide funding to the small-sized building firms for its expansion.

‘The Housing Market cannot be left to the market’: Critical assessment of this statement

According to all the theories discussed herein and the scenario existing in the market, it is evident that for the situation to better itself, the market cannot be left to itself as it will only deteriorate than before causing an imbalance in between the existing demand and supply. The intervention from the government even though not completely efficient is important as it is the only tool that can remotely help better the situation by providing a solution to the market falling apart. It is only with the help of the intervention that the housing market can recover and can contribute substantially to the economy of UK as a whole. 

Conclusion

The essay attempted to look at the condition of housing market in UK and delineate the role of the government in its various interventions of the housing sector. Presently, the housing sector in UK is in a bad state as has been found in the extensive reports covered by The Guardian and also from the literature on housing sector in UK. The government although are taking initiatives to alleviate the housing situation for the teeming homeless population, however, it is not sufficient. Interest groups and social stakeholders need to continuously exert pressure on the government. The perspectives of the supporters and opponents of the government intervention in housing needs to be kept in mind to analyse and assess the contemporary state of housing market in UK. The Labour Party’s decision of terminating the right-to-buy policy is the need of the hour. This would make social housing a reality and reduce the large number of homeless population in UK 

References

Collinson, P. (2018). House prices stabilise as number of homes on the market falls. [online] the Guardian. Available at: https://www.theguardian.com/money/2017/aug/01/house-prices-stabilise-as-number-of-homes-on-the-market-falls [Accessed 6 Apr. 2018].

Fraser, I. (2018). Government schemes for first-time buyers are not helping increase social mobility. [online] The Telegraph. Available at: https://www.telegraph.co.uk/business/2017/07/02/government-schemes-first-time-buyers-not-helping-increase-social/ [Accessed 8 Jun. 2018].

Ft.com. (2018). Buyers beware of Britain’s absurd property trap. [online] Available at: https://www.ft.com/content/aa1c9dfa-30ea-11e3-b478-00144feab7de [Accessed 8 Jun. 2018].

GOV.UK. (2018). Affordable home ownership schemes. [online] Available at: https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-isa [Accessed 8 Jun. 2018].

GOV.UK. (2018). New housing agency to boost housebuilding. [online] Available at: https://www.gov.uk/government/news/new-housing-agency-to-boost-housebuilding [Accessed 8 Jun. 2018].

Kollewe, J. (2018). Quarter of households in UK will rent privately by end of 2021, says report. [online] the Guardian. Available at: https://www.theguardian.com/money/2017/jun/12/one-in-four-households-in-britain-will-rent-privately-by-end-of-2021-says-report [Accessed 8 Jun. 2018].

Ons.gov.uk. (2018). Public spending - Office for National Statistics. [online] Available at: https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending [Accessed 8 Jun. 2018]. 

Ownyourhome.gov.uk. (2018). All schemes – Own Your Home. [online] Available at: https://www.ownyourhome.gov.uk/schemes-all/ [Accessed 8 Jun. 2018].

The Independent. (2018). Flagship government housing plan promising 200,000 new homes fails to deliver a single one in three years. [online] Available at: https://www.independent.co.uk/news/uk/politics/housing-starter-homes-budget-philip-hammond-a8066571.html [Accessed 8 Jun. 2018].