Author: Dr. Othman Cole, Assistant Professor of Finance, ESCP Europe.
Dr. Othman Cole, Assistant Professor of Finance at ESCP Europe Business School, gives a macro-economic assessment of the UK house-building sector and the key factors affecting supply and demand.
House-building activity in July rose at its fastest pace for the last three years. This can be attributed to the government's Help to Buy Scheme which gives first-time buyers a foot on to the property ladder, leading to a greater number of construction companies building more homes. Additionally, the Bank of England and the Treasury are supporting a Funding for Lending Scheme in which cheap credit is offered to banks if they lend more to households and businesses.
But is this boost temporary? How strong are the fundamentals going forward in the medium to long-term? Key factors that influence the demand for new housing include population growth, interest rates, the state of the economy as a whole proxied by GDP growth, unemployment, and especially in the case of London, the influx of foreign buyers. On the supply side, some of the key factors include the availability and affordability of land, labour, materials, access to capital, and success with planning permissions.
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