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Housing Prices i
A Study of the United Kingdom Housing Price-the influence by Micro and Macro-
economic factors
By
Housing Prices ii
DECLARATION
I, would like to declare that all contents included in this dissertation stand for my
individual work without any aid. This dissertation has not been submitted for any
examination at academic as well as professional level previously. It is also representing
my very own views & not essentially which are associated with university.
Housing Prices iii
ABSTRACT
This study focuses on the various micro and macro economic factors effecting on the
housing prices. To enhance the research housing prices of United Kingdom affected by
the economic factors were taken in to account. This study also describes the UK House
Prices and GDP Growth Trends Analysis.
Housing Prices iv
Contents
CHAPTER 1: INTRODUCTION..............................................................................................................1-4
1.1 Outline of the Study...............................................................................................1
1.2 Background of the United Kingdom house market………………………….…1-3
1.3 Research Aims and Objectives...........................................................................3-4
1.4 Ethical Concern.....................................................................................................4
CHAPTER 2: LITERATURE REVIEW................................................................................................5-27
2.1 Micro Economic Factors That Affect House Price...............................................5
2.1.1 Gross Domestic Product.................................................................................5-7
2.1.2 Gross National Product (GNP).......................................................................7-9
2.1.3 National Income............................................................................................9-12
2.1.4 Inflation.......................................................................................................12-14
2.1.5 Interest Rates....................................................................................................15
2.1.6 Interest Rates on Mortgages.............................................................................15
2.2 Macro Economic Factors That Affect House Price.............................................16
2.2.1 The Credit Crunch and Property......................................................................16
2.2.2 Global Financial Market.............................................................................17-21
2.3 Economic Indicators......................................................................................22-23
2.4 Theoretical Housing Analysis........................................................................23-24
2.4.1 Housing Subsidies.......................................................................................23-24
2.5 Credit Market Liberalisation.........................................................................24-25
2.6 An Increase in Public Expenditure on Housing..................................................25
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2.7 An Increase in House Price Dispersion..............................................................26
CHAPTER 3: METHODOLOGY.........................................................................................................28-38
3.1 Mixed Method Research......................................................................................28
3.2 Research Design and Process.............................................................................30
3.3 Applied Research............................................................................................30-31
3.4 Research Purpose...........................................................................................31-32
3.5 Research Context............................................................................................32-33
3.6 Emphasis on Validity...........................................................................................33
3.7 Research Design..................................................................................................34
3.8 Reliability and Validity........................................................................................35
3.9 Generalisability...................................................................................................36
3.10 Ethical Considerations......................................................................................37
CHAPTER 4: DISCUSSION.................................................................................................................39-57
4.1 UK House Prices and Consumption...............................................................39-44
4.2 Debt and Equity Withdrawal...............................................................................44
4.3 Mortgage Equity Withdrawal..............................................................................44
4.4 UK House Prices and GDP Growth Trends Analysis.........................................46
4.5 UK GDP Growth Forecast..................................................................................46
4.6 UK House Prices Valuation against GDP Growth Trend Projection.................47
4.7 The Price of the House and its Involvement in the Economy..............................49
4.8 The Effect of Falling House Prices................................................................50-51
4.9 Characteristics of Housing Cycles.................................................................51-52
4.10 Interest Rates on Mortgages and Housing Prices........................................52-54
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4.11 The Credit Crunch and Property Investment....................................................54
4.12 The Credit Crunch and Property Development.................................................55
4.13 Economic Instability and Macroeconomic Policy.............................................57
CHAPTER 5: CONCLUSION....................................................................................................................58
CHAPTER 6: BIBILOGRAPHY .......................................................................................................... 60-64
Housing Prices 1
CHAPTER 1: INTRODUCTION
1.1 Outline of the Study
This research focuses on the various economic factors effecting on housing prices and its
impact and comprises of the following chapters:
In Chapter 1 an overview of the topic will be briefly illustrate by giving a background of
the UK house market and the effects of the global financial crisis on the UK market. The
research aims and objectives and ethical concern also carry out at the end of Chapter 1.
Chapter 2, theories of micro and macro-economic factors which may influence the house
market will be examine and further argument will be discuss in Chapter 4.
Chapter 3 briefs the research methods in this d writing, the progress of the design, and
the difficulties that faced through.
Chapter 4 of this dissertation examines the impact of the both micro and macro-economic
influence on the UK house market and identifies the extent of the contraction in market output.
Chapter 5 of this paper brings together the key discussions and draft a conclusion of the
present state.
1.2 Background of the United Kingdom house market
The price of house market is determined by two prospects; micro and macro-economic
influences. Gross Domestic Product (GDP), Gross National Product (GNP)
National Income, and other uncertain factors such as unemployment rate, inflation, mortgage
approval rate and etc are classify as micro-economic influences. In the other hand, the global
Housing Prices 2
financial market, economic Indicators, credit market liberalization, housing Subsidies and etc are
the macro-economic factors.
The UK housing market has experienced a large boom between 2003 and 2008, then bust
from the end of 2008 until present. The housing boom happened as a period of rapid GDP
growth, increased of foreigner investment funding and the deregulation of the mortgage market.
In the other hand, the bust concurred by credit crunch caused by the U.S. subprime mortgage at
end of 2007. The termination of the sub-prime mortgage market in the US was the catalyst for
the credit crunch, but the effect on global money markets did not apparent right away.
Since the credit crunch spread globally in 2008, the UK economic activity has declined at
the first half of 2008 and standstill by the end of the second quarter, it affected in both residential
and business investment. Even government investment had initially provided some stimulus but
as the fallout from the financial crisis gathered drive the previously strong labor market
weakened dramatically, which leading to a significant increase in unemployment.
In 2009 Office of National Statistics has announced that the United Kingdom is officially
in recession that contracted 1.5% in the fourth quarter of 2008, and further falling of 0.6% in the
third quarter. The total contraction drop 2.5% at the end of December 2008, which is the greatest
contraction since 1982. (Office of National Statistics, 2009)
Moreover, the number of unemployed people reached to 1.92 million by the end of
November 2008, the highest figure since September 1997. Redundancy levels also increased
significantly from 225,000 to 78,000 by the end of November 2008. Furthermore, In 2009 Office
of National Statistics has announced that the United Kingdom is officially in recession (Office of
National Statistics, 2009)
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Furthermore, the housing market, the price of oil, a loss of confidence in the financial
institutions and a contraction in bank lending are the main drivers of the recession. In this
introduction the housing market will be enlighten briefly and the remaining drivers will be
discussed in other chapters.
During the boom period, enormous of theories believes that house prices in western
society would only ever go up, some analysts even constructed complicated theories to
rationalize what was fundamentally impossible. The sense of well-being and satisfaction that
homeowners derived from the rising housing market meant that such explanation was perfectly
pleasant. However, when the market went bust it shown that they were defied rational thinking
and ignored the cyclical nature of property markets. (Oswald, 2009)
Above and beyond, financial innovation has played an important role in the globalization
of money and property markets in recent years. The growth in new finance vehicles such as
derivatives and asset backed securities has exploded significantly. The innovation has improved
liquidity and enabled investors to spread risk through international diversification. Nevertheless
the weakness is that the global implications of the current downturn are more profound than
anything previously, as highlighted very acutely following the collapse of the sub-prime
mortgage market in the US.
1.3 Research Aims and Objectives
This research aims to find out the affect of micro and macro economic factors on the
housing prices of United Kingdom. These factors may be Credit Crunch, Global Financial
Housing Prices 4
Market Liquidity, Credit Market liberalisation, Unstable Oil Price, GDP, National Income,
inflation Rate, Interest Rate, mortgage grounded and Credit supply condition
1.4 Ethical Concern
Researchers will be fully involved in this awareness of ethical issues. All project-related
processes and ethical issues are the principal investigator responsibilities. Of such a study will be
conducted, the integrity of the enterprise will remain ֽ and negative consequences, may reduce
the potential of future research will be the way to avoid. The choice of the research questions
will be based on the best scientific judgments and the effectiveness of a potential participant in
the assessment of risk and the social commitment by the participants. The study will involve an
important issue of intellectual property rights.
The researchers are aware of any potential harmful effects, in which case the method
chosen ֽ and after consultation with colleagues and other experts to use. The method for selecting
good reason will be given. The study will be a competent manner as an objective and unbiased
scientific projects. The study will be carried out with standard and fully comply with local
customs laws and regulations knowledge. Researchers are ֽ and respect the host culture familiar.
In the 'principal investigator own moral principles, clear to all involved in this study to
other researchers with knowledge of cooperation. Potential conflicts will be resolved before the
start of the study. The study will avoid the individual or community; they studied the life of
improper invasion. The welfare of informers has the highest priority, their dignity and privacy
interests of at any time will be protected. Freely given informed consent of all subjects, such as
libraries that provide access to literature sources will be used.
Housing Prices 5
CHAPTER 2: LITERATURE REVIEW
2.1 Micro Economic Factors That Affect House Price
2.1.1 Gross Domestic Product
GDP is the monetary value of goods and services produced by an economy in a given period.
GDP is a proxy indicator that helps to measure the growth or decrease in production of goods
and services of companies in each country, only within their territory. This indicator is a
reflection of the competitiveness of enterprises. (Buck, 2002, Pp. 125-140)
GDP is a measure of economic activity in the country. And this measure is calculated by adding
the total value of annual production of Felt goods and services. On this basis, the gross domestic
product is equal to private consumption plus investment plus public spending plus the change in
stocks plus exports minus imports.
Often are evaluated GDP at market prices by subtracting indirect taxes and adding
subsidies. However, it is also possible to calculate the GDP through what is called a cost factor.
This measure more accurately reveals the income paid to factors of production. The addition of
income earned by residents from investments abroad and paid income raised by the country to
foreign investors to give us the value of the gross national product. And can be removed from the
impact of inflation during the calculation of GDP growth in real terms under way. However,
some economists believe that a nominal GDP should be the primary objective of economic
policy. They justify this by saying that this kind of gross domestic product will be remembered
that the policy makers take the impact of their decisions on inflation, as well as on growth. And
can be calculated as gross domestic product in three ways:
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Income method: It involves collecting income residents on the territory of the country
(from individuals and companies) resulting from the production of goods and services.
Method of production: It involves collecting the value of production of the various
sectors of the economy.
Expenditure method: involves the collection of the total expenditure on goods and
services by individuals and companies before deducting the value of extinction and
capital consumption. (Voicu, 2008, pp. 241–283)
Since the production of someone's income is another person to become in turn to spend
all those roads that should lead to identical results. However, this rarely happens because of the
congruence and statistical flaws. In addition, rule out the methods of production and income
undeclared economic activities that occur in the black market economy, but those activities can
be calculated by a method of expenditure. And may show some resentment about the economic
transformation GDP measure to the goal of economic policy because it is not full of well-being
scale. This index does not include aspects of the good life activities such as comfort. Nor does it
include economically valuable activities, but that does not pay to do, such as parent education for
their children to read. However, it contains something that would reduce the quality of life, such
as those that leave serious damage to the environment.
Some Clarification on GDP
The GDP of a country will increase if the government or companies from the same
borrow abroad, obviously, this will decrease the GDP in future periods. (Shiller, 2007,
pp. 24-50)
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It does not take into account the depreciation of capital (This includes machinery,
factories, etc., as well as natural resources, and could also include the "human capital").
For example, a country can increase its GDP intensively exploiting its natural resources,
but the decrease capital, leaving less capital available for future generations
Does not take into account negative externalities generate some productive activities,
such as environmental pollution?
The residents of a country with per capita GDP as another but with a more equitable
distribution of that enjoy higher welfare than the latter
The measure of GDP does not account for productive activities that impact the well but
did not generate transactions, such as volunteer work or housewives
Activities that adversely affect the welfare may increase the GDP, for example divorce
and crime
2.1.2 Gross National Product (GNP)
Gross National Product (GNP) - is the primary indicator of economic condition of
society. It is defined as the aggregate market value of the total final output of goods and services
in the economy in one year. GNP is money. To correctly calculate the total production requires
that all products and services were taken into account once (to exclude double counting). To do
this, take into account only the final products and intermediate products are excluded. (Oswald,
1996, Paper No. 475)
Under the final product to understand goods and services purchased for final use. Goods
and services purchased for resale or for further processing or treatment, are intermediate
products. They are excluded from GNP, as the cost of the final product already includes all the
Housing Prices 8
intermediate transactions took place. Thus, the cost of the final product is composed of what are
“added” firms at each stage of processing. The difference between the market price of products
manufactured by the company and the value acquired by it from suppliers of raw materials is
called value added. If we take the sum of value added by all firms, we obtain the market value of
total output (GNP). When calculating GNP excludes non-productive transactions, which include:
1. Purely financial transactions: there are three types
a) Transfer payments from the state (unemployment benefits, social security payments,
etc.) - as their receivers do not make any contribution to the creation of the current GNP;
b) Private transfer payments (e.g. monthly subsidies received by students from home) - as
they are the act of transfer of funds from one individual to another;
c) Securities transactions - as not directly imply an increase in production.
Sale of used items - as these transactions does not reflect the current production.
Thus, we can estimate the market value of the final product (and hence GDP) by looking
at how all consumers spend money on his purchase or summarise all the value added. Therefore,
the GNP can be determined either by summing up all the costs for the purchase of the total
volume produced in a given year of production, either by adding together all income derived
from the production of total output this year. Equivalence of these methods of calculation based
on the fact that what is spent on manufacturing the product, is the income for those who invested
their resources in the production of this product and it’s placing on the market. (Muth, 2006, pp.
29–96)
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2. The calculation of GDP expenditure
To measure the GDP for expenditure required to summarise all the costs of creating the
final product and services. This includes personal consumption expenditures (C), gross private
domestic investment (Ig), government purchases of goods and services (G), net exports (XA).
2.1.3 National Income
National income is, strictly speaking, a monetary valuation of income received or accrued
during a given period by residents of a country as owners of production factors. National income
includes wages and salaries, rents, interest and profits, not only in the form of cash payments, but
as revenues employer contributions to pension funds, income from self-employed and
undistributed profits of corporations. (Munch, 2006, pp. 991–1013)
In a market economy such as United Kingdom, the evaluation of national income
includes, with certain exceptions, the only economic activities related to the sale of goods and
services markets. The few exceptions are in the form of imputed values, adding in an estimated
rental income of owner-occupied housing, and income that farm families derive from self-
consumed to produce their farm. Meanwhile, official estimates and almost all those established
by the private sector do not include the value of all services rendered at home by unpaid
homemaker. This important omission is serious if one uses the national income to measure well-
being of the population of a country.
As such, the assessment of national income is equivalent to exactly what the net output of
goods and services would bring the market if we did not add anything else to the prices of goods
and services. It is therefore a measure of the net value of goods valued at factor cost (of
production). However, the prices at which goods are traded on markets include indirect taxes
Housing Prices 10
such as sales taxes and customs duties. In the system of national accounts, these taxes and
provisions for depreciation and obsolescence in addition to net national income at factor cost for
the assessment of "gross national product at market prices." (Mankiw, 1989, pp. 235–258)
In United Kingdom, the official estimate of national income is made by Statistics UK. By
collecting a wide range of economic data and other statistics, Statistics United Kingdom obtained
incidentally useful information for evaluation of national income and other related data specific
to the national accounts. If necessary, the agency conducts studies for the specific purpose of
collecting data for the estimation of national income. In addition, it can obtain information that
was provided to other agencies, such as tables prepared from the tax returns of corporations and
individuals. The components of national income in official accounts presented in part depend on
the available data. Compensation of employees, the largest component, is one, because this
information can be obtained from such sources as the census of manufacturing firms, the reports
filed by financial institutions and tax returns. Similarly, we obtain, from the same sources, the
following estimates: property income, depreciation or rental value of equipment involved in
production, natural resources and entrepreneurship, which are reported as interest income rental
and corporate profits. Net interest and dividends paid to foreign residents are not included.
Income self-employed unincorporated must be evaluated in another way. Farmers' incomes are
estimated by subtracting expenses from revenue generation from the sale of farm products. Farm
income that results is a combination of earned income, that of the farmer and his family unpaid,
and income property. Income of other unincorporated businesses, such as those with professional
activities or who belong to the service sector or trade, are calculated the same way or, in some
cases, from the collections of taxes income. (Mayer, 2008, 20-59)
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Indirect taxes and deductions (depreciation) added to the national income to determine
the GDP are taken from government files and records of companies and others. Some imputation
of depreciation is necessary in some cases, such as those involving buildings, government
property, and homes occupied by their owners. National accounts include four major categories
of expenditures: purchases of consumption and procurement of new equipment by businesses,
governments and individuals, government purchases, and net exports of goods and services. The
estimate of these costs reflects the actual prices paid for goods and services. Spending on capital
goods include both capital expenditures that correspond to the amortisation of existing
production capital, and those that cover the net increase in equity. The sum of these expenditures
gives the gross national expenditure (GNE).
The gross domestic product (as opposed to GNP) is the monetary measure of the value of
all goods and services produced in United Kingdom, regardless of whether a portion of the
income thus generated can return to residents of other countries. Gross national product (GNP)
measures the goods and services available to residents of United Kingdom. GDP exceeds GNP
to the extent that interest and dividends paid abroad are higher than those received from abroad.
The UN encourages its members to standardise their methods of calculating national income, but
must be interpreted with care comparisons made between the various national incomes per
capita, for three reasons. First, the exchange rate used to convert these estimates into a common
currency, so that we can draw a comparison, does not reflect the comparative prices in each
currency for goods traded internationally (prices Comparative properties beyond the
international trade may not be reflected at all in the exchange rate). Then, the magnitude of non-
commercial production and, consequently, the share of production that does not take into
account the national income estimates vary widely among countries (developing countries
Housing Prices 12
usually have production sectors relatively large off-market). Finally, the habits of consumption
are very different from one country to another and comparisons of money income may not
reflect the effect of these variations on the well-being of a population. (Oswald, 1996, Paper No.
475)
Comparisons are also made based on a time scale in a single country. National income
and related estimates are usually calculated to begin in the prices of the position period (usually
one year). In comparisons from one year to another, aggregates, usually the national expenditure
estimates are reduced price indices to cancel the effects of price changes on changes in overall
production. We then say whether measured in constant prices, the price of a particular year.
2.1.4 Inflation
Inflation is the continued growth and general price of goods and services and productive
factors in an economy over time. Other definitions explain how the persistent upward movement
in the general level of prices and declining purchasing power of money. (Mankiw, 1989, pp.
235–258)
Fiscal Deficits: Financing Through the Issuance and Inflation
The fiscal deficit is a potential trigger an inflationary process. On the one hand, if we
start from a position of balance between aggregate supply and aggregate demand, increased
government spending without being accompanied by a similar increase in tax revenues, create
both an excess of aggregate demand, as increased in the fiscal deficit. This is the evidence the
Keynesians and trigger inflation. (Mayer, 2008, 20-59)
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The monetarists also assume that is an excess of aggregate demand which turns the
inflationary process, but differ in the Keynesian as to the cause that generates this excess
demand. Since its inception, is an increase in the money supply through greater availability of
liquidity, leading to increased aggregate demand? Therefore, if the State, after having exhausted
all sources of private credit, used to be financed through increases in the issuance of currency, it
will generate a cash surplus that will result in excess demand and general increase in prices .
When a government carries a heavy debt, each time it becomes more difficult to get proper
financing. When credit sources are exhausted and persistent deficits, governments often resort to
printing money as a last instrument to finance its expenditure. The issue is not genuine, i.e. an
increase in the supply of money is not accompanied by an increase in the demand for money,
generating an increase in prices. Financing a deficit by issuing different effects depending on
whether a system of fixed exchange rate or flexible. As will be seen, countries with chronic
budget deficits and high magnitude, would find it extremely difficult to maintain a fixed
exchange rate and make the choice to move to floating exchange rate, or at least make frequent
adjustments of the parity monetary.
(Hamilton, 2005, Pp. 150-160)
Explanation of the Concept of Exchange Rate
While the central bank has to hold foreign currency exchange rate, inflation will remain
under control given that international prices do not vary and include compliance with the law of
one price. Thus, the government can keep the price level to fund their expenses through the
issue. But this is a solution that cannot be sustained for long, because if the government insists to
finance its deficits by creating money, will only deplete the central bank. When residents warn
Housing Prices 14
that the country's central bank may not maintain the value of the currency change faster domestic
assets by foreign assets, to guard against the possible loss of value to the future suffer
devaluation. Finally, when the central bank reserves reach their limit, there is no choice but to let
the currency depreciate. The process ends with the abandonment of the fixed exchange rate,
whether devaluing and setting a higher value of the exchange rate or allowing the currency to
float freely. The collapse of a system of fixed exchange rate when reserves are depleted central
bank is called balance of payments crisis.
Effects of Inflation on the Economy of a Country
The effects of inflation are to some extent as it can be expected or unexpected. Whatever
form it takes inflation, entails costs and the higher the rate of price changes the higher the costs.
There are costs of holding money, so that operators spend more time discussing what to do with
their money balances. The inflationary process involves, for dealers, real costs to update the
prices. The steady increase in the general price level has redistributive effects in favour of
debtors, in the distributive struggle employees and all those who depend on fixed nominal
incomes will reduce their real income. Finally, as has been studied by a researcher, inflation also
causes costs to the treasury due to the delay between the time of incurring the expenses and
revenue collection. (Haines, 2007, pp. 16–35)
There are two types of inflation: on the one hand we have what is known in advance and
incorporated into the expectations of economic agents, on the other hand, inflation may be
unanticipated by economic agents, which is presented before that individuals have adjusted their
expectations.
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2.1.5 Interest Rates
Interest rates are the price of money. If a person, company or government needs money
to buy goods or to finance their operations, and requests a loan, the interest you pay on this loan
will cost you'll pay for that service. As with any product, fulfils the law of supply and demand:
while it easier to get money (more choice, greater liquidity), the interest rate will be lower.
Conversely, if there is not enough money to lend, the rate will be higher. (Green, 2007, pp. 91–
112)
Net interest and dividends paid to foreign residents are not included. Income self-
employed unincorporated must be evaluated in another way. Farmers' incomes are estimated by
subtracting expenses from revenue generation from the sale of farm products. Farm income that
results is a combination of earned income, that of the farmer and his family unpaid, and income
property. Income of other unincorporated businesses, such as those with professional activities or
who belong to the service sector or trade, are calculated the same way or, in some cases, from
the collections of taxes income.
How interest rates affect the economy? Low interest rates help grow the economy,
facilitating the consumption and therefore demand products. As more products are consumed,
more economic growth. The downside is that consumption has inflationary tendencies.
High interest rates encourage savings and curb inflation, consumption decreases with increasing
the cost of debt. But by reducing the consumption also slows economic growth.
2.1.6 Interest Rates on Mortgages
Interest rate is the value of fees charged for lendable material or money that is paid by the
borrower (the loan recipient) to the creditor (lender). Channel percent is surplus value, which is
Housing Prices 16
created during the production using loan funds, net business income. The magnitude of the
percentage rate of general economic factors affects the value and volume, term, security and
types of loans. Interest rates are of several types and are classified depending on the types of
markets, the economic content of the transaction on the terms of the transaction.
2.2 Macro Economic Factors That Affect House Price
2.2.1 The Credit Crunch and Property
The full impact of the credit crunch on property markets will be felt through the inter-
related effects that it will have on investment, development and occupational demand. The
effects in the property investment market were among the first to appear and have already
resulted in sharp changes in investment activity and pricing. The impact on development will
become more apparent going forward in the amount of new construction activity. Impacts on
occupational demand will be a consequence of the effect that the credit crunch, alongside other
economic influences, has on real economic variables including business investment,
employment, consumer spending and retail sales. These in turn will feed through to occupational
demand for commercial property, interacting with property supply to determine rental levels.
The demand/supply balance in the market and resulting rental trends will in turn feed-back to
pricing and decisions in both the development and investment markets. The diagram below
illustrates the flow of effects from the debt market to the property market and the feed-back
loops involved. (Gould, 2005, pp. 411–422)
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2.2.2 Global Financial Market
The stock market is an important channel for financing investment, which represents a
market for capital accumulation and that its ability to deploy capital, as is the case in areas other
investment, on the one hand and its close association with important market economics on the
other hand, as well as the emergence of a calendar currency exchange rates and prices interest at
the international level, which led in many cases to the absence of any impediments to capital
flows Authority Consumer credit and saving a variety of foreign currencies, especially since the
evolution of financial markets that came in the wake of economic developments and the
expansion of consumer spending and investment, where she developed institutions for the
recruitment of savings in various areas of economic productivity, as a link between individuals
and institutions that are saving and productive projects in the economy. (Glaeser, 2003, pp. 37–
82)
In a market economy such as United Kingdom, the evaluation of national income
includes, with certain exceptions, the only economic activities related to the sale of goods and
Housing Prices 18
services markets. The few exceptions are in the form of imputed values, adding in an estimated
rental income of owner-occupied housing, and income that farm families derive from self-
consumed to produce their farm. Meanwhile, official estimates and almost all those established
by the private sector do not include the value of all services rendered at home by unpaid
homemaker. This important omission is serious if one uses the national income to measure well-
being of the population of a country.
Structure to Deal in International Securities Markets
Investing in the stock market investment fields between the tasks that require the
development of the foundations for the success of investment operations in this area, so as to
achieve a successful choice for a variety of securities in the market without sacrificing expected
returns from such investments. Thus, the investment decision in this market depends on a host of
data including:
1. The amount of Return: This reflects the sise of the profits or losses obtained by the
investor, which is often expressed as a percentage of capital invested.
2. The degree of risk: The likelihood of risks with the expected or what is called the element
of uncertainty (Uncertainty) in the evaluation of projects, as the shares that carry returns
or refunds related to not necessarily carry the same levels of risk, forcing the investor to
develop an assessment of access to the cases of the balance between rates profits and the
resulting risks and form in which it makes its decision as to the truth.
3. Time: The purchase of securities limited period of time as determined under the time that
keeps the investor in stocks and bonds, as the time factor associated with the type of
Housing Prices 19
company, and the look of the investor and the forecast for growth and development, and
so can determine the controllers fundamental in the securities market including the
following:
Interest Rate
Affects the different interest rate adversely on stock prices, since higher interest rates
lead to lower transaction process in the financial markets, and vice versa, the lower interest rates
works to promote the deal in the financial markets, The measurement of the degree of such
effects are using the rates of change in assets and liabilities that are affected by these changes or
fluctuations.
Liquidity
It is the existing cash available to the investor or the bank or financial institution that will
ensure dam needs so as not to be forced to sell securities in his possession which may cause loss
sometimes is measured to identify the proportion of liquidity and financial investments to total
deposits or assets.
Credit
This highlights the role of master of banks and financial institutions in cases of non-
ability of the issuer of the securities to pay in times of assessments, particularly when different
balance between loans and credit and the proportion of loan losses.
Capital
Housing Prices 20
The case of the ability or inability to cover securities issued Okiem especially when there
are losses; which requires attention to this element and control of property rights enjoyed by the
bank or financial institution or the individual investor.
This requires the investor who wants to fight the deal in international financial markets to
a range of information to allow it the opportunity to take the decision with full knowledge of the
circumstances resulting from their decisions (Glaeser, 2003, pp. 21–29). Information that can be
divided into what is a former investment decision, and what is later to him, especially those that
allow the investor appreciation of one's choice and no choice of securities or bonds, including
the information that preceded the follow-up elements of its portfolio, and the decisions of Entries
summarise the characteristics of stocks and bonds raised, and the status of bodies and exported
as well as conditions of the subscription itself, but it is often characterised by the market (market
International Securities Exchange) lack of clarity of what investors and find out what they take
positions and follow the behaviour even through the media sources available, especially for
financial institutions to joint banks big and investment funds began to play a role in the stock
market and international bond does not disclose only rarely and are vague about the policy of the
investment, which often rely on the element of intuition and the impact of psychological factors,
along with the handle surface information available, and therefore the issue of dealing in these
markets depends on two things:
First: the importance of the role played by securities dealers and brokerage houses for the
guidance of investors and advises them and assists them in how to rationalise and make
decisions
Housing Prices 21
Second: the importance of working to increase awareness of the investors what they are
doing or providing it and the need to increase their knowledge of various aspects of the
market that they want to participate or dealing in them
Where the market for international securities are an independent institution governed by
the conditions of art is different that the economic situation of the company or even the
economic situation as a whole does not necessarily reflect price trends - as is the commodity
market - they have put the company well, as well as economic situation is solid, however that
prices could move towards decline, and vice versa, periodic price may be affected by the events
of a technical or psychological or emotional perspective. Thus emerged two types of stocks and
bonds in the financial market, a class which respond to the market and slowly, and another class
act more effectively in such circumstances; analytical approach technical market requires
identifying the best times to enter the market, which shows the difference between the investor
and successful investor is successful.
Mechanism to Deal in Global Financial Market
Issued securities either denominated in currencies other than real circulation in the State
of the States and this is often either in units of cash "account" or "vehicle" does not traded
already and is only used as units of measure, and because of its advantages of real currency in
order to avoid what would happen to the currency fluctuations may harm the interests of dealers
in the financial market and are handled in this market according to the indicators by which to
identify trends that exercised by investors and speculators and financial analysts in financial
markets. (Gaspar, 1998, pp. 136–156)
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2.3 Economic Indicators
Influenced by the price movement of stocks and bonds in the financial market economic
indicators, which in turn reflect the validity of predictions in the market, such as that of the
Declaration on the budget for a large financial or approach an ambitious investment, which
means the expectation of rising prices in general, and to inject additional funds the market would
be reflected in the status and conditions of the securities in the stock market in the newly
industrialised countries in the way of growth and thus to adopt the statistics of industrial
production or GDP or disposable income as indicators in the stock markets in developed
countries. (Frew, 2002, pp. 17–25)
Indicators of Monetary and Fiscal
One of the most important indicators for the knowledge of price trends in the financial
market as higher interest rates lead to the trend for investors to deposit in the banks, and to sell
their shares in the market standing, supply and prices drop while moving funds into the financial
market in case prices fall interest in the banks or converted to the bond market. The increase in
money supply, whether in the economies of countries emerging in the way of growth or
developing lead to higher stock prices, otherwise, the low rates of growth in money supply will
lower stock prices, and therefore the intervention of central banks to expand the money supply or
reduce it reflected a shift rates interest on the increase or decrease and then to influence the price
trends in the financial market accordingly.
(DiPasquale, 1996, Pp. 75- 120)
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Volume in the Stock Market
The number of shares and bonds traded on the stock market determines the strength of
the market and the expectations of the future rise or fall as the volume density means investor
optimism and motivation to invest in the market and the consequent rise in prices as a result. If
the market has not advanced or presentation, accompanied by heavy trading, then prices remain
unchanged or are in decline because of the relative stagnation of the post, and thus draws
investors to liquidate their investments as prices continue to go down directions. It is here we can
see that the intensity of trading and price increases that generate demand for and followed by
successive increases after that .If demand is not alone that leads to the increase in prices in
financial markets. Thus, the characteristics of this market is different than it is in the investment
markets and markets for consumer goods, a mechanism which reflects the effectiveness of the
investment process in those markets, and of the following:
2.4 Theoretical Housing Analysis
2.4.1 Housing Subsidies
Housing allowances for housing subsidies, in practice, take many forms, but the macro-
economic literature tends to overlook the differences. Most questions, however, can be
illustrated by considering the impact of declining tax mortgage interest. There are many studies,
initially in the U.S. context, signs of increased demand for owner occupation (and housing
prices) in the 1970's combination of tax subsidies and the high rate of general inflation. It is easy
to show that high inflation reduces their costs of occupying property. Some authors have
concluded, therefore, that housing subsidies have led to excessive investment in housing
Housing Prices 24
construction in comparison with other forms of investment (especially in industry) and the
growth in real house prices.
Despite these findings were robust to a series of specifications, there is, however, flaws
in the argument and conclusions, which were modified with the broader macroeconomic
framework. First, the conclusion does not hold if households can not take what you want, that is,
if you are faced with credit constraints. If there are restrictions, subsidies lead to mortgage
queues longer, rather than changes in prices and investment. In general, therefore, we must be
careful political statements that the tax subsidies for housing leads to lower long-term economic
growth by reducing production in other sectors of the economy. As an alternative, the
consumer’s costs can be condensed. This entails that reducing the tax mortgage interest help in
recent years in the UK is likely to turn down in real prices for housing and / or losing the house,
but also to decrease savings. But the gauge does not perform anything to get better the hurry of
economic growth.
2.5 Credit Market Liberalisation
This issue is still present in the macroeconomic literature, despite the liberalisation of
mortgage markets in the UK began more than ten years. Nevertheless, the attention of most
macro-economic literature on the impact of liberalisation on the overall consumer demand, is
rather than the demand for housing.
Here, however, we are particularly concerned about Deregulation has increased the
demand for housing and housing prices therefore real. Common conclusion in the case of the
United Kingdom was the fact that the greater availability of funds raised so much and, in fact,
the sector gear on the UK household debt has risen sharply over the decade 1980. Debt to
Housing Prices 25
income, for example, is much greater than in Germany or France. Despite the deregulation in
itself could be expected to increase in prices, sometimes forget that deregulation was originally
accompanied by tighter monetary policy, i.e., higher interest rates. This, in effect, prevents price
increases to the weakening of monetary policy at the end of the decade. This was the main
reason why the liberalisation measure was originally designed as a policy to improve efficiency,
has been dominated by concern about the unintended consequences of aggregate demand. (Buck,
2002, p. 125-140) 2.6
2.6 An Increase in Public Expenditure on Housing
Increased public spending on housing is expected that the cost of new housing is
constantly raised, 500 million a year. This is done to show the impact of an increase in demand.
Look at the results in the four years since 1995, although the starting point is crucial. The results
are presented in Table 2. In this and all subsequent tables, values are expressed as differences
from the baseline scenario. Although the values are expressed to two decimal places, is
illustrative and, of course, exaggerates the degree of accuracy. Increased government spending
will increase aggregate demand and hence GDP directly, but also a direct impact on GDP is not
so great. Effect is known as "crowding out" and support is often said that growth in demand can
not continually increase GDP. In our model there are two reasons for this conclusion. Firstly, the
increase in demand will raise prices in the construction sector - although the extent will depend
on the pressure of demand in the industry - both primary Nominal inputs produces less in real
time. In addition, increased demand will raise prices in other parts of the economy, which led to
the widespread decline in demand, for example, consumers’ costs. Secondly, the increase in
government spending can lead to a reaction in financial markets, which requires an increase in
Housing Prices 26
interest rates. We saw in the previous section that an increase in public debt will require the
private sector to hold government debt. If this happens (the model assumes a slight increase in
interest rates always practice raised more amounts), then a movement of private consumption
and investment can take place. In addition, the impact on private housing may be
counterproductive. Most empirical studies in several countries have found that individual
housing is sensitive to changes in interest rates.
If so, then the increase in public housing can be implemented through private pension
schemes. In addition, private housing can be a negative relationship with the public outing with
the recent increase in reduces the demand for senior housing prices, and depression. In our case,
however, additional public spending in part by lower private consumption. This, in turn, suggests
that employment in the construction industry can be expanded, but in practice, reducing
employment in other parts of the economy. Ball & Wood (1994) review of the literature on job
creation in the construction of various forms of construction costs. However, this analysis does
not take into account the negative impact on employment in other parts of the economy.. (Muth,
2006, pp. 29–96)
2.7 An Increase in House Price Dispersion
The increase in the variance in house price of the final simulation investigated the effects
of changing the variance in housing prices between the south-east and the UK as a whole.
Analysis and our model predict that real wage growth dispersion of the product by reducing
output and employment. This is an example of the effect of food-induced distortions in the
housing market. These effects, however, may not be permanent. The famous "domino effect" is
to update the regional prices over time, and so modelling assumption that the additional
Housing Prices 27
differential of two percentage points remained for four years, probably close to maximum,
although the short term, increase the spread is often higher than two percentage points in the
past. Within four years, however, enough time for the main effect is evident.
After four years, rising unemployment may be more than 100.000. Housing prices will remain
broadly constant in real terms and the main negative economic consequences would have been
out of the construction industry. Construction employment, however, is expected to fall, the
direct impact of rising real wages. As mentioned above, changes in real wages of the
construction industry plays an important role in explaining the decline in employment during the
last recession. (Munch, 2006, p. 991? 1013)
Variation in prices between the south-east and the rest of the country, however, has
declined considerably since 1990, and since the effects appear roughly symmetrical, one would
expect wage pressure has been reduced. The inability of wages to accelerate during the economic
recovery has been particularly notable feature in comparison with other phases of recovery.
Although it is unlikely to be wholly or even mainly, due to narrowing regional differences in
housing prices may have been a factor. The implication is that policies that can reduce the range
of prices could contribute to the growth potential of the UK.
Housing Prices 28
CHAPTER 3: METHODOLOGY
3.1 Mixed Method Research
This research approached data gathering using the multi-method strategy, or the
combination of quantitative and qualitative methods. Basically, the quantitative approach
pursues facts and is employed when researchers desire to acquire statistical truth. According to
Gall, Gall and Borg (2003), quantitative research assumes that the social environment has
objective reality that is relatively constant across time and settings, while qualitative research
assumes that individuals construct reality in the form of meanings and interpretations, and that
these constructions tend to be transitory and situational.
The dominant methodology in the quantitative approach is to describe and explain
features of the objective reality by collecting numerical data on observable behaviours of
samples and by subjecting these data to statistical analysis. According to Smith (1983), “neutral,
scientific language” (p. 9) must be used in quantitative research in pursuing exact facts. This
means that the research itself must be expressed by universally acceptable digits. In this
approach, in order to make generalisability, objectivity of the research is emphasised by using
neutral scientific language. On the other hand, the qualitative approach aims to discover
meanings and interpretations by studying cases intensively in natural settings and by subjecting
the resulting data to analytic induction (Gall, Gall, and Borg, 2003).
In Creswell’s (2001) explanation, quantitative studies are based on post positivist claims
for developing knowledge, use experiments and surveys, and collect data on predetermined
instruments that yield statistical data. On the other hand, qualitative studies use constructivist
Housing Prices 29
perspectives or advocacy/participatory perspectives, or both, and use narratives,
phenomenologies, grounded theory studies, or case studies as strategies of inquiry. In this
approach, research facts and researcher's value judgments or interpretations are inseparable.
Thus the researcher becomes an insider to the research (Carr and Kemmis, 1986).
One of the major benefits of employing quantitative research approach points to
generalisability: because the research results are derived by discovering exact facts, the same
research methods and the results can be generalised. In short, such approach is applicable to
many other situations because of its objectivity and being value-free. As for the qualitative
research approach, one of its major benefits is that it highlights the researcher's viewpoint in the
research process as well as on its results. Moreover, qualitative studies encompass interpersonal,
social, and cultural contexts of project management more fully than the quantitative research
approach. Because the researcher's viewpoint takes a central role in the research process, the
researcher provides a much richer and wider-ranging description compared to what the
quantitative research approach provides.
In reviewing the literature, there are only a few criticisms of the mixed method research
approach, and these criticisms point mainly to the question of standards. In their commentary on
issues in participatory action research, Riger et al. (2004) pose the question “Whose standards
are used to evaluate [research] quality, and what are those standards?”. The second question
seems to be the launching pad of the critics in attacking the mixed methods approach. As a
result, the practical issue of how to make judgments about the quality of diverse styles of
research is constantly faced by researchers advocating this approach.
Along with this, Eisner and Peshkin (1990) discuss if this is possible to have research
values with the unique condition of possessing the qualitative research approach and in what
Housing Prices 30
ways can research knowledge be populated if there are no generalizations on the same.
Furthermore, the qualitative research approach is imperfect by its character that the investigator
controls the research. Bearing in mind the strengths and weakness of quantitative and qualitative
advances, the current research employed the values of both quantitative and qualitative research
approaches. Vital to the conversation of the rationale following the mixed methods approach is
the fact that information is accumulated from a diversity of sources in a variety of behaviors,
thus, methodological diversity (Fiske and Shweder, 1986) is desirable.
Critics claim that it is impossible to maintain standards across different genres of
research. For example, what standards can be used to evaluate a piece of ethnography as well as
a randomised experiment? It is suggested that the absence of comprehensive standards makes the
mixed methods approach equivalent to anarchy.
3.2 Research Design and Process
As discussed above both qualitative and quantitative research designs are used for the
study. For the study the main topic of research was turned in to research questions. The data was
collected from different sources. Analysing of the data is the most important part of the research
as data could be mishandled. After achieving the objective data is analysed critically.
3.3 Applied Research
Applied research is inquiry using the application of scientific methodology with the
purpose of generating empirical observations to solve critical problems in society. It is widely
used in varying contexts, ranging from applied behaviour analysis to city planning and public
policy and to program evaluation. Applied research can be executed through a diverse range of
Housing Prices 31
research strategies that can be solely quantitative, solely qualitative, or a mixed method research
design that combines quantitative and qualitative data slices in the same project. What all the
multiple facets in applied research projects share is one basic commonality— the practice of
conducting research in “non-pure” research conditions because data are needed to help solve a
real-life problem.
The most common way applied research is understood is by comparing it to basic
research. Basic research—”pure” science—is grounded in the scientific method and focuses on
the production of new knowledge and is not expected to have an immediate practical application.
Although the distinctions between the two contexts are arguably somewhat artificial, researchers
commonly identify four differences between applied research and basic research. Applied
research differs from basic research in terms of purpose, context, validity, and methods (design).
3.4 Research Purpose
The purpose of applied research is to increase what is known about a problem with the
goal of creating a better solution. This is in contrast to basic research, in which the primary
purpose is to expand on what is known—knowledge—with little significant connections to
contemporary problems. A simple contrast that shows how research purpose differentiates these
two lines of investigation can be seen in applied behaviour analysis and psychological research.
Applied behaviour is a branch of psychology that generates empirical observations that focus at
the level of the individual with the goal of developing effective interventions to solve specific
problems. Psychology, on the other hand, conducts research to test theories or explain changing
trends in certain populations.
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The irrelevance of basic research to immediate problems may at times be overstated. In
one form or another, observations generated in basic research eventually influence what we
know about contemporary problems. Going back to the previous comparison, applied behaviour
investigators commonly integrate findings generated by cognitive psychologists—how people
organise and analyse information—in explaining specific types of behaviours and identifying
relevant courses of interventions to modify them. The question is how much time needs to pass
(5 months, 5 years) in the practical application of research results in order for the research to be
deemed basic research? In general, applied research observations are intended to be implemented
in the first few years whereas basic researchers make no attempt to identify when their
observations will be realised in everyday life.
3.5 Research Context
The point of origin at which a research project begins is commonly seen as the most
significant difference between applied research and basic research. In applied research, the
context of pressing issues marks the beginning in a line of investigation. Applied research
usually begins when a client has a need for research to help solve a problem. The context the
client operates in provides the direction the applied investigator takes in terms of developing the
research questions. The client usually takes a commanding role in framing applied research
questions. Applied research questions tend to be open ended because the client sees the
investigation as being part of a larger context made up of multiple stakeholders who understand
the problem from various perspectives.
Basic research begins with a research question that is grounded in theory or previous
empirical investigations. The context driving basic research takes one of two paths: testing the
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accuracy of hypothesised relationships among identified variables or confirming existing
knowledge from earlier studies. In both scenarios, the basic research investigator usually initiates
the research project based on his or her ability to isolate observable variables and to control and
monitor the environment in which they operate. Basic research questions are narrowly defined
and are investigated with only one level of analysis: prove or disprove theory or confirm or not
confirm earlier research conclusions.
The contrast in the different contexts between applied research and basic research is
simply put by Jon S. Bailey and Mary R. Burch in their explanation of applied behavior research
in relation to psychology. The contrast can be pictured like this: In applied behavior research,
subjects walk in the door with unique family histories that are embedded in distinct
communities. In basic research, subjects “come in packing crates from a breeding farm, the
measurement equipment is readily available, the experimental protocols are already established,
and the research questions are derivative” .
3.6 Emphasis on Validity
The value of all research—applied and basic—is determined by its ability to address
questions of internal and external validity. Questions of internal validity ask whether the
investigator makes the correct observation on the causal relationship among identified variables.
Questions of external validity ask whether the investigators appropriately generalise observations
from their research project to relevant situations. A recognised distinction is that applied research
values external validity more than basic research projects do. Assuming an applied research
project adequately addresses questions of internal validity, its research conclusions are more
closely assessed in how well they apply directly to solving problems.
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Questions of internal validity play a more significant role in basic research. Basic
research focuses on capturing, recording, and measuring causal relationships among identified
variables. The application of basic research conclusions focuses more on their relevance to
theory and the advancement of knowledge than on their generalisability to similar situations.
The difference between transportation planning and transportation engineering is one example of
the different validity emphasis in applied research and basic research. Transportation planning is
an applied research approach that is concerned with the sitting of streets, highways, sidewalks,
and public transportation to facilitate the efficient movement of goods and people.
Transportation planning research is valued for its ability to answer questions of external validity
and address transportation needs and solve traffic problems, such as congestion at a specific
intersection. Traffic engineering is the basic research approach to studying function, design, and
operation of transportation facilities and looks at the interrelationship of variables that create
conditions for the inefficient movement of goods and people. Traffic engineering is valued more
for its ability to answer questions of internal validity in correctly identifying the relationship
among variables that can cause traffic and makes little attempt to solve specific traffic problems.
3.7 Research Design
Applied research projects are more likely follow a triangulation research design than are
basic research investigations. Triangulation is the research strategy that uses a combination of
multiple data sets, multiple investigators, multiple theories, and multiple methodologies to
answer research questions. This is largely because of the context that facilitates the need for
applied research. Client-driven applied research projects tend to need research that analyses a
problem from multiple perspectives in order to address the many constituents that may be
Housing Prices 35
impacted by the study. In addition, if applied research takes place in a less than ideal research
environment, multiple data sets may be necessary in order for the applied investigator to
generate a critical mass of observations to be able to make defensible conclusions about the
problem at hand.
Basic research commonly adheres to a single-method, single-data-research strategy. The
narrow focus in basic research requires the investigator to eliminate possible research variability
(bias) to better isolate and observe changes in the studied variables. Increasing the number of
types of data sets accessed and methods used to obtain them increases the possible risk of
contaminating the basic research laboratory of observations.
Research design in transportation planning is much more multifaceted than research
design in traffic engineering. This can be seen in how each approach would go about researching
transportation for older people. Transportation planners would design a research strategy that
would look at the needs of a specific community and assess several different data sets (including
talking to the community) obtained through several different research methods to identify the
best combination of interventions to achieve a desired outcome. Traffic engineers will develop a
singular research protocol that focuses on total population demand in comparison with supply to
determine unmet transportation demand of older people.
3.8 Reliability and Validity
The term bias is a historically unfriendly pejorative frequently directed at action research.
As much as possible, the absence of bias constitutes conditions in which reliability and validity
can increase. Most vulnerable to charges of bias are action research inquiries with a low
saturation point (i.e., a small N), limited interrater reliability, and unclear data triangulation.
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Positivist studies make attempts to control external variables that may bias data; interpretive
studies contend that it is erroneous to assume that it is possible to do any research—particularly
human science research— that is uncontaminated by personal and political sympathies and that
bias can occur in the laboratory as well as in the classroom. While value-free inquiry may not
exist in any research, the critical issue may not be one of credibility but, rather, one of
recognising divergent ways of answering questions associated with purpose and intent. Action
research can meet determinants of reliability and validity if primary contextual variables remain
consistent and if researchers are as disciplined as possible in gathering, analysing, and
interpreting the evidence of their study; in using triangulation strategies; and in the purposeful
use of participation validation. Ultimately, action researchers must reflect rigorously and
consistently on the places and ways that values insert themselves into studies and on how
researcher tensions and contradictions can be consistently and systematically examined.
3.9 Generalisability
Is any claim of replication possible in studies involving human researchers and participants?
Perhaps even more relevant to the premises and intentions that underlie action research is the
question, is this desirable in contributing to our understanding of the social world? Most action
researchers are less concerned with the traditional goal of generalisability than with capturing the
richness of unique human experience and meaning. Capturing this richness is often
accomplished by reframing determinants of generalisation and avoiding randomly selected
examples of human experience as the basis for conclusions or extrapolations. Each instance of
social interaction, if thickly described, represents a slice of the social world in the classroom, the
Housing Prices 37
corporate office, the medical clinic, or the community centre. A certain level of generalisability
of action research results may be possible in the following circumstances:
Participants in the research recognise and confirm the accuracy of their contributions.
Triangulation of data collection has been thoroughly attended to.
Interrater techniques are employed prior to drawing research conclusions.
Observation is as persistent, consistent, and longitudinal as possible.
Dependability, as measured by an auditor, substitutes for the notion of reliability.
Conformability replaces the criterion of objectivity.
3.10 Ethical Considerations
One profound moral issue that action researchers, like other scientists, cannot evade is the
use they make of knowledge that has been generated during inquiry. For this fundamental ethical
reason, the premises of any study—but particularly those of action research—must be
transparent. Moreover, they must attend to a wider range of questions regarding intent and
purpose than simply those of validity and reliability. These questions might include
considerations such as the following:
Why was this topic chosen?
How and by whom was the research funded?
To what extent does the topic dictate or align with methodology?
Are issues of access and ethics clear?
From what foundations are the definitions of science and truth derived?
How are issues of representation, validity, bias, and reliability discussed?
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What is the role of the research? In what ways does this align with the purpose of
the study?
In what ways will this study contribute to knowledge and understanding?
A defensible understanding of what constitutes knowledge and of the accuracy with which it
is portrayed must be able to withstand reasonable scrutiny from different perspectives. Given the
complexities of human nature, complete understanding is unlikely to result from the use of a
single research methodology. Ethical action researchers will make public the stance and lenses
they choose for studying a particular event. With transparent intent, it is possible to honour the
unique, but not inseparable, domains inhabited by social and natural, thereby accommodating
appreciation for the value of multiple perspectives of the human experience.
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CHAPTER 4: DISCUSSION
4.1 UK House Prices and Consumption
Housing wealth may increase, either because the price of existing shares owned by the
private sector rises or an increase in this population. He gets up, finally, or, if the net investment
in housing before, or if there was a transfer of housing stock in the private sector, public sector,
if the market price. The latter was particularly important in the 1980's so that the growth in
housing wealth has been more that a period of growth in property prices. However, often quite a
strong correlation between housing prices and housing wealth belong to one and sometimes in
other cases, others.
Cycles of a strong housing market, coupled with the consumption of volatile, were a key
element of the UK economy for more than three decades. According to the OECD, in the period
1971 - 2002 1% change in housing wealth in Britain, on average, correlated with the change of
0.07% in consumer spending - a strong correlation between all the countries surveyed. In
general, there are similar findings of the Ministry of Finance and the IMF.
Recently, the IMF said the UK (together with Finland, Ireland and Switserland) with one of the
most pro-cyclical housing markets in the world. Figure 1 shows that there has been a sharp
decline in real housing prices in the UK, which has not followed a significant drop in UK GDP
(the gray bands). (Green, 2007, pp. 91–112)
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A recent study by the IMF between countries in the hands of the housing bust is
estimated that approximately 40 percent of all housing booms must bust, busts, and they are
usually associated with falls in GDP is very high - more than higher than after the stock market
bust - the average cumulative loss for several years, up to 8% of GDP.
Given this historical evidence, it may seem at first glance that the major correction in
consumption and GDP can be expected, if house prices in Britain fell in the next few years. In
the end, the UK housing prices in recent very rapid growth in historical terms, at prices many
times on long-term historical average of about 2.5% per year. If the house was overvalued, and
prices begin to fall, will follow the historical pattern? Depending on the connection between
housing and consumer demand, the volatility of housing markets may be more or less the speed
of transmission of macroeconomic volatility in general. There are two possibilities as to why the
housing market may be less important factor in macroeconomic instability. Whether it is because
Housing Prices 41
of the real estate prices and housing wealth is much more stable than in the past. This seems to
be a message - and hope - in the mortgage banking industry at the moment. Moreover, even if
prices remain unstable (with the obvious result of the current stability over the long-term bull
than anything else) indication to consumption are much weaker than in the past.
Bank of England recently suggested that consumption of the United Kingdom may be less
dependent on house prices than it was previously believed, and that a further decline in housing
prices may be less likely to lead to a significant reduction in consumption and GDP. This agued
that correlation between house prices and consumption in the previous cycles do not necessarily
indicate a causal relationship, as might have been caused by a common factor, such as
expectations of future earnings, that is not directly observable. Simple correlations of data that
can not control this factor may give very misleading indications of causality. In this case - and
not always seen in the comments to the media on this issue - from the perspective of the bank to
stop the decline in home prices in the future may be less relevant than it was in the past. "The
lack of consumer response" observations, therefore, potentially be a case of a very different kind
of response from the central bank's house price falls from typical past. (Haines, 2007, pp. 16–35)
Housing Prices 42
Figure 2 shows that since 1970 the rapid growth in house prices (green line) that runs
each fall in real prices was accompanied by a rapid increase in consumption (red line), and each
time the home of United Kingdom inflation declined in real terms, so did rates (nominal)
consumption growth. However, since mid-1990 when house price inflation has accelerated, the
rate of consumption growth has, at least, slowed down, but it certainly does not attained growth
in the late 1980's boom. One of the corners to explore in an attempt to explain this model relates
to the recent rise in house prices as the increase in value of home warranties, and hence improves
the access of owners under finance cost of insurance. If it is not so important today, one
consequence will be less consumption response to an increase in housing prices. Recent evidence
of this is provided durables spending behaviour. Actual expenditure is durable and semi durable
highly pro-cyclical. However, since the real prices of durable and nondurable goods decreased
significantly the growth rate of nominal spending is durable and semi durable goods was close
to the rate of growth of "other goods and services from the end of 1990 (59% since 1998 Q1, not
much higher than 5.4% in "other goods and services"). Accordingly, the ratio of durable
nondurable was close to its assessment of long-term trends
Housing Prices 43
But with this there is a surprising result when put next to the increase in housing prices.
In the past, the ratio of durable expenditure as a share of total consumption is strongly correlated
with housing prices, which had been completely destroyed since the end of 1990.
This is not something we've come to expect. Durable goods are much more likely to buy on
credit nondurable goods, such costs must be robust with respect to prices, house track, if the
growth in house prices tend to create security and thereby reduce the loss of credit. So the gap
may be due to credit constraints are now much weaker than in the past that the increase in
housing wealth has little impact - through the value of the collateral - in the empowerment of
consumption. Of course, many of the severe credit restrictions were removed in previous
periods. Or it may be because common engine for house prices and consumption of durable
goods - particularly optimistic about future income and wealth - since the late 1990's. Higher
expectations of long-term earnings are expected to increase the desired stock of durables, and
adjusting to this new level may cause a temporary increase in growth for durable goods and,
therefore, the relationship between durable goods, nondurable operating costs while at the same
time, as expectations of strong Income is also an increase in consumer demand for housing and,
Housing Prices 44
consequently, increases in housing prices (which in turn can be used as collateral to unlock
households Limited credit and allow such a strong spending21). In contrast to data on
consumption seems to be assuming that earnings expectations are stable enough, consumers
expect moderate growth in wages, and even less, with no earned income in the past (for example,
after the stock market shake-century). (Green, 2007, pp. 91–112)
4.2 Debt and Equity Withdrawal
Low growth in consumption compared to previous episodes may seem strange, given the
rapid growth of household debt in the UK. Mortgage debt, in particular, has increased by about
15% annually over the past five years, as well as mortgage equity withdrawal, MEW has gone
from 0% of household income in late 1990 (at the end of the channel from 6 years old, which fell
after the collapse of early 1990 ), more than 8% at present. However, in the same period,
consumption as a percentage of household disposable income (the red line in Figure 9) has not
changed at all. In Figure 9, the ratio of consumption to the MEW only after the last increase in
prices of real estate market and the subsequent decline is remarkable. The suggestion is that
recent trends mean that a similar correlation would not have happened if the MEW has collapsed
after the numerous house price falls.
4.3 Mortgage Equity Withdrawal
Mortgage equity withdrawal, MEW - defined as new borrowing for residential real estate
more new investments in residential property - often at the center of this debate. Although the
Housing Prices 45
conclusion that Mew cannot be the most important part of history as a whole, perhaps, obliged
us to take a closer look at the fundamental nature and role of MEW.
Some Longer-Run Data
The figure shows that MEW was negligible in the United Kingdom until 1980, rarely
exceeds 2% of income after taxes. Since the 1980 financial liberalisation has allowed families to
more effectively manage their assets and liabilities and to strengthen links between housing
prices, MEW fair housing, and, as indicated in Figure, consumption as well. In the period from
the twenties MEW 1979-1999 average of 3% per year in the UK (an average of some very big
changes), in contrast to many other countries, Germany, France and Italy was a pure injection of
6% of income on housing. No other EU country managed to get anywhere near 8% MEW. MEA
has increased dramatically in recent years (the 2003 level of 40% above 2002 levels and 8.3% of
disposable income, a record). Both UK and U.S. 12 (with MEW in 6% of disposable income)
has been the peak of 1980s
Housing Prices 46
4.4 UK House Prices and GDP Growth Trends Analysis
Although many methods were used to determine the future of the housing market prices,
such as income, interest rates on mortgage rates, currency estimates, real inflation-adjusted terms
reviews, comparisons with other global markets, housing and real disposable income, this
analysis aims to add real home in the UK market analysis on the growth of UK GDP. In this
case, it is assumed that the assets required for long-term increase in line with the countries of real
economic growth measured in gross domestic product.
4.5 UK GDP Growth Forecast
December 2009 provides for the UK 2010-2015 GDP growth has recently been updated
(UK Economy GDP growth forecast for 2010-2015) ended with a revised growth expectations
for 2011, below the 2.3% to 1.3%. Projections for the years 2010, 2012, 2013 and 2014 remain
unchanged, and this is shown below.
UK GDP 2010 = 2.8%
UK GDP 2011 = 2.3% - Revised down to 1.3%
UK GDP 2012 = 1.1%
UK GDP 2013 = 1.4%
UK GDP 2014 = 3.1%
UK GDP mid 2015 = 3.3% - NEW
Housing Prices 47
4.6 UK House Prices Valuation against GDP Growth Trend Projection
The following graph illustrates House Great Britain Great Britain against the trend in
GDP growth (up to Q2 2010) with respect to the price index Halifax in June 2010 of £ 166K,
which translates into a current reading of 37% revaluation. Trend GDP growth forecasts, as
shown above in the application of the index that a decline of more than 10% of GDP. Note that
this is not a trend forecast of housing prices in the UK, but where the rate of contributions, which
are opposed to, contrary to expectations, for the British economy if house prices in Britain
suspended the current level. Therefore, prices will go up or down the real rate is greater or less
than indicated.
Housing Prices 48
The chart above shows that the UK property market is very sentiment driven, and in
many ways exhibits the same behavior as the stock moving between the extremes of assessment
and evaluation for the UK 'S trend GDP growth. (Gould, 2005, pp. 411–422)
The current state of the UK housing market 37% with respect to the assessment of GDP,
compared with the reading at more than 60%, so that it is still far from the bottom of the state
associated with 0% and below. If, however, against this from year to year expected economic
growth materialises, then even if house prices in Britain have not changed from current levels,
the housing prices in the UK did trend toward state standards on the GDP, an estimated 10% of
reading. This is consistent with my expectations of many years in the UK property market has
entered a period of depression after the first accident. However, if the UK economy plunge into
recession after GDP contracted demand in housing prices in the UK in the trend is much lower
again as the UK economy performing stronger than expected, it will ensure the price rise homes
Housing Prices 49
in the UK, so it will be important for tracking the evolution of real GDP against GDP forecast
the relative strength or weakness of guidance for future trends in property prices.
GDP growth trend analysis indicates a continuing depression in the housing market in the UK
over the next 3-4 years will likely be a gradual decrease in prices drift lower in the next 1-2 years
(12,6%), followed by another 1-2 years for the construction of the base.
4.7 The Price of the House and its Involvement in the Economy
One of the drivers of growth in the housing sector was the low interest rates. Financing
costs are extremely low charge of boosting demand for housing which in turn fuelled the
building of these. In the middle of the housing boom were real interest rates negative for several
years. If we add an increase in population and housing needs for the baby boom generation can
understand how it was the boom of the brick.
If we analyse the elements through which the downturn in real estate is transferred to the
rest of the economy we find that the fall in property prices reduce the wealth (asset value) and
therefore the financing capacity of individuals and companies. The deflation of property prices
has a direct relationship with the growth of GDP, credit and unemployment. In fact this fall in
prices not only expected deceleration in economic activity but it is also the causal part of the
process of slowing down.
The construction sector is one of the more cyclical sectors with a multiplier effect on the
larger economy and more extreme variations. During the expansion cycle grows above average
and during the recession cycle also decreases more than the average. This is due in large part to
the long lifetime of investments. While the construction of a house can be extended to about two
years, the demand has repayment means a decade. This causes variations of rising interest rates
Housing Prices 50
reduce demand while developing promotions that catered to this demand and at completion
produce an oversupply of housing in a market with lower demand and ultimately will have its
impact on product price.
4.8 The Effect of Falling House Prices
The fall in house prices has a direct effect on household wealth, as is where deposited
80% of this is. One way to offset the negative effect of this loss of wealth is by reducing
consumption and increasing savings. The consumption is drastically reduced when it is financed
by home warranty, a practice that has exploded in our country during this crisis to three credits
per household (mortgage, personal loan and credit card). The price increases led to increase the
level of household debt to a continued high appreciation of housing which encouraged
consumption and that is what is known as false wealth or living beyond our means.
The price of housing also affects businesses because it causes a fall in land prices and therefore
any asset property such as offices, factories, hotels, etc. This devaluation of the assets of the
companies causes deterioration in their balance expensive access to credit and reduces its ability
to borrow.
With respect to financial institutions the fall of house prices and spread of any real estate
assets diminishes the value of mortgage guarantees loans below the value awarded and due to
late payment has a direct impact on profitability. This in turn has a direct impact on its ability to
finance new operations and thus reduce the supply of credit to the provisioning requirement.
This in turn requires the agency to adopt a defensive position to new incidents which further
reduces the supply of credit. The sum of the three officers involved, families, businesses and
Housing Prices 51
financial institutions generate a contractionary effect on economic activity must be stopped
somewhere on the link to have no harmful consequences.
The fall in consumption in turn affects a drop in production to meet demand and
investment is reduced to the impossibility of profitable operations. All this just affecting the
labour market for redundancies and not renewing contracts. The financial sector in turn hurt the
face of rising delinquencies by the inability of unemployed workers with diminished income and
companies to meet loan payments. The spiral is fed back and unemployment rises further fall in
consumption, which again leads to higher unemployment, more delinquencies and returns to feed
the decline in property prices.
4.9 Characteristics of Housing Cycles
In the past 40 years house prices in advanced countries has grown by an average of 2.6%
per year and most of the time has been on an upswing. The expansive phase lasted an average of
6 years, during which the price of housing has risen by 62%.While recessions have been
repeated regularly been two periods of deflation on average per country with a duration of five
years each and a drop in house prices of 23%. Globalisation has led to a global synchronisation
of the growth cycle of the advanced economies. During the last expansionary cycle in interest
rates remained very low in these economies that fuelled economic activity and continued his
extraordinary growth cycle with an average of 10 years and an average appreciation of housing
by 100%.
The intensity and duration of the last phase of expansion has a direct impact on the
subsequent recessionary cycle. The greater is the expansionary phase of the longer post-
recession, and the greater has been the reassessment of housing during the first period the greater
Housing Prices 52
the devaluation in the second but not obeys a linear relationship and therefore bears no
proportionality. One of the elements that distort the results due to population increase that many
countries have suffered in recent years has been the case in Spain and therefore has limited the
decline in housing prices.
Statistics show a direct and synchronised between the deflation of real estate and
development sector of the economy with GDP decline, credit crunch and rising unemployment.
After starting the deflation in real estate moves its effect in subsequent quarters of GDP and
credit. Since the beginning of the fall in the price of housing up to a year and a half after the
GDP and credit time decrease to bottom from which they recover slowly. With unemployment
the same thing happens and does not begin to decrease until after 4 years.
In indication to all banking crises have occurred during periods of falling housing prices.
In these cases the collapse of housing prices has been extended another year and has fallen 10%
more than in a normal crisis so that it can be concluded that the proper functioning of the
financial sector minimises the effects of the price drop housing on the economy.
4.10 Interest Rates on Mortgages and Housing Prices
To what form are the interest rates on mortgages? If the percentage rate of change
throughout the contract period of the loan, but the specific system and specific rules, then they
are called floating or variable. The variable rate is usually slightly lower than at the beginning of
payments than fixed, but there is a risk that in future it will only increase. With mortgage lending
by multiplying the duration of the loan at the bank rate, we get very small amounts of bank
income. And sometimes the mortgage banking activities, even losing, but they continue to lend
Housing Prices 53
mortgages in the hope of some development and perspectives in this direction. (Glaeser, 2003,
pp. 37–82)
Of course, if we compare with the past interest rates on mortgages for a few years gradually
declined significantly. But housing prices are not standing still. Also, in recent years property
prices have made an enormous leap upwards. Today, interest rates on mortgages will go down
gradually and smoothly, although the price of housing probably will not go down. According to
analysts of the mortgage market does not make sense to wait until mortgage interest will be
minimal. You can even stay at a loss if home prices and will continue to grow.
Is it important today mortgage? This is a credit for the purchase of mortgages. The borrower
receives funds for home purchase, and it also provides as collateral (guarantee) its own solvency.
Purchased a mortgage scheme property become the property of the buyer. Since some of the
costs of housing have to be paid by the buyer, that made an initial contribution. Of course, banks
can issue mortgage loans with no down payment, increasing interest rates on mortgages, but the
increased risk of no one cancels. The law "On mortgage" adjusts the legality and regularity of
transactions in mortgage lending.
Credit terms, the requirements for the borrower, the interest rates on mortgages, common
mortgage terms are different for different banks, and constantly changing. Changing customer
requirements, development of new mortgage programs, interest rates fluctuate. To explore all the
features of home purchase loans, you should carefully consider the proposals of several banks to
save more than one thousand $ and choose the best and most advantageous proposal among
many. For example, there is a property tax deduction, reducing the purchase of housing
mortgage interest. Recipient of a mortgage loan should not pay income tax on the amount it
spends on the first home purchase and the amount of interest on the mortgage. Often, banks offer
Housing Prices 54
special programs for social and subsidised mortgages, mortgages for families of military
personnel as well as the program with reduced rates for young families. Today, for many
families mortgage is the only chance to buy their own apartment. Especially since the state began
to support mortgage lending, and soon the mortgage interest will only go down.
4.11 The Credit Crunch and Property Investment
The credit market turmoil in 2007 hit the property investment market which was already
experiencing some reduction in liquidity and a peak in capital growth. The effect of the sharp
dislocation in debt markets was to accelerate a sharp adjustment in both activity levels and re-
pricing in the property investment market, with a large and sudden shift in investor sentiment
against the sector.
The credit crunch has reduced the availability of debt for property investment and made
its cost more closely related to risk. Issuance in the commercial mortgage-backed securities
(CMBS) market sharply reduced, removing a relatively low cost route to borrowing. Highly
leveraged investment activity has been sharply curtailed.
The CMBS market has been a less important source of finance for property investment in
the UK compared to the US, although syndication of large loans has been significant and has
now become much more difficult. A clear consequence is that the availability of debt for very
large transactions, such as those involving big Central London offices, is greatly reduced. Across
the market generally, lending conditions have tightened and loan to value ratios have reduced.
Fewer banks wish to expand their property loan books and in general banks have become more
selective with respect to borrowers they will support. To an extent, bank lending to the sector has
re-focused on established relationships.
Housing Prices 55
The stock of bank loans outstanding to UK real estate has more than doubled over the
past five years, reaching £193 billion at the end of 2007 on the Bank of England’s figures. This
underestimates total lending to the property sector as it excludes loans from certain categories of
lenders, including German mortgage banks and building societies. Bank lending policies will
clearly be crucial to market liquidity going forward. Merrill Lynch has estimated that around £60
billion of property loans require repayment or re-financing by the end of 2009. Any adverse shift
in bank policies which lead to re-financing problems in relation to this level of debt will have
serious market implications.
4.12 The Credit Crunch and Property Development
The credit crunch and its consequences have significantly changed the climate for
property development in the UK. It is important here to distinguish between developments which
are already in progress and will complete over the next year or two and those not yet started that
were planned for implementation in the short term. The credit crunch will not greatly affect the
amount of new development that will be completed in the next two years or so, which principally
comprises schemes already under construction, but could have a significant effect on the amount
of new construction that is initiated over this time period and hence strongly affect medium-term
completion levels.
The credit crunch is a potentially significant influence on development activity directly
and indirectly:
Tighter credit conditions are impacting the availability and cost of finance for
development. This not only includes debt, but also the readiness of institutional investors to
Housing Prices 56
commit resources to new development schemes in present market conditions and greater risk
sensitivity.
The assumptions used in appraising potential developments in financial terms will be
changed in light of the credit crunch and its wider impacts. Rental projections will be more
cautious in the context of greater uncertainties over the strength of occupational demand, as will
the assumptions about voids before letting and the extent of rent free periods that will be needed.
At the same time, assumptions about the end value of completed developments will need to
reflect the upward movement in investment yields. These impacts will also have a negative
effect on development land values. (Gaspar, 1998, pp. 136–156)
Property developers are also facing the prospect of significant construction cost inflation
as a number of large projects converge. Shortages of key skills and specialist contractors are
emerging as key potential constraints on new development. In this context, developments which
have not started will become subject to increased scrutiny with revised development appraisals
and potential reconsideration as to design, timing or whether a scheme should proceed on a
speculative basis or be made contingent upon securing a substantial pre-letting commitment. In
this environment, developers will look further afield for sources of finance for development
schemes, with overseas funding likely to be pursued in more cases. As an example, the ‘Shard of
Glass’ development at London Bridge is now set to proceed with financing arranged with Qatari
partners.
The net effect of the credit crunch on development activity is likely to be that the
initiation of new schemes in the short term will be substantially less than was envisaged 12
months ago. The London office market has a large pipeline of proposed schemes for completion
in 2010 and beyond. The timing of a number of these has now become more uncertain.
Housing Prices 57
4.13 Economic Instability and Macroeconomic Policy
Macroeconomic instability and the economic cycle, as generally understood as changes
in output and gross domestic product (GDP), unemployment and inflation. Economics long-term
growth story is subject to short-term macroeconomic demand and supply shocks that drive GDP
from long-term potential or trend rate of growth. Smith and the classical tradition continued to
believe that hands-off approach was the correct political stabilisation to follow when such short-
term violations of the production occurred. This reflects the traditional focus on long-term
growth as a process of proposal, which was best left to private business. In addition, the private
market economies automatically self-correct through appropriate wage and price adjustment.
Deflation continues until the economy is back at full capacity. Until the twentieth century, the
dependence of the classical school of self-correction of private markets, the gold standard of the
product, and promotion of free trade in a broad sense of macroeconomics. Fiscal policy is seen
as a means by which the government provides essential public goods and services deficit
spending is due to war or weakness in the economy, which reduced state revenues from taxes.
Monetary policy of the United States, working without a central bank until 1914, it was not
considered a tool of macroeconomic stabilisation. Financial difficulties before and during the
Great Depression were to change this situation.
Housing Prices 58
CHAPTER 5: CONCLUSION
This work has focused on micro-and macroeconomic factors, which are devoted to
housing. In a world in which new public spending cuts will likely be the norm, it should be done
more carefully than in the past. Home should be considered in light of the limitations of other
resources in the economy. If the claims of any housing is higher than health or education, such as
econometric models, although far from perfect representation of the economy, could become a
useful tool for analysing some of the interactions between housing and the economy. Three
conclusions can be drawn from the experiments. The growth of housing costs often lead to short-
term GDP growth and employment, especially when the economy is not working at full
employment, these benefits can last for several years. But when the economy is close to full
capacity, increased demand from the government in inflation mainly reflected in the workplace.
It speaks about the role for counter-cyclical government policies. Although the British
government as a whole is controlled by this policy in 1980, there were attempts to act counter-
cyclical in the housing market in early 1990. The measures were part of "discretionary" -.
"Automatically" relaxation of rules on access to capital for the year 1993, for example, in the
part of automatic stabilisers arose from the weakness of the bid prices during a recession, which
means that spending limits set out in monetary terms to the increase in real production. The
emphasis on supply-side economics has been shown that an increase in public expenditure, by
themselves, there is little long-term effect on overall production and employment. UK policy of
macro-economic indicators in 1980 was aimed at structural changes to improve the productivity
rate. The simulation results show that the housing market, through its effects on the labor market
Housing Prices 59
affects the rate of growth over time. Reforming the financial system within a decade the 1980’s
were originally conceived as a means to improve growth by eliminating the constraints under
which the economy works. In fact, improved nutrition has been swamped with the impact on
aggregate demand from consumers? The researcher called for a reorientation of research on the
relationship between housing supply and the economy. Much of the work so far has been related
to the effects of housing on aggregate demand. Although the relationship between housing
markets and the work was studied to some extent, it hardly scratches the surface of potential
interactions. As mentioned in the second section, in principle, the home can affect the production
potential itself. Although no empirical (or theoretical) data on the most important mechanisms of
transmission, we can mention the following: the relationship between housing, health and
education.
At a place where each and every industry is globally mobilised, there are certain factors
like infrastructure, environment quality and housing, that can play a vital role to attract
industries. Though, this can be known that such factors also impacts poverty traps and still a
little proof of it on labor supply can suggest you that unambiguous special dimension must be
added to the analysis of whether the house is composed of interconnected series of local and
regional markets rather than national markets.
Housing Prices 60
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