The fundamentals behind London’s current housing crisis and potential solution?

IntroductionThe assignment testament consider the housing securities industry inwardly capital of the United Kingdom, paying close attention to the housing constitution and macro-economic conditions that prevail take to the current crisis within the citys housing market. It could be argued that a current paucity of housing educations, mainly in the more low-priced range, coupled with a surge in global real-estate investment funds in the city has caused a major shortage, leading ultimately to price increases and so a divergence from housing markets within the northward of the UK (Dyson, 2014) Online.This assignment will first touch upon the policies that strike led to this problem in the beginning looking into the recent macro-economic trends which prepare aggravated the issue, thrust into the spotlight.The UK housing market has for near time been impacted by poor housing policy, with many arguing that levels of spic-and-span construction have been unable to meet the surge in existence growth and so beseech for rude(a) field of operationss. composition this has become a more national problem, the south of Eng rural realm, most notably capital of the United Kingdom has witnessed the greatest arrogate (Myers, 2012). plaza Overview musical composition the population of capital of the United Kingdom has continued its growth given its rise in position as a global business hub, housing developments have been unable to supply the market with teeming new properties, as closely as properties which topical anaesthetics deem affordable. While it can be noted that on that point are currently some significant developments within capital of the United Kingdom such as the Battersea government agency Plant re-formation, many have commented that these ?Million properties are being built with the wealthy oversea investors in mind over local buyers given that the prices asked are far out of reach of many workers (Renshaw, 2013) Online. While local c ouncils have attempted to resolve this issue by weighing all developers to include a percentage of affordable homes in their plans to win planning permission, many of these new developments are still primarily geared at the high-end of the market with many developers advertising their properties in international markets (London First, 2014). This, along with major regeneration plans in some areas which has prioritised commercial/ retail space over residential, has seriously curb the potential for new housing for the local market and supported the price increases seen over the years. Furthermore, the central boroughs of London are similarly restricted by the availability of land to develop new homes, with new developments pushing higher(prenominal) for greater floor space. While this has become a popular method in London with new skyscrapers such as The Shard, these developments have usually favoured office and retail space over residential (Ball et al, 2012). What could be consid ered here is the desire by boroughs within London to re-generate and effectively create local meats to compete with the main areas of London. There has been significant discussion over the years regarding the downfall of the UK high-streets as out of town competition and online shopping reduces the submit for typical bricks-and-mortar stores in London the main issue for some could be the easy accessibility into the city centre and so the main shopping and cheer districts. With this, local boroughs have prioritised the development on new commercial and office space in a childs play to string the private investment that would be needed to support larger regeneration plans and attract more people into the area, however as mentioned previously given the short supply of available land in some central boroughs this has led to an opportunity cost between residential and commercial development.London CrisisThe main issue for the market is a simply supply and demand crisis essentially the market is severely under supplied, with prices been pushed up by the consumers willing to pay a higher price for the property. This has created a situation where the supply of affordable housing is quite inelastic and so any notable increase in demand will only result in the price moving higher. This has also led to other affect whereby prices have also increased strongly in the wider South-East area as commuters anticipate property in lower price areas with strong transportation connections into London.The supply crisis has also been heightened by some other issue namely strong international demand for property in London as an investment opportunity and store of wealth (Tower Hamlet Citizens, 2014). In 2008, the financial crisis hit global economics and stock-markets. With this, investors desire for new safe-havens for their wealth as global stock markets take a breathered volatile and the value of other havens such as gold fell. Property or investments in brick-and-mor tar have always been popular, especially in economies like the UK where the market has remained buoyant over a number of years (Berry et al, 2011). London especially appealed to investors given its stock of high-value properties, increase population, global image as a destination for the wealthy, falling corporation tax as well as a weakening currency which made investment into UK property cheaper for international investors. The economics laughingstock this move has largely been driven by the desire to reduce risk but maintain returns on investments given that London house prices were increasing at higher up 10%p.a (ONS, 2014), investors who had once favoured take uping their change in stock markets and commodities such as gold quickly moved their money into property as a store of wealth. This movement has recently been reversed to some extent as a strengthen ?GBP and improving global outlook have decreased demand for high-end properties in London at a time when a wave of new s upply is hitting the market (Titcomb, 2014) Online.Potential SolutionsMoving forward, a number of factors have been put forward to help deal with the issue, focusing on new dominion and opportunities (London First, 2014). In terms of opportunity, London has been works to improve transport connections with wider area in a bid to open up more areas to potential commuters, essentially increasing the stock of housing that is available to anyone working within London, (Emmett, 2014). This would then lead to an increase in supply, which should help decrease prices. Notable projects include the Crossrail development, an ?18Billion transport project that will decrease commuter times into central London for a number of local boroughs (Crossrail, 2014) Online. The proposed HS2-HS3 (high-speed rail) projects could also been seen as a new opportunity giving more businesses the chance to open offices, facilities in other major UK cities such as Birmingham, Manchester, Leeds etc. while still hav ing access to London. The main clear on this is that it would move some business away from London as so reduce demand for housing from workers. Furthermore this project has also been seen as a way to reduce the heavily debated North/South divide within the UK, which in turn may help better align house prices between the two. In terms of regulation, a number of London boroughs have sought to effectively disembowel developers to include affordable housing within their plans to be granted planning permission (Besley, 2010). Given this, new developments such as the Battersea Power Plant have included some affordable housing within their plans, however as they only account for 15% of total home some have argued the card doesnt go far enough to solve the supply issues (Robertson, 2014) Online. In economic terms, local boroughs have identified the profitability that developments in London provide by asking developers to include some affordable housing within their plans they have affect ed the Net Present Value (hereafter NPV) or potential vengeance of the project, however given that projects are still being announced in the city it appears that developments still remain profitable for these companies. It could be argued by some that these new demands from the local authorities could be seen as perturbation within the free market, effectively using the private sector to provide a good (e.g. new homes) that the public sector has failed to provide. What this essay must also consider is that if that the public sector have through with(p) little themselves to attempt to resolve this issue, most probably down to a lack of capital and baffle necessary to move forward with these large-scale developments and so requiring the need for the involvement of the private sector. As mentioned beforehand, the private sector will be driven by the eventual profitability or NPV of these projects and so local authorities must ensure that they still allow these profits to be made whi le also attempting to resolve the housing crisis. According to data from the ONS, home prices in London are up 31.6% above their 2008 peak, while those in the North remain under the 2008 level, (ONS, 2014).Closing RemarksTo conclude the essay has shown that housing policy in London could have been seen as failing for a number of years as demand from a rising population has outgrown the level of new supply, pushing prices up much higher than the UK honest (Savills, 2014). The issue has intensified recently as the global economic crisis increased the desire for international investors to hold their money in property, with London seen as a prime market given the weaker value of the ?GBP could with perpetual price rises. While the essay has noted a number of initiatives underway to help increase supply and reduce demand, the potential impacts may be small and seen in a long-term scenario. While there is new infrastructure underway to improve the competitiveness and attractiveness of a wider London and also wider UK area the Crossrail development will not come online until 2018, while the high-speed rail links are not current expected until after 2020. Furthermore, while local boroughs have attempted to increase regulation and push more affordable housing into development plans, these are only small percentages, with some people disagreeing on what will be deemed affordable. Moving forward the main issue for London will be growing the land that it currently has spare in the best way possible to correspond its rising population but also its rising status as a global business hub in this case, higher residential housing prices may be needed for developers to justify their construction over commercial or office space.ReferencesBall, M, Lizieri, C and MacGregor, B (2012) The Economics of Commercial Property Markets, London, Routledge.Berry, J, Deddis, N and McGreal, W (2011) Urban Regeneration, Property Investment and Development, London, Taylor & Francis.Besley, T and Ghatak, M (2010) Property Rights and Economic Development. In Dani Rodrik and Mark Rosenzweig, Ed Handbook of development economics, London, Elsevier Publications.Crossrail, (2014) Online A world class railway company, useable at http//www.crossrail.co.uk/benefits/, Accessed 29/10/2014.Dyson, R (2014) Online mark prices gap between London and the rest of the UK is highest in 40 years, Available at http//www.telegraph.co.uk/ pay/personalfinance/houseprices/10738540/House-prices-gap-between-London-and-the-rest-of-the-UK-widest-in-40-years.html, Accessed 29/10/2014.Emmett, S (2014) London Infrastructure Outlook, London, Savills Research.London First (2014) 12 steps to solving Londons housing crisis, London, London First.Myers, D (2012) Economics and Property, London, Taylor & Francis.ONS (2014) Comparison of regional house price indices before and after the financial crisis, London, ONS Research.Renshaw, R (2013) Selling stampede at Battersea Power Station sets new record, Avail able at http//old.estateagenttoday.co.uk/news_features/Selling-stampede-at-Battersea-Power-Station-sets-new-records, Accessed 29/10/2014.Robertson, L (2014) Online No affordable housing in Battersea power gear up development, Available at http//www.insidehousing.co.uk/no-affordable-housing-in-gehrys-battersea-power-station-buildings/7003154.article, Accessed 29/10/2014.Savills (2014) Infrastructure and development must work together to accommodate Londons growing population, London, Savills Research.Titcomb, J (2014) London House prices tipped to fall, Available at http//www.telegraph.co.uk/finance/economics/10976395/Warning-London-house-prices-tipped-to-fall.html, Accessed 29/10/2014.Tower Hamlet Citizens (2014) A report on the housing crisis in one of Londons most expensive boroughs, London, Tower Hamlet Citizens.