Determination of Regional House Prices in UK

Factors that determine regional house prices

1. Supply of housing. Supply of housing is important for determining regional variations in house prices. E.g. in parts of London it is difficult to build new houses therefore supply is inelastic. This is one reason why house prices are more expensive in London.
2. Demand for houses is varies in different part of the country. Areas with low unemployment and well paid jobs will have higher demand. This is quite significant because demand for housing tends to be income elastic (rise in income leads to bigger % increase in demand)
3. Schools. Parents are willing to pay a premium on house prices in order to buy in an area with close proximity to a good state school. This can work out cheaper than sending a child to a private school.

Changes in House prices.

1. Interest Rates. If interest rates reduce, then mortgage payments will be lower. This makes it more attractive to buy a house and benefit from cheaper borrowing costs.
2. Income. Rising income means people can spend more on buying a house. This is significant because demand tends to be income elastic.
3. Confidence / Speculation. If people expect house prices to rise then they will buy now and hope to make capital gains (increase in price of houses) People can buy to let. This means they try to make capital gains and rent to earn income.
4. Population. Rising population or rising number of households increases demand. E.g an increase in the divorce rate increases the number of households, more single people.
5. Taxes. Lower taxes on buying (stamp duty) would increase demand
6. Supply. If supply is inelastic it means any increase in demand causes a big % increase in price.