Introduction
The UK is projected to experience a significant population increase in the short term. A report by the Economic and Labor Market Review projects that the UK’s population will grow by over 4 million to reach 65.6 million by 2018 (Office for National Statistics, 2009). London is one of the most populous boroughs in the UK. Statistics from the Office for National Statistics show that London had an estimated population of 8.63million million people in 2015 (GLA Intelligence, 2015). It is estimated that London’s population will grow by approximately 5% per decade over the next three decades. According to GLA Intelligence (2015), London’s population is expected to reach 10.2 million by 2039. The growth in London’s population presents a major challenge with regard to housing. Currently, the UK is characterized by a significant shortage in the supply of housing, hence driving housing prices up (Ough 2016). Indeed, the housing purchase market is nearly a second-hand market since the newly built houses represent only a small percentage, actually less than 1% (Williams, 2016). In addition to demand and supply, the prices of housing in London are also influenced by the prevailing trends in the financial markets, such as the interest rate.
The housing market is subject to changes that occur in the macro-environment. According to Gil-Alana, Barros, and Peypoch (2014), housing prices increased remarkably from the mid-1990s until 2007. Nevertheless, the price declined due to the subprime mortgage ccrisiswhich originated from the US (Bramley, 2014). The housing prices in the UK have also been affected by the country’s decision to exit the European Union. Housing transactions declined by 9% during the 2nd half of 2016 compared to 2015. The uncertainty associated with Brexit has significantly driven housing prices down (Evans & Pickford, 2017).
Understanding the link between housing demand and price is critical in the UK government’s effort to develop economic and social policies aimed at addressing the housing challenges in the country.
Justification
The increase in housing prices in London underlines the market’s failure to establish a balance between housing demand and supply, hence affecting prices. An increase in housing prices has a significant effect on a country’s economy. For example, high housing prices mean that a significant proportion of households cannot afford quality housing amenities, which affects their quality of life and hence their productivity. For example, households living in low-quality accommodation and the homeless are mainly characterized by reduced productivity. The high demand for housing compared to supply and the projected increase in London’s population mean that housing prices will continue to be a challenge. Thus, London might experience an endemic housing problem because of the prevalence of market failure (Chowdhury & Maclennan, 2013).
Significance of the research
To deal with the market failure, the UK government must undertake the requisite intervention. The intervention may relate to taxation, direct provision, rules and regulations, subsidies, and allocation of houses (Williams, 2016). However, the intervention is only possible if the relevant government agencies understand the prevailing situation concerning housing demand and supply in London. This research study will provide critical insight into how changes in demand in London have affected housing prices.
Research aim and objectives
This research study seeks to understand the impact of an increase in demand on housing prices in London. To achieve the research aim, the following objectives will be considered:
a. To assess the factors that drive demand and supply for housing in London.
b.To examine the issues that contribute to the failure of the London housing market and the government intervention schemes that may be employed to deal with market failure.
c.To determine the underlying economic issues behind housing price fluctuation.
Research questions
In order to successfully address the research objectives, the research study will seek to respond to the following research questions.
- What are the factors that drive the demand and supply for housing in London?
- What are the issues that contribute to failure in London’s housing market, and what government intervention schemes can be employed to deal with the situation?
- What are the underlying economic issues behind price fluctuation in the London housing market?
Literature review
Over the past few decades, we have witnessed a significant rise in housing prices in various boroughs across London. In particular, the housing market experienced a stronger housing boom compared to other leading economies. While the rising rates in housing prices may not have equaled the historical levels recorded in 1978/79, they were nonetheless considerable. Between 1989 and 2002, London recorded the fastest growth in housing prices. Haddon (2015) opines that during this period, London recorded a £70 increase in housing prices per day. Findings from the Halifax House Price Index indicate that there was a 28% growth in house prices during the last quarter of 2002 (Office for National Statistics, 2016).
The main drivers of house price inflation were low-interest rates and a property shortage. The context for the recent house price growth period has been one of the low-interest rates, and there are expectations that low rates might continue into 2019 (Dancun, 2013). The average monthly earnings for employed persons have increased with stable employment, and the unemployment rates have declined. Combined, these factors provide a positive environment for housing investment. There has been a rapid increase in the number of households across London boroughs, but the housing supply has not kept pace with the growing demand (Holman et al., 2015). Consequently, we have had a huge shortage in the number of properties for sale in London. These factors affect the supply & demand for the housing market in London.
London has a uniquely expensive housing market that has contributed negatively to poverty. As London’s poverty profile summarizes the issues as expensive London property during purchase, especially in the private sector, overcrowding, high landlord possessions, and inadequate new-build houses. According to a recent survey by YouGov (2013), people around the city preferred skimming to pay for their housing and other basic needs. About half of the working families in London cut back on essential clothing and food to be able to pay for housing, which is equal to about 500,000 families. It is estimated that 1 in 17 working parents goes to the extent of skipping meals, and one in 7 are not buying new clothes or shoes for their children to cover housing costs (YouGov, 2013). About 40% of the working parents in London are already struggling to cover their mortgages and rent costs; this leaves them vulnerable to any minute change in their income.
The increasing number of people living in privately rented houses has brought significant change in the housing sector. The Resolution Foundation (2015) reported in August that home ownership in London is now at 60%, similar to the levels in 1986. Manchester follows London as having the lowest percentage of home ownership. The London Fairness Commission’s final report (2017) noted that 1 in 5 people now live in rented houses and the number is on its rise. The report also argues that the problem comes from the regulations on private landlords. The Centre for London report (2014) on housing inequality in London also reported that the number of people living in poverty due to housing costs in private rented accommodation increased by 15% between 2001 and 2011 (Bramley, 2014). They also argued that the tenants are the most exposed to fluctuations in the housing market conditions and are also the most vulnerable. The crisis/shelter sustain project’s final report looks into the difficult conditions of homeless people being moved into private rented accommodation. Also, the Centre for London report revealed that, while an influx of highly skilled workers into inner London has reduced the poverty rates significantly in the last five years, lower-income, lower-skilled workers’ families have opted to move to the outer parts of the city (YouGov, 2013). This issue has also been deeply addressed in The Smith Institute (2016). Nonetheless, there remain huge gaps of poverty and inequality in the inner parts of the city.
The Greater London Authority, in its 2015 CHAIN report, revealed that between 2014 and 2015, approximately 8000 people were observed to be sleeping under rough conditions. This was an 8% increase compared to the previous year (Greater London Authority, 2015). 5000 of the homeless people were being seen for the first time. More than 40% of the homeless were UK citizens, with 85% being male (Greater London Authority, 2015). 30% of the homeless individuals indicated that the reason for their homelessness was that they were asked to leave home by the people they lived with, or were simply evicted. There has been a huge increase in the number of young rough sleepers, with 1 in 10 young people aged below 25 years falling into this group (Greater London Authority, 2015).
Methodology
The purpose of this research study is to gain insight into the factors that contribute to increase in increase in housing prices in London. Credible research approaches and techniques will be employed in order to improve the credibility and validity of the research findings. Subsequently, the research onion will be used in selecting the most appropriate research techniques.
An effective research philosophy, which refers to a system of beliefs, assumptions, and approaches adopted in the development of knowledge. Creswell (2012) accentuates that the research approaches and procedures are comprised of the methods of data collection, analysis, and interpretation. This research study is based on the interpretivist research philosophy, which postulates that it is only possible to fully understand reality by adopting a subjective interpretation of the issue or phenomenon under investigation. The rationale of employing the interpretivist research philosophy is to gain a comprehensive understanding of the issues by trying to gain insight into the individual household’s truth. These assumptions are inevitable in shaping how one understands their research questions, the methods, and the interpretation of the findings. This research is based on subjectivism, where one asserts that social reality is made from the opinions and ensuing actions of social actors.
This research design will be based on a mixed research design. Subsequently, both qualitative and quantitative research designs will be employed. The rationale of integrating mixed research design is to integrate inductive reasoning, which expects the researcher to use existing theory in formulating the research question to be explored. Employing qualitative and quantitative research methods is critical in improving the interpretation of the research findings (Creswell, 2012). The process involved learning from resemblances, patterns, and regularities in experience to conclude.
Sampling and data collection
The research study will obtain data from primary sources. This will be achieved by identifying respondents from the field, who will be selected across London City. The rationale of sourcing data from primary sources is to gather credible data from the field, hence improving the credibility of the research findings. The process of data collection will entail the integration of random sampling. The purpose of employing random sampling is to ensure that there is no bias in selecting the respondents. A sample of 100 respondents will be constructed. Interviewing techniques will be employed in gathering research data. A semi-structured questionnaire will be used in conducting the interview. The motive of using the interviewing technique is to gather information that would be used to determine the cause of the increasing house prices within the housing market. The semi-structured interviews were sent to the respondents via email. From the information gathered from the interviews, the results would be analysed to establish the main causes of the housing crisis in the city and ways through which the government has tried to address this issue (Bouman & Atkinson, 2013).
Data analysis
An extensive analysis of the research findings will be employed in order to develop a comprehensive analysis of the data collected. The data collected will be analyzed using descriptive statistics. This will be achieved by integrating the different tools that include Microsoft Excel and data analysis software, viz. SPSS. By using these tools, it will be possible to organize and categorize the qualitative data using quantitative tools. The process of analyzing the qualitative data will be achieved by cleaning and sorting the data. The use of SPSS and Microsoft Excel will aid in organizing the data using pie charts, graphs, and tables.
Validity and reliability
Ensuring credibility and reliability in a research study is critical to improving its acceptability of the research findings. One of the critical issues in ensuring validity and reliability in a research study is that the findings are supported by convincing evidence. Reliability entails the extent to which a research study accurately represents the research findings and hence the phenomenon being studied. Conversely, reliability entails the extent to which the findings of a research study can be replicated (Patton, 2002). To improve the validity and reliability of the research study, the concept of triangulation will be employed. This will be achieved by employing diverse methods of data collection that include questionnaires and interviews. (Golafshani, 2003).
Ethical Considerations
The process of conducting the research study will ensure that the requisite ethical issues are taken into consideration. One of the issues that will be taken into consideration entails ensuring that the respondents do not suffer or feel harmed in the course of the study. To deal with this aspect, the researcher will ensure that the respondents are provided informed consent. This will be achieved by ensuring that the respondents are adequately informed about the purpose of the research. Moreover, the respondents will be provided discretion to either participate or pull out of the research study without suffering any consequence. In addition to this aspect, the researcher will ensure that the respondent’s privacy is maintained during the process of the study (Fritz 2008). Specifically, the issue of anonymity will be upheld, meaning that even the researchers themselves were kept anonymous throughout the study. The aspect of anonymity is stronger in guaranteeing privacy. Before conducting the research study, the researcher will seek authorisation from the relevant authorities in London. This will aid in eliminating suspicion during the research process. In addition to this aspect, the researcher will ensure that the information provided by the respondents is kept confidential. Moreover, the respondents will be assured that the information provided is strictly used for research purposes.
Resources
The process of conducting the research study is characterized by time constraints. Thus, it was not possible to conduct a face-to-face interview. On the contrary, the questionnaires were sent to the selected participants using email.
Timetable
The Gantt chart below illustrates the activities that will be undertaken in conducting the research study and the projected timeframe.
References
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