Question

Five housing policies are described below, based on examples of measures that have been introduced or proposed in the UK, in response to a chronic shortage of affordable houses in many regions.

Drawing on the module material, write an essay that explains, using the ‘demand-and-supply’ model, the likely impact of each policy on the equilibrium quantity and price of houses, and how this might affect the UK’s affordable housing shortage.

Policy 5

The government has set up a programme of guarantees to support lending to smaller housebuilders by taking on some of the borrowing risk usually borne by developers in their projects.

Answer 1

The government has setup guarantees to support lending to small housebuilders, this will lead to increase in the level of credit being sought by the housebuilders as they are able to reduce the borrowing risk and improve the ease of doing projects.

It will lead to increase in supply of affordable houses, reducing the price of houses as number of houses available in the market will increase. More the number of houses, more the supply of houses, leading to more options for consumers and their bargaining power increases as their choices increase.

It will lead to reduction in the shortage of affordable housing as more number of players will try to seek entry in this business as the overall risk of lower completion rate, credit availability and impetus given by the government will lead to increase in the participation rates.

Real estate is a costly business, by increasing the affordability of the builders, there would be higher supply of small and affordable houses which increases consumers value for money and doesn't lead them to spend most of their savings or seek a mortgage because there are various options available and a property is priced as per the willingness of the consumers. Plus as the builders are not pressured with extra costs, they would be able to afford building low cost houses as their overheads reduce.