An increase in income means that people can afford to spend more on housing. Within the time of economic growth, demand for houses are expected to increase. Also, the demand for housing tends to be a luxury good. Thus, an increase in income causes a bigger percentage of growth in demand.
Demand for houses depends on consumer confidence. First and foremost, it will depend on people’s confidence in the future of the economy and property market. If people expect prices to increase, demand will also increase, so people can gain from increasing wealth.
Interest rates play a big factor in determining the cost of mortgage interest repayments.
Any change in the base rate by a bank will directly affect the mortgage interest payments. This is a major factor in determining the affordability of housing. Mortgage payments take a high percentage of a [person’s net income. Even small changes in interest rates can discourage people from purchasing.
It is a very crucial factor. It is not just the number of people but demographic changes such as the growing number of single people living alone have led to increasing demand for houses.
The demand for housing does not solely depend on the population but also the average size of a household. Some social and demographic factors affect an increase in the number of households. These demographic changes include factors such as the age of people living in a household, an increased in life expectancy, divorce rates.
One crucial factor that determines the effectivity of housing demand is the readiness of banks to lend mortgages. If banks give mortgages with bigger income variables, then the demand for houses is bigger. The willingness of banks to lend housing finance can differ depending on the strength of the interbank lending sector.
Rising incomes enable people to afford higher mortgages and encourage demand for housing. In times of resurgence, demand for housing increase rapidly suggesting demand for houses to be income elastic.
If the cost of renting rises, then households will make greater efforts to try and buy housing as buying a house through a mortgage becomes relatively more economical. This encourages households to stretch their budget as much as possible to get on the property ladder.
The first home buyers scheme by the Coalition intends to modify the affordability problem of investment properties by increasing the demand for housing. This policy scheme won’t produce a significant impact but it would somewhat increase home ownership.
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