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Assignment |
Subject |
Education
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| University |
__________
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Module Title |
CIH Level 3 H3021 Housing Practice |
H3021 Unit purpose/aim
This unit will help you learn about housing markets and the factors that can influence them.
Note:
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LO1. Know the different ways that individuals access the housing market.
1.1 Summarise ways in which individuals access the housing market.
Answer:
People enter the housing market in three main ways: they buy properties with loans or cash, they buy properties in affordable housing schemes provided by the government, or they rent. These routes enable consumers and tenants to move through the housing market based on income, savings, and housing requirements.
1. Private Homeownership
- Outright Purchase: This is where the buyer pays the full purchase price of a home with money from his or her own savings or by making a cash down payment from the proceeds of a previous home sale.
- Mortgage Financing: The person takes out a loan from the lender (e.g. bank) for a part of the value of the property, and pays an initial deposit and interest to the lender over a fixed term (e.g. 25 years).
2. Ownership schemes that are affordable and/or government-assisted.
- Shared Ownership: These are the property owners who buy a smaller percentage of a home (usually 10% to 75%) and make subsidised rent payments for the remaining portion to a housing association. Purchasing more shares over time is called ‘staircasing' and can be done by the buyer.
- First Homes: Provides newly built properties at a discount of at least 30% to the market value for first-time home buyers and key workers.
- Deposit Unlock / Mortgage Guarantee Schemes: Schemes supported by a housebuilder or the government that permit the buyer to acquire a new-build or existing home with a deposit as low as 5%.
- Right to Buy / Right to Acquire: Schemes designed to give long-term council/housing association tenants the right to buy their current homes at a substantial discount.
3. Renting
- Private Rented Sector (PRS): People who rent from private landlords or letting agents. This needs initial expenses such as first month's rent and deposit.
- Social / Affordable Housing: Rental housing provided by local councils or housing associations that is subsidized. Renting is at a low rate compared to the market and depends on the Local Housing Needs Register.
1.2 Discuss the opportunities and barriers to individuals accessing the housing market.
Answer:
Accessibility to the housing market is a profound supply-demand mismatch, with rising prices for housing and declining wages for residents creating the most significant challenge. With digital property technology (proptech), flexible mortgage products and remote job opportunities, new opportunities are opening up, though, to buyers looking to find affordability outside urban centres.
Barriers to an Individual accessing the housing Market
- Affordability and Deposits: Housing costs are much higher than the growth of average income. Saving is the most pressing obstacle, which is why this is the most challenging part. Moreover, conservative lending multiples (roughly 4.5 times salary) exclude many potential homebuyers.
- Borrowing Power and Mortgage Rates: Interest rates can have a significant effect on borrowing power. Longer mortgage terms (such as 35- or 40-year mortgages) have been adopted to reduce the monthly mortgage payments, but of course, the trade-off is that buyers would be paying significantly more interest over the life of the loan.
- Limited Supply and Market Distortion: The sluggishness in new home building is well documented and historically occurred. Institutional investors and landlords buying entry level properties to turn into private rental, adds to this undersupply, making it difficult for first-time buyers to compete.
- Rental Market Traps: If you're seeking to move from renting to owning, then high rents are a significant factor in how much you can save each month. Within the rental market, low tenant protections and the presence of up-front costs and thorough background checks are significant challenges.
Opportunities for Individuals Accessing the Housing Market
Having the option to work remotely and/or relocate has lessened the need to reside in high-priced commercial centres. This gives you the chance to buy or rent homes within the suburban or rural community, where prices are lower.
- Shared Ownership and Alternative models: Shared ownership is a model in which people purchase a portion of a house and pay rent for the remainder, as a stepping stone to the home ownership ladder. Likewise, guarantor mortgages and family financing come in to cover the deposit shortfall.
- PropTech and Digital Tools: Today, search friction is drastically reduced thanks to digital proptech and automation. On modern real estate platforms, AI-powered affordability calculators, real estate market data comparisons and tracking housing inventory logs are all at the fingertips of the aspiring homeowner.
- Co-Living and Multi-Generational Living: Co-living and pooling family resources have emerged as viable options to reduce upfront and monthly housing costs and have opened up the market for younger generations or financial security for them.
LO2. Understand the role of the main providers of housing.
2.1 Identify the main providers of housing.
Answer:
Generally, the providers of the main houses can be categorised into two groups: public (social) providers and private providers. These providers can provide housing for all income levels, from government-supported housing to market-rate rentals and homeownership.
The main providers of housing are:
Public housing: owned and managed by the local councils/authorities. Councils accept properties, which they depend on the individual to be in "housing need" and then manage them directly or via management organisations.
- Housing Associations: a not-for-profit organisation (or registered provider) providing affordable and social housing that owns and manages it independently. They construct considerable amounts of new housing and serve a wide range of communities, including older persons and those requiring special services.
- Private Landlords & Investors: Owners of property who charge market rent. In many private market economies, this is the largest sector of providers.
- Property Developers & Housebuilders: Private sector construction organisations building new properties for private sale, shared ownership or market-rate rents.
- Charities & Specialist Providers: Organisations that provide specialist or supported housing, including student housing trusts, homeless hostels and domestic abuse shelters.
2.2 Describe the role of each group of housing providers in the housing market.
Answer:
In the marketplace, housing providers are split into three main groups: Private Developers and Landlords, Social Housing Providers (Councils and Housing Associations) and Owner-Occupiers. Groups have different functions to meet the housing needs, from market provision that generates profit to affordable housing that is community-oriented.
1. Private Providers
- Private Developers / Housebuilders: They are mainly land-buyers who build houses and sell them at a profit. They contribute the most to new household supply in accordance with market trends, demand of buyers and macroeconomic changes.
- Private Landlords / Investors: These buy residential properties to rent out at the market rate. They are vital to supplying residential mobility and flexible housing for professionals, students and those who cannot or won't own a home.
2. Social Housing Providers
- Local Authorities (Councils) are responsible for providing long-term affordable housing for lower-income households and vulnerable households at the top of the waiting lists. They also have a role in determining local housing needs, running homelessness services and, in many cases, enforcing local housing standards.
- Registered Providers: These are usually not-for-profit providers and managers of affordable housing, usually referred to as Housing Associations. They provide specialist care and support services, oversee existing council housing and create new housing for rent and low-cost home ownership.
3. Owner-Occupiers
- Homeowners: This is a group of people who are homeowners or own the property they occupy with a mortgage. They are essential to the market in a number of ways: their buying power is responsible for the growth of home equity; they are the largest share of the market in most housing economies.
LO3. Understand the features of the housing market.
3.1Describe the relationship between the supply of and demand for housing.
Answer:
The interaction of supply and demand and the basic market mechanisms influence the supply of and demand for housing, which in turn influences property prices and availability. If there is more demand than supply, prices increase. Conversely, when supply outpaces demand, prices drop. Housing supply is slow to develop; therefore, market supply shocks have a profound influence on affordability.
This relationship is based on a few basic principles of the economy:
- Law of Demand: As housing prices decrease, the quantity of housing demanded generally increases. Demographic changes, population growth, changes in mortgage availability, and changes in household incomes are all factors that influence demand.
- The Law of Supply: In a rising housing market, builders will be encouraged to build more housing. Construction costs, labour availability, geography and government planning regulations are all important factors in supply.
- The price elasticity: The housing supply is generally inelastic, and new housing cannot rapidly respond to a sharp increase in demand. Short-term supply is limited as it takes time to build houses. Therefore, when demand rises, the prices will go up, which will not lead to any additional supply.
- Market Equilibrium: The housing market is constantly looking for a balance between supply and demand as far as homes for sale or rent.
3.2 Identify factors that influence the supply of and demand for housing.
Answer:
Factors such as economic, demographic and regulatory conditions shape the supply and demand for housing. The growth of population, household income, mortgage interest rates and consumer confidence are the main factors that influence demand. Construction costs and availability of land, government planning policies, and developer profitability all affect supply.
The factors that affect housing demand are discussed in this section:
- Population Growth & Demographics: When the population grows, or there are more households being formed (more single households, or an ageing population), the basic need for shelter rises naturally.
- Income & Affordability: An increase in real wages and household wealth increases the purchasing power and saving capacity of buyers and thus increases the overall demand for housing.
- Interest Rates & Mortgages: When central bank rates are cut, people can afford to buy more of these, increasing demand. On the other hand, if credit is hard to come by or expensive, fewer prospective customers will be able to afford a home.
- Investor Demand: As real estate becomes a good investment, the buying and selling of property increases by investors and landlords seeking rental income.
- Consumer Confidence: When people are more optimistic about the economy in the future, they are more willing to invest in the future, which in turn drives up investment in the market; on the contrary, when the economy is predicted to be at risk of recession, or that people will lose their jobs, they are not willing to invest and this in turn curtails investment in the market.
Key Factors Influencing Housing Supply
Construction costs play a major role in determining how many homes can be constructed profitably, as the price of raw materials, skilled work and machinery is significant.
- Limited Land Availability: Geography and population density limit the amount of land available for development, especially in desirable urban areas.
- Government Regulations: Zoning legislation, environmental evaluations, and the time and/or complexity of planning permission procedures can discourage or delay new development.
- Government/Social Housing: Direct government funding or subsidies of social and affordable housing programs have a direct effect on the overall housing inventory.
- Profitability & Developer Objectives: Private developers modify the building pace with respect to the expected economic returns, and a negative economic climate could lead them to decrease building activity to reduce financial risk.
LO4. Understand how government intervenes in the housing system.
4.1 Outline the ways in which the national government intervenes in the housing system.
Answer:
National governments play a role in the housing system as a response to market failures, to support economic stability and to promote housing affordability. They usually do so in five main ways: direct provision, planning and land-use controls, financial subsidies, taxation and tenancy laws.
1. Direct Public Provision
A government's role as a property developer and landlord is to ensure a minimum supply of affordable housing.
- Social and Public Housing: Funding and managing the construction of housing units let at less than market rates for low-income people.\
- Public Land Release: Buying or seizing government surplus property or military land to avoid private market land hoarding and speed up residential development.
2. Planning and Land-Use Regulations
The location, type and quantity of housing are determined by national authorities who control land development rights.
- Zoning and Building Codes: Regulating the type of land use (residential, commercial, industrial) and setting high safety, density and environmental standards.
- Mandatory Housing Targets: National building targets for local areas, which may include the creation of 'grey belt' development, aimed at creating more supply.
3. Financial subsidies & market backing.
- Financial interventions are deployed by the government to boost demand and supply for houses by the government.
- Demand-side Subsidies: Providing mortgage guarantees, deposit support or tax breaks to first-time buyers to encourage them into the housing market.
4. Taxation Policies
Tax regimes are used to control property investment, discourage speculation and redistribute wealth.
- Property Taxes: Modifying rates to dampen overheated markets or waiving taxes for certain buyer groups to promote home ownership.Transaction Taxes: Making changes to rates such as Stamp Duty to help cool overheated markets or exempt certain groups of buyers to encourage home ownership.
- Speculation Penalties: Tax increases on second homes, empty properties, or foreign home buyers to make homes available for residents.
5. Tenancy Legislation and Rent Control
The government controls the landlord/tenant relationship to make sure that it is secure and not exploited in the private rental sector.
- Eviction Protections: Ending arbitrary or ‘no-fault ' evictions (such as Section 21 bans) to offer long-term security to tenants.
- Rent Control: Limiting the amount of rent increases, or linking them to local inflation rates, to help keep tenants safe from the volatility of the market.
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