The Increase of House Prices in London

Topics: Supply and demand, Inverse demand function, Consumer theory Pages: 3 (1088 words) Published: January 11, 2013

The article “House prices fall amid summer slowdown” posted in The Guardian on 30 July 2012 records the unusually early and high decrease in house prices in different regions of England in summer and its impact on UK economy at large. According to the article the gap between supply and demand set to widen and it reveals that UK has serious economic problems.

This paper examines the contents of the article using the techniques of the supply and demand model. The remainder of the paper is organised as follow: section 2 briefly explains the changes in house prices occured in July 2012 and section 3 introduses possible reasons for these changes, section 4 analyses the impact of Eurozone crisis on house prices in UK and in section 5 recommendations for sales people and real estate agents are given. Finally, a summary and comments are provided at the end of the paper.

Section 2: Changes in house prices in UK in July 2012-11-22
The number of new properties for sale has increased by 5.2% over the period May-July 2012, while demand has fallen by 2.2% over the same period (The Guardian, 2012) This led to decrease in house prices throughout the United Kingdom and the slowdown in price rising in London in order to increase the quantity of houses demanded. This is associated with the law of demand: “ the lower the price of a good, the larger its quantity demanded.” Refer to Figure 1.

Figure 1: Demand and supply of UK houses before summer slowdown

Figure 1 represents the situation on house market in UK before the summer decrease. Now refer to Figure 2 that shows the changes occurred to prices in July 2012.

Figure 2: Change in supply and demand of UK houses in July 2012

As we can see from Figure 2 supply curve S1 shifted rightwards due to the increase in supply by 5. 2% and demand curve D1 shifted leftwards due to 2. 2% decrease in demand. This led to a change in equilibrium from E1 to E2, where the price of houses decreased while their...
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