Running Head: INTERIM RESEARCH PAPER

An investigation into how the private residential market impact the prices of affordable housing

in London.

[Name of the writer]

[Name of the institute]

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Abstract

The aim of the research paper is to investigate how the private residential market impact the

prices of affordable housing in London. In the UK, affordable housing is considered as one of the

most important part of property market. By the help of affordable housing, people in the UK are

able to find better houses within the country. From an economic point of view, the price of a

house is mainly demonstrated by supply and demand. The increase in the demand of the house in

London has increased the prices of the house. It is noted that affordable housing has become a

key issues in the world and therefore, it has been raising some in London as well. Currently, in

London the private residential market has controlled of almost 70% of all private production of

houses in London. The researcher will be using qualitative research design and interpretivism

philosophy. It is noted that researcher in the current paper will be using content analysis and

therefore making relevant themes and patterns in order to interpret the collected data and provide

answer to the research question. Ethical consideration is essential for any research study and it is

important for researchers to provide follow the ethical guidelines and rules. It is noted that

private residential market has inflated the prices of the homes in London due to which it has

exceed the budget of some households, making it impossible to pay for them and therefore

impossible to acquire a house. For most Londoners, the consequences of the housing crisis are

inevitable. Rising rents, inadequate housing and the loss of social housing are catastrophic

combinations that prevent too many families from finding truly affordable housing in London. It

is concluded that due to involvement of private residential market and government, people in

London failed to get better homes in reasonable prices.

Keywords: “Affordable housing”, “Affordable housing in London”, “Prices” and “Private

residential market”.
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TABLE OF CONTENTS
Abstract................................................................................................................................2

Chapter 1: Introduction........................................................................................................5

1.1 Aim of the study........................................................................................................5

1.2 Background of the study............................................................................................5

1.3 Research Question.....................................................................................................5

1.4 Research Objectives...................................................................................................6

1.5 Rationale of the study................................................................................................6

1.6 Overview of Methodology.........................................................................................6

1.7 Research Limitation...................................................................................................7

Chapter 2: Literature Review...............................................................................................8

2.1 Impact of private residential market on the prices of affordable house....................8

2.2 Drawbacks of private residential market on affordable housing in London.............9

2.3 Solutions for affordable housing in London............................................................10

Chapter 3: Methodology....................................................................................................11

3.1 Research Philosophy................................................................................................11

3.2 Research Design......................................................................................................11

3.3 Research Approach..................................................................................................11

3.4 Data Collection Method...........................................................................................12

3.5 Inclusion and Exclusion Criteria.............................................................................12

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3.6 Data Analysis...........................................................................................................13

3.7 Ethical Consideration...............................................................................................13

Chapter 4: Result and Discussion......................................................................................14

4.1 Impact of private residential market on the prices of affordable house..................14

4.2 Drawbacks of private residential market on affordable housing in London...........15

4.3 Solutions for affordable housing in London............................................................16

Chapter 5: Conclusion.......................................................................................................17

References..........................................................................................................................18
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Chapter 1: Introduction

1.1 Aim of the study

The aim of the research paper is to investigate how the private residential market impact

the prices of affordable housing in London. It also aims to provide effective solutions in order to

overcome the issues faced by people in London due to private residential market.

1.2 Background of the study

In the UK, affordable housing is considered as one of the most important part of property

market. By the help of affordable housing, people in the UK are able to find better houses within

the country. It is noted that in the current circumstances, it has been difficult for higher earners in

the UK to find a quality house in reasonable prices and they are also struggling in meeting the

excessive cost prices of house ownership (Czischke and van Bortel, 2018). Many councils in the

current market are forcing developers in order to make affordable housing of around 10 to 15

units or even more. It is noted that government has imposed constraint on the private residential

market to include affordable homes for people in London (Beswick and Penny, 2018). On the

other hand, it is found that the mixing of affordable housing within the private residential market

has created a negative impact for the people. It has affected the desirability to have a private

homes and therefore it has affected the prices of the property.

1.3 Research Question

The following questions will fulfil the aims of the current study:

 What impact does private residential market have on the prices of affordable house?

 What are the drawbacks of private residential market on affordable housing in London?
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 What are the solutions associated with private residential market that increasing the prices of

affordable housing in London?

1.4 Research Objectives

The following objectives will fulfil the aims of the current study:

 To investigate the impact of private residential market on the prices of affordable house.

 To analyse the drawbacks of private residential market on affordable housing in London.

 To determine the solutions associated with private residential market that increasing the

prices of affordable housing in London.

1.5 Rationale of the study

It is important for researchers to understand the current issue of affordable housing in

London. It is noted that most people are using Help to buy scheme in order to buy a new house in

London. However, they find it difficult due to bank mortgages which are associated with their

earnings. The involvement of private residential market has made difficulties for the people in

London to buy an affordable house. On the other hand, there are lack of researches related to this

emerging topic. Therefore, the current study will have a great significance as it provides

insightful information about the impact of private residential market on the prices of affordable

houses. The rationale of the current study will be that it presents issues related to private

residential market prices and highlight solutions as well in order to overcome the issue in an

effective manner.

1.6 Overview of Methodology

It is noted that methodology is considered as one of the most important part of any

research paper. By the help of methodology, it is easier to provide information about how it will
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fulfil the aims and objectives of the research paper. In the current research paper, researcher will

be using interpretivism research philosophy. Moreover, qualitative research design will be

included in the paper in order to gather information and data from secondary sources. It is vital

for researcher to select relevant data collection method. Therefore, researcher will be using

keyword strategy in order to collect secondary data from secondary sources such as articles,

journals and research papers. It is important for researcher to interpret the collected data in an

effective manner. Therefore, researcher will be using content analysis in which researcher will

make different themes in order to fulfil the aim of the current research paper.

1.7 Research Limitation

It is important for researcher to provide limitations and boundaries of the current research

paper. Due to COVID-19, it is impossible to collect first-hand information from people who are

associated with private residential market. Therefore, researcher will not use primary data in the

current study. However, researcher will use secondary data which will be collected from

authentic sources in order to make the current study relevant and reliable for the readers.
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Chapter 2: Literature Review

2.1 Impact of private residential market on the prices of affordable house

From an economic point of view, the price of a house is mainly demonstrated by supply

and demand. It is noted that the increase in the demand of the house in London has increased the

prices of the house (Van Doorn, Arnold and Rapoport, 2019). On the other hand, the inclusion of

private residential market in affordable houses has affected the buyer due to increment in prices.

The increases in prices and costs for people in London has an adverse impact on them and it has

increases the risk of macroeconomic stability. Therefore, housing affordability is essential and it

is defined as the ratio of the market value of households and creditworthiness. On the other hand,

affordable housing refers to social rent, affordable rent and intermediate housing provided to

certain families who are eligible and private residential markets cannot meet their needs (Yeap

and Lean, 2017). It is noted that private residential market has inflated the prices of the homes in

London due to which it has exceed the budget of some households, making it impossible to pay

for them and therefore impossible to acquire a house. From a social point of view, private

residential market has increased the prices of houses which also affected living style of people in

London (Pevalin et al., 2017). It can affect their well-being and health can increase several

problems due to inadequate living conditions, overheating and insecure access.

It is noted that housing prices in London are much higher and growing faster than across

the country. It is analysed that in 2014, the median house price in Westminster was £860,000

which is up 11.4% over five years from 2009 compared to the house price in Kensington and

Chelsea which is up to £1.2 million an increase of 12.2% in 2009 (Marsden, 2015). In contrast,

average house prices in Barking and Dagenham are just £215,000 around London which is 6.1%

annual growth over five years since 2009, still above the national average of £192,000 in
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England and Wales. In the long run, the private residential market in London has grown much

more than usual, and fluctuations in house prices in London increase fluctuations in house prices

in the country as well.

2.2 Drawbacks of private residential market on affordable housing in London

Governments and local authorities in London are interfering in the housing market. It is

noted that there are drawbacks related to affordable housing in London. It is analysed that

inefficiency and market failure are considered common in the housing market. The complexity of

communication in the private residential market means that there is a lot of noise and uncertainty

about the nature and meaning of brands (Marom and Carmon, 2015). Several economists have

highlighted all aspects of market failure in private residential market due to increment in prices.

It demonstrates that imperfect capital markets, imperfect information and differentiation, the

presence of foreigners and adjustment problems due to unbridled supply shortages are all

creating hindrance in affordable housing in London. It is noted that affordability is considered as

one of the main issue in private residential market and real estate market in London (Diamond

and McQuade, 2019).

It is articulated in the study of Phang, Phang, and Pacey (2018) that more and more

people in London are feeling the effects of a shortage of affordable housing and a negative

impact on the London economy. For most Londoners, the consequences of the housing crisis are

inevitable. Rising rents, inadequate housing and the loss of social housing are catastrophic

combinations that prevent too many families from finding truly affordable housing in London.

Low-income Londoners stuck in the private sector have felt it deeply. Between 2008 and 2019,

private leasing in London increased by a third, with ordinary tenants spending 57% of their rental

income (Padley, Marshall and Valadez-Martinez, 2019).

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2.3 Solutions for affordable housing in London

It is noted that affordable housing has become a key issues in the world and therefore, it

has been raising some in London as well. Currently, in London the private residential market has

controlled of almost 70% of all private production of houses in London (Beswick et al., 2016).

This reduces competition and reduces the industry's ability to meet the demand for housing. As a

result, with each upswing and crack in the housing market, housing becomes less difficult.

Private residential market continues to play an important role in affordable housing in England.

However, to fill the gap in housing supply, existing homebuilders must increase production to

actual or realistic levels and there are good reasons to expect their ability to achieve significant

output growth to be limited (Czischke and van Bortel, 2018). On the contrary, public policy

should also encourage new construction in the form of small and medium-sized enterprises that

have largely left the market, or with new entities private or public.
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Chapter 3: Methodology

3.1 Research Philosophy

Research philosophy is an essential part of methodology chapter and it is used to collect

important information and data. It is noted that research philosophy has great importance as it

focuses on the needs and requirements of the research paper. It is found that there are four

different research philosophy such as interpretivism, positivism, realism and pragmatism. It is

noted that the researcher will be using interpretivism in the current study (Alharahsheh and Pius,

2020). It is because, it is considered as one of the most suitable philosophy for collecting data

from secondary sources. By the help of, interpretivism philosophy researcher can back the data

and information which are collected from secondary source.

3.2 Research Design

It is noted that research design is effective and therefore researcher rely on it in order to

fulfil the research aims and objectives in an effective manner. Research design is useful for

research and it helps them to analyse the collected data and information. There are three types of

research design such as qualitative, quantitative and mixed method. In the current study, the

researcher will be using qualitative research design (Teti, Schatz and Liebenberg, 2020). The use

of qualitative research design in the current study is essential as it uses non-numeric data. On the

other hand, researcher will use qualitative research design to collect data from secondary sources

such as journals and previously published papers.

3.3 Research Approach

Research approach has great importance in the current research paper. Research approach

is used by researchers in order to make adequate amount of plans and procedures which can play
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a vital part in making the study a great success. There are two types of research approach such as

inductive and deductive. In the current study, researcher will be using inductive approach as it is

suitable for secondary researches (Wardani and Kusuma, 2020). By the help of inductive

approach, researcher will be able to collect secondary data in an effective manner. It is noted that

inductive research provides researchers an opportunity to make changes in the research

objectives.

3.4 Data Collection Method

Data collection method is important for any research as it provide effective method to

researchers to collect data and information. In the current study, researcher will be using

keyword strategy to collect the relevant and reliable data and information. In this way, researcher

will be able to extract the relevant data in an effective manner (Zhang et al., 2020). It is noted

that researcher will use different databases such as “Google Scholar”, “Emerald”, and

“Academia” in order to collect the data. The keywords will be used by the researcher are

“Affordable housing”, “Private residential market”, “Prices” and “Affordable housing in

London”.

3.5 Inclusion and Exclusion Criteria

It is important for researcher to include relevant data and information and exclude

irrelevant data from the study. Inclusion and exclusion criteria helps researcher to understand

what should be added in the researcher. It is noted that researcher will be using recently

published papers and articles and excludes all researchers which are published before 2012 in

order to make it relevant (Patino and Ferreira, 2018). Moreover, researcher will only include

studies which are published in English language and therefore all other studies should be
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excluded. It is noted that researcher will exclude data and information from sources such as

“Wikipedia” and other unreliable sources.

3.6 Data Analysis

Data analysis is vital for researcher and it use to interpret the collected data and

information and used to generate relevant results. By the help of data analysis, researcher is able

to address the aim and objective of the study in an effective manner. It is noted that researcher in

the current paper will be using content analysis and therefore making relevant themes and

patterns in order to interpret the collected data and provide answer to the research question

(Neuendorf and Kumar, 2015). Content analysis has provided flexibility to researchers therefore

they can include and exclude all relevant and irrelevant information from the study.

3.7 Ethical Consideration

Ethical consideration is essential for any research study and it is important for researchers

to provide follow the ethical guidelines and rules (Bray, Snodin and Carter, 2015). It is important

for researcher in the current study to provide credit to the researcher to make the study authentic

and reliable. It is noted that researcher will provide appropriate citation to the previously

published papers and studies and make confidential all the information of the researchers.

Researcher need to understand that they cannot misinterpret the information from previously

published papers and cannot misquote the data as it will consider a malicious act which can

damage the image of the research.

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Chapter 4: Result and Discussion

4.1 Impact of private residential market on the prices of affordable house

It is important to understand that the impact of private residential market has linked with

the mortgage income. By this measure, the median house price before the financial crisis in

London was 1.9 to 3.5 times higher than the price of mortgage applicants, which was

significantly lower than in the UK (Glaeser et al., 2017). In both cases, the ratio of housing to

income ends at a maximum before the recession. However, the median housing price in London

is now 5.3 times the median income of mortgage applicants, compared to 4.4 times for the UK as

a whole, which is higher than the UK's highest level. From the lender's point of view, the average

cost of London mortgages has risen from twice the average buyer's income in the 1980s to more

than 3.5 times higher than in 2013. Therefore, the standard measure of affordable housing shows

that the failure rate is increasing in terms of the relationship between housing prices and income.

Another explanation for the lack of affordable housing due to prices inflation by private

residential market, which is not explained by previous papers and however, they referred to

change in the quality of adjacent areas and the use of the services offered to Londoners.

According to the study it is found that the high benefits of urbanisation may explain some of the

reasons why housing costs vary by city (Marsden, 2015). It is noted that city such as London has

become more secure, with lower crime rates and a more vibrant environment. Over the past

decade, there has been ample evidence that London is becoming an increasingly attractive place

to live. In light of the recent growth of the private residential market and the buyer rental market,

as well as the recent growth of foreign ownership, it can be articulated that there are two other

factors in demand compared to the past (Beswick et al., 2016). However, there is little evidence

that these factors have had a significant impact on housing prices. Indeed, despite growing
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support for mortgages, the market share of private leases in London is still lower than before

1960-1970 due to lack of purchasing from owners which raises doubts.

4.2 Drawbacks of private residential market on affordable housing in London

It is analysed that the fall in the affordable housing in London have exacerbated the

housing crisis in London, which has meant that low-income families can no longer live in most

of London. “Local Housing Allowance” (LHA) is the income that ordinary tenants receive

(Beatty et al., 2014). The main goal of this is to achieve a 50% market rent which is cheaper and

ensure that low-income general tenants do not exceed the rent on private residential market.

However, the LHA has suffered some setbacks and frostbite in recent years. While the

government's current goal is for the LHA to reflect 30% of the market rent in one area, this is not

the case in London (Marom and Carmon, 2015). In fact, 69% of London's LHA rates cannot

reach even 10% of the cheapest private equity in London. This means that families receiving

LHA face a large gap between wealth and rent, which prevents many from making decisions.

Affordable housing surveys have shown that in England, almost half 48% of LHA

beneficiaries are forced to borrow in some way to pay rent, so many are unable to rent and

increase the risk of becoming homeless (Marsden, 2015). For those trying to pay for growing

private connections in London, social housing must be the better solution. However, social

housing really provides affordable rental services for families, as the rent depends on the income

of the municipality. According to the recent survey in London shows that there is a big

difference between the average social rent and the cheapest rent on the private residential market

(McAllister, Shepherd and Wyatt, 2018). The median rent for a two-bedroom house in London is

now £496 and the bottom quarter of the median quarter for a house of the same size is more than

double £1,250.
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4.3 Solutions for affordable housing in London

It is important for government and private residential market to provide solutions related

to prices of affordable housing for Londoners. It is noted that they provide assistance with the

purchase of a five-year loan with a waiver of up to 20% of the value of the property 40% in

London (Immergluck, 2013). Its goal is to help buyers get up the real estate ladder, but the

unexpected result is to subsidise the housing bubble and rising housing prices. Despite strong

growth in the private residential market, one-seventh of homes purchased under the plan fell. In

England, the estimated number of new homes each year is 345,000, which corresponds to the gap

between a new family formation and the current demand for housing (Koblyakova, Fleishman

and Furman, 2021). In 2019/20, the total number of households in England increased by

approximately 244,000. This is about 1% more than last year and the number of new houses

rented annually has increased for several years but is still below estimated demand. The demand

for housing manifests itself in various ways, such as increased overheating, serious issues at an

affordable price, more young people living longer with their parents and less labor mobility,

which makes it difficult to hire and keep jobs. In 2015, the government set an ambitious target

and hoped to return 1 million in net housing value by the end of parliament by 2020 (Anacker,

2019). In a report in 2016, the “House of Lords Select Committee on Economic Affairs”

concluded that the goal was not based on rigorous analysis and still recommends that the housing

crisis require at least 300,000 new homes to be built annually. In addition to whether the goal of

creating one million homes is ambitious enough, people are also wondering whether this number

can be achieved. The Autumn Budget 2017 set the ambition that 300,000 new homes will be

rented every year to track the track in the UK.

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Chapter 5: Conclusion

The impact of private residential market regarding the prices of affordable housing in

London is a concern for general people. It is concluded that due to involvement of private

residential market and government, people in London failed to get better homes in reasonable

prices. It is noted that most homes in London are expensive and cannot be affordable by general

public. Therefore, it is vital for government to highlight the issues and negative impact of

increasing prices of private residential market on Londoners so that they can find better

solutions. It is because housing prices in private residential market are set by developers but they

also follow the provided guidelines of the government. Therefore, government provide schemes

which can help Londoners to get 20% discount on the purchase of an apartment. However, for

some of them it is not enough as they are not considered in the affordable housing category.
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