1.

Housing has unique qualities that impede the pricing mechanism's effectiveness and limit
optimum allocation of resources through the marketplace. These factors make the real estate
market flawed, preventing it from operating smoothly and efficiently. The flaws lead to the
instability of property values, which can sometimes put them out of grasp of people with limited
resources. As a result, the government’s responsibility is to strive to fix the flaws so that housing
as a commodity is available and reasonable to all people and groups in community.

These market imperfections that contribute towards market failure lead to entrepreneurs
being skeptical in entering risky markets. Any economics system that does not match the strict
conditions of the theoretical perfectly—or purely—competitive marketplace is referred to as an
imperfect market. Every marketplace in the actual world is flawed. Thereby, rivalry for industry
percentage, elevated entrance and egress obstacles, a variety of goods and services, price
increases set by consumers rather than market forces, and a limited number of industry
participants all impact the research of real markets.

When the market economy results in an unequal distribution of power, it is called

government failures. This concept proposes a remedy to housing price issues by arguing for
proper government involvement. The ideas are based on traditional utility theory and argue for
official involvement in the property sector. Market failure may be explained in two ways. The
normative theory of market failure, also known as public interest economic regulation theory
(PIERT), is based on classic economic principles, which is focused with the development and
preservation of people's pleasure and happiness. Another perspective is distributive justice,
which relates to the equitable distribution of advantages (and liabilities) among society's
participants. Given the shortage of assets, the problem has been determining how to distribute
finite funds among the various people, organizations, and industries that make up any given
community.

The shortcomings highlighted in this market place are market characteristics that only
serve a few individuals, the socioeconomic element of availability, and excessive spending costs.

Due to the affordability issues, even with the imperfections the market does function
however it only benefits a certain class of people leading to the market failure. As mentioned in
the case study, majorly the decrease in the supply has occurred in the affordable housing segment
making it extremely difficult for the working class to afford a house. A house is something that is
generally an individual’s maximum expenditure, and currently in London housing market only
the demands of the rich are being met.

The challenge of adjusting housing supplies is a key economic characteristic of housing.

Due to zoning constraints, the actual total supply of property is largely set, and the balance of
diverse land applications is hard to change. The housing business is sluggish to react to increased
desire owing to the period it takes to secure building approval, negotiate expansion funding,
build structures, and organize discharges. Supply, on the other hand, finds it harder to respond to
 a drop in demand. Demolishing or changing structures to accommodate such a drop in demand is
not always feasible or practical. The housing sector's absence of reactivity (or supply inelasticity)
makes it particularly sensitive to economic ups and downs.

Housing is a relatively costly product, typically considerably more so than other

consumption items. Because of the typically high housing costs, it cannot usually be bought
altogether from average earnings or assets. Housing is the most expensive item in most families'
expenditures.  As a result, house financing is frequently accomplished through various schemes
involving many resources, such as upfront fee or mortgages with funds obtained from lenders or
other financial institutions. As a result, the accessibility and supply of appropriate credit in the
financial market is inextricably linked to the provision of residential housing. As a consequence,
developments in the financial industry can have a significant influence on the real estate market.

As mentioned in the case study, due to the decreased supply in council house building
program, decreased the number of affordable housing leading to the imperfection in the market.

In light of the market failure in consideration of the London housing market, the market
imperfections that are found in every market can impact the operational activities. In this case,
the imperfection of insufficient supply to meet the demand of affordable housing, reduced
council supply, fluctuating costs and prices along with other causes leads to the market failure.
Due to the lack of predictability within the market entrepreneurs are skeptical with their
investments. as mentioned above, the housing market is rather old since second world war and
new construction is quite expensive hence the investors risk would be relatively high. Even
though in the beginning of 1990 the equity of housing industry was extremely profitable over the
time it has transformed to negative equity. This means that entrepreneurs, while interested to
study the market would not prefer to enter such a market that is risky, unpredictable and has
recently resulted in negative equity.

2. The London Development Agency has classified skills shortfalls in the building sector in
London as persistent, and has just launched a new plan to address them: the London Framework
for Regional Employment and Skills Action (FRESA). The number of large building works in the
works in London is significant, and experienced labour constraints in the sector might pose a
significant problem for the domestic building business in London in the coming years.
This incapacity to purchase a property is going to be an especially difficult problem for
individuals who are not employed and rely on limited salaries from the government or other
means. Increasing housing expenses may also have a negative impact on employees in low-wage
industries and professions whose pay does not keep pace with the standard of rent. As a result, an
absence of public mobility can have lengthy consequences for London firms (and their
employees) that depend on supporting programs from other industries, as well as surprisingly low
employees. As a result of the restrictions to labour migration, the industry may lose as employees
are forced to locate housing within easily accessible of their employment thus creating a failure in
regards to labour and creating market imperfection.

Economic limits, along with greater upfront expenditures for shareholder, imply that
potential purchasers may postpone completing a home acquisition in need to accumulate
sufficient funds for a security. Increasing lending capacity (through greater entry to mortgage
loans and negative interest rates) may have led to people opting to invest more income on houses,
rather than greater salaries, according to this analysis of a range of conventional and non-metrics
of accessibility. In contrast, a variety of demographic and socioeconomic factors in the London
market may have raised demand for property, driving up the value of desired and well-located
home that is in short supply. After looking at the possible weaknesses and dangers to London's
housing industry that may be connected with rising interested rate and stricter loan economic
circumstances, the impact of these larger socio-demographic characteristics and the effectiveness
of a resource constrained.

Housing market weaknesses and hazards in London Home values in London are growing
in actual fact and look expensive in comparison to lengthy patterns on certain metrics, but remain
within reach on others due to relatively low borrowing rates and/or additional streams of money.
This might expose the London industry to the possibility of a pricing corrective, especially if
financing rates increase or availability to credit and various sources of revenue slows.

Vulnerability to fluctuations in loan rate on mortgages Fast home price increases, fueled
by simpler and convenient borrowing, may result to increased degrees of indebtedness and a rise
in the proportion of families sensitive to interests rates fluctuations if not accompanied by
significantly higher wages. As a result, the economy's capacity to resist subsequent crises may be
harmed. The Bank of England reported 67, relying on a yearly poll of 6,000 UK homes, that a
raise in interest rate from the present low of 0.5 percent to 2.5 percent would nearly quadruple the
share of people failing to maintain their loans (as those financed by a variable rate would face
higher monthly costs of repayment) which majorly contributed to the failure of financial services
and products.

3. The UK’s affordability crisis has been developing slowly over the last 40 years. In
contrast to real incomes, real house prices and, presumably, real private rents9 have grown faster
in the UK than in any other OECD country. Especially younger and lower-income households
struggle to get their feet on the housing ladder. The key housing policies that were adopted in the
past and, especially those that were implemented in recent years, not surprisingly, thus reflect the
stylized fact that housing affordability has been the key concern of voters and politicians of all
stripes. Below we briefly discuss the UK’s key policies that have been implemented with the
intent to address the affordability crisis. We discuss their objectives, as well as their merits and
demerits.

Social housing
the concept of social housing has undoubtedly aided low-income families and the less
fortunate individual’s people in obtaining more appropriate homes than they would have been
able to afford without such assistance. It's hard to say if government expenditure on welfare
accommodation in specific regions ("helping places") was more beneficial as a strategy than
giving the same amount of funds straight to low-income families and disadvantaged people
("helping people"). Normally, the response would be that actively assisting individuals is a more
successful way to achieve the intended result. Market forces are subdued, and incentives to those
who enhance demand may not really contribute too much new private development of homes,
because the planning system is rapidly not reacting to price signals practically all over the state.
As a result, what would ordinarily be a smart policy when market forces are functioning
effectively may end up being a policy bound to fail.

Right-to-Buy
The strategy permits social renters to buy their houses at a heavily discounted price, resulting
in the conversion of some of the greatest social residential properties from rented to owned. The
Right-to-Buy Act is a key component in explaining the enormous increase in homeownership
from 1980 to 2002. It may be advantageous to increase ownership rates. This is especially true in
areas when supply is limited. Conversely, there is indication that (leveraged) homeownership has
a negative impact on the labour market and entrepreneurship. As a result, it's unclear whether the
Right-to-Buy subsidy for housing association tenants—which basically favours certain lower-
income families at random—is socially justified.

Second, the system imposes substantial expenses on the taxpaying public. Because
housing associations are funded by the government, they must presumably be reimbursed for their
losses. Lastly, although expanding Right-to-Buy will benefit a narrow set of housing association
renters, the measure will not alleviate the country's affordability issue for the general public. Even
if housing associations' capacity to finance new houses is unaltered, it is likely to worsen the
situation. This is due to two factors: First, moving from a housing association tenant to a
homeowner has no effect on overall residential demand or supply, and so does not result in the
creation of additional dwellings. Second, a converted owner has a far stronger motivation to resist
new building than a similar individual who is a renter. In the totality, this will make developing
new houses much more challenging and, as a result, the housing affordability situation will
worsen.
Help-to-Buy

In 2013, the so-called "Help-to-Buy" programme was implemented. The strategy's goal
was to increase home demand, and it was undoubtedly the previous alliance government's
hallmark housing programme (Gov.uk 2015). The Help-to-Buy programme includes four
components: equity lending, mortgage insurance, common ownership, and a "new buy"
programme that allows buyers to acquire a newly constructed property with a 5% deposit. The
policy's proponents thought that the increased demand would result in additional houses being
built and a greater rate of homeownership.

Housing-related tax policies

House-related taxes can have a significant impact on housing affordability, particularly in
areas with strict regulatory requirements. As high (lower) tariffs in supply-constrained locations
are likely to be capitalized into lower (higher) property values, programs that promote housing
demand, such as Help-to-Buy, have the primary impact of pushing up home prices rather than
increasing supply. As a result, these demand-driven programs may be a waste of government
funds at best.

It's critical to emphasize that improving the planning system does not imply dismissing it.
The control strategy, on the other hand, should not be only oriented on limiting housing (and
other) construction to frequently unappealing brownfield lands in undesirable places. Rather, the
fundamental assumption should be that changes should represent market failures in order to
ensure that land-based public goods are protected.

In Europe, the United Kingdom is the top nation in terms of house ownership, and
property is the most important source of wealth in the country. The UK's fundamental economic
architecture is solid and the employment market is active, according to the Chartered Surveyor's
annual review of the housing market. It is apparent that the UK property market will continue to
suffer the consequences of its current state of depreciation. The current credit crunch is
continuing to undermine investor confidence in the financial markets.