Factors Affecting House Prices:
Sudbury, Suffolk

Didier Penine 21/01/15

Executive Summary
House prices in England are among the highest in the world in relation to income. Conversely, houses in England tend to be smaller than mainland Europe, even though families tend to be larger (2.4 versus 2.3 in the Netherlands and 2.2 in Germany, (UN Economic Commission for Europe 2001)). This means that England is facing a potential housing affordability crisis.

Table of Contents

Page number
1. Introduction 4
2. Factors Affecting House Prices 5
2.1 Construction 5
2.2 Gross Domestic Product (GDP) 6
2.3 Interest Rates 7
2.4 Commuting 7 3. Future Price and Affordability Forecasts 9 4. Conclusion 15

1 Introduction
The report aims to discuss the factors contributing to the increasing house prices in Sudbury. The UK saw a large price increase of 8.5% in 2014 (Lambert 2014), with my own town Sudbury enjoying a 9.96% increase (Zoopla 2015) and the aim is to provide a comprehensive review regarding the factors that contribute to this above average increase.

2 Factors Affecting House Prices
There exist numerous factors affecting house prices in my area which combine to give an above national price rise, many of these factors are the same factors that have affected the whole country. Barker (2004) added to this by stating that, unlike demand, housing supply is fixed in the short term. Therefore UK house prices can be said to be initially affected by demand and expressed as a function of the physical housing stock, real income and other demand shifters such as interest rate, GDP, and unemployment (Kuenzel & Bjornbak, 2008).

2.1 Construction
Recent Government figures illustrate that to keep up with the rising population of Britain that 250,000 new homes are required every year (Barker 2004). Data from Savills estate agents put the latest house building figures at only around 138,000 meaning that supply simply cannot cope with demand. Supply tends to be fixed in the short run due to the time needed to build the houses, therefore if housing supply is inelastic, then increasing demand leads to increasing prices. Demand in the short run affects prices more than supply and is linked to income and expectations. Long run demand, however, is more closely linked to demographic factors.
The UK planning system is widely viewed as inflexible, not only in allocation of land for building but also in mechanisms for granting permission for building (Barker 2004). Interestingly, there have been numerous studies in the US which point to strong links between regulatory barriers to reducing house supply elasticity (Green et al 2005).
This national problem extends to the area I reside as a recent brownfield site conversion for 121 new homes (35% allocated as affordable) was rejected in favour for a new Sainsbury superstore. A quote from Sudbury town councillor Nicki Dixon:
“It’s all very well to keep building all these homes in Sudbury but we need the extra infrastructure. We need more doctors surgeries, school, places and.... jobs and investment in the town.”
Difficulties in gaining planning permission result in fewer houses being built, therefore supply decreases and demand increases. As this pattern develops house prices inevitably rise which is compounded with the national shortage of materials and specialist skills.
2.2 Gross Domestic Product
Recent studies have shown that GDP ranks as one of the most influential factors for house price drivers (Egert & Mihaljek 2007). The global financial meltdown of 2008 saw house prices fall sharply due to their direct link with GDP and current economic conditions (Adair et all 2009), illustrated below (Lambert 2014):

This shows that house prices and GDP generally coincide, and the cyclical nature is a direct result of interest rates and debt accruals during boom periods. The lead-lag