A century ago this month, the Addison Act was passed in the UK placing a duty on local authorities to take up the gauntlet of providing 500,000 new homes within three years. Typically, housing had been built by private developers with an eye on turning a profit, but the Tudor Walters Report recommended that new homes were not to be cramped terraced houses packed into available space, but rather open and airy, low-density garden suburbs. The report mandated several designs and layouts of generous proportions, with gardens attached to all. In the last decade the number of homes built by both public and private providers combined has averaged only a paltry 159,000 each year. Most new homes are built by about a dozen big housebuilding firms, such names as Persimmon, Bellway, Barratt and Taylor Wimpey. Chasing financial returns tends to lead to a short-term view of shareholdings, seeking immediate gain over longevity and loyalty. The nine key housebuilding firms had a combined turnover of £24 billion in 2018, with pre-tax profits in excess of £4 billion. Little wonder then that institutional investors see the promise of a big return on investment: it can be argued that such institutional investor power brings about real concentration in the supply of new homes. The profit maxim is paramount and is reflected in well established economic theory of supply and demand - holding back supply when demand is high, keeps prices high i. State what market structure exists in the housing industry in the UK in the early 1900s. Illustrate and explain how equilibrium is determined. ii. Can excess profit be earned in this industry in the long run. Explain. iii. State what market structure that currently exists in the UK’s housing market. Explain if excess profit will exist in the long run. iv. Are the firms in the housing market operating efficiently in (i) the early 1900s and (ii) presently? Explain.
A century ago this month, the Addison Act was passed in the UK placing a duty on local authorities to take up the gauntlet of providing 500,000 new homes within three years. Typically, housing had been built by private developers with an eye on turning a profit, but the Tudor Walters Report recommended that new homes were not to be cramped terraced houses packed into available space, but rather open and airy, low-density garden suburbs. The report mandated several designs and layouts of generous proportions, with gardens attached to all.
In the last decade the number of homes built by both public and private providers combined has averaged only a paltry 159,000 each year. Most new homes are built by about a dozen big housebuilding firms, such names as Persimmon, Bellway, Barratt and Taylor Wimpey. Chasing financial returns tends to lead to a short-term view of shareholdings, seeking immediate gain over longevity and loyalty. The nine key housebuilding firms had a combined turnover of £24 billion in 2018, with pre-tax profits in excess of £4 billion. Little wonder then that institutional investors see the promise of a big return on investment: it can be argued that such institutional investor power brings about real concentration in the supply of new homes. The profit maxim is paramount and is reflected in well established economic theory of supply and demand - holding back supply when demand is high, keeps prices high
i. State what market structure exists in the housing industry in the UK in the early 1900s. Illustrate and explain how equilibrium is determined.
ii. Can excess profit be earned in this industry in the long run. Explain.
iii. State what market structure that currently exists in the UK’s housing market. Explain if excess profit will exist in the long run.
iv. Are the firms in the housing
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