The UK Economic Policy in Relation to Housing Market - Case Study Example

EFFECTS OF GOVERNMENT ON THE ECONOMY & THE ROLE OF UK ECONOMIC POLICY TO HOUSING MARKET Student’s Name Institutional Affiliation Date Professor’s Name Introduction Governments have all along been directly involved with the ways for which economies operate. In fact, it is assumed that economics integrates substantial levels of politics in the course of ensuring future development of government (Labonte, 2010). Economic growth and development signifies the improvement in the amounts of both goods and services that are generated by a given economy in relation to such important measures as the Gross Domestic Product (Labonte, 2010). The fundamental role of this paper then rests with identifying the numerous effects different governments have on the overall economy of a country and later on, provides a significant discussion on the existing UK economic policy on the housing market. Effects of Government on the Economy There are numerous ways through which an existing government might affect the overall economy of a country. These items are discussed as follows; First, the government is engaged in the direct generation of both goods and services that might include amongst other things road networks and national defence mechanisms (Labonte, 2010). On the contrary, for most governments, it is ascertained that less than half of the entire federal spending habits is entirely committed to the manufacture of both goods and services. Secondly, the government affects the economy since it engages in the transfer of income through two platforms that include; the underlying tax system and the subsequent outlays (Labonte, 2010). In essence, the most known perception of this activity is noted in the transfers made across the different income classes in conformity to a progressive income tax system, means-tested rewards that are mostly attributed to as the vertical redistribution process. In the horizontal redistribution process, the transfers are made in relation to the different income sub-sets (Labonte, 2010). For this redistribution mechanism, the elderly are deemed to be the core beneficiaries of the entire system through such important initiatives as the social welfare support. Thirdly, the government engages in the collection of taxes; an activity that changes the entire economic behaviour for most cases (Labonte, 2010). A perfect example is when the taxes applied on labour alters the immediate need to engage in work while on the other hand; the taxes that are applied on specific commodities like petroleum-related products alters the move to engage in consumption and production of these goods (Labonte, 2010). In addition to the aforementioned ways, the government engages in the regulation of the overall economic activities for a given number of reasons that might include; environmental protection, job safety and health as well as the entire customer protection mechanism (Labonte, 2010). It is arguably right to indicate that the governments’ economic impact on the regulation poses a great level of challenge since it is difficult to measure within any given moment. It is crucial to note that the process of determining the overall influence of a government on an underlying economy should be conducted after analysing its spending habits at both the local and state levels (Labonte, 2010). In consequence, it is noted that the immediate growth in state and local government is indeed substantial in the event that there is an inclusion of federal grants to both the state and local level governments that have continued to grow substantially over a given period (Labonte, 2010). Government policies, in most cases, will act in a way that will either prompt a raise in economic efficiency or in other cases a lower in the level of efficiency (Labonte, 2010). Nowadays, the spending habits and decisions made by the government are indeed justified on efficiency platforms. Notably, government interventions are called for to improve on the underlying uncorrected market flaws while also larger governments can go ahead to improve on economic efficiencies. Government affects long-term economic growth through a subsequent increase in the level of labour supply, physical capital inventories and even production. Interestingly, when there is a significant increase in the size of the labour force, there exists no effect on per capita growth while growth and development within the physical capital outlay is done by engaging in intensive national savings or in other cases through borrowing from overseas economies (Labonte, 2010). Moving on with the discussion, it can be noted that the government further affects the stabilisation and growth of the economy (Labonte, 2010). Both the state and local government are greatly involved in the overall pacing of the economic activities, attempts to sustain a steady level of growth, higher degree of employment as well as in matters related to product prices stability (Labonte, 2010). Through the alterations of both the spending and tax rates or rather through fiscal policies, or in other cases in the course of managing the money resource supply as well as controlling the immediate usage of credit or rather the formulation and implementation of monetary policies, governments can slow down or even propel the speed of the degree of economic growth while in the process affecting the entire level of prices and employment capabilities (Labonte, 2010). UK Economic Policy In Relation To Housing Market Given that UK is economy is slowly emerging from the effects of the recent recession period, intensive efforts have been made to at least return it to a sustainable and durable economic growth path (Riley, 2015). In essence, through the recently revisited and implemented UK economic policies; the government has put forward measures to oversee the need to have even more houses built in order to meet the underlying demands especially that results from the growing and ageing population (Riley, 2015). The fundamental aim of the UK economic policy in relation to the housing market rests with improving the supply of both new-builds as well as possible repurposed unoccupied homes. Statistically, as a result of this policy, in 2012, there was a significant increase newly built homes by about 9% (Riley, 2015). On the contrast, the challenge attributed to newly built housing supply is majorly attributed to housing prices that have continued to soar despite there being easement in accessing finance. Most notably, it is noted that the elasticity of housing supply within the entire UK is significantly low; in fact, it is one of the lowest within the entire European continent as a whole and hence, the current economic policy is entirely directed towards improving the overall elasticity of supply in order for house construction is made more responsive to all the alterations present as a result of the existing market demand (Riley, 2015). The current UK economic policy on housing market has been formulated on the below aspects; First, it is set on a loosening of planning limitation model so that there can be vehement relaxation of planning restrictions for new housing construction. It also includes a relaxation of the entire greenbelt limitations currently in place (Riley, 2015). The relaxation of these restrictions is based on the mere fact that there is no shortage of land needed for construction purposes within the UK as a whole. Secondly, the policy allows for the construction of new homes on brown-field sites; an item that was previously prohibited is now encouraged especially because there are financial incentives allowed for housing construction companies to propel their building initiatives on these brown-field sites (Riley, 2015). Third, the UK economic policy now encourages self-build schemes since they are deemed to be cheap and affordable in the long run and, also because it offers the people an opportunity to construct homes in accordance with their desires and self-specifications as well as designs. The government also allows for tax breaks for potential investors that are willing and able to construct rented properties at affordable rent prices (Riley, 2015). Fourth, the policy calls for the construction of social housing units in their plenty. In fact, with the policy in place, the existing local authorities or rather councils have been given the go ahead to engage in direct borrowing of funds in order to actualise the construction projects and especially the supply of social housing units that might go long way to revert the collapsing of the building units belonging to council managed properties in a period that extend to 10 and 20 years (Riley, 2015). Another option, which involves the funding of the current 1,400 housing associations that are made accountable with the construction and sustenance of more than 3 million houses in the UK, has also be explored and considered to improvement (Riley, 2015). Fifth, the UK economic policy ensures that the entire housing market enjoys an improvement in innovation and production capacity in the in-house building sector. In consequence, there have been numerous efforts made to ensure that there is constant innovation in the building sector. A perfect example of this includes; the propping-up of innovations that have made it possible to construct new houses attractively at a much higher density so that there are more properties per each square of acre of land accessible at any given moment in time (Riley, 2015). In addition to all this, the policy has ensured to decrease the number of the existing empty houses. This fundamental option has been accomplished through numerous platforms with one involving mandatory purchasing demands in the event that property owners fail to take measures to fill in their houses hence leaving them unoccupied for a period that exceed 6 months or so (Riley, 2015). These properties are them made accessible to people on a given housing waiting list within the sub-market rents. Conclusion To sum up, the discussion has successfully indicated the effects of the government on the economy like regulation and imposition of taxes. Governments engage in massive influence on the level of stabilisation and growth of an economy, which is mainly conducted using the both the fiscal and monetary policies. These policies further affect such important aspects of the economy as the price stabilities, employment levels and even the amount of consumer and government spending habits. The paper has also portrayed the fact that although the UK’s housing elasticity is deemed to be low, there have been intensive efforts made to ensure that it is improved in relation to the EU region as a whole. The policy has engaged different aspects in order to ensure that the elasticity of the entire housing market is bestowed to a recommendable EU rate. This has been done through the introduction of tax breaks for all potential investors that are able and willing to construct properties that will rent out at affordable prices, ensuring to decrease the existing number of unoccupied houses through requiring the property owners to rent-out within a period that does not exceed 6 months or risk being put on housing waiting list on a mandatory policy, allow the increase in the innovation and productivity of in-house building sector, encouraging self-built houses, construction of houses in brown-field sites and most importantly, the policy has ensured to loosen the planning limitations for construction of new homes. References List Labonte, M. 2010. The size and role of government: Economic issues. Congressional Research service, Retrieved on December 30, 2015 from https://www.fas.org/sgp/crs/misc/RL32162.pdf Riley. G.2015. Study notes: UK housing market-The housing shortage”. 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