Research Korner: PEST Case Studies

PESTLE ANALYSIS on the UK Housing Sector

Political Many building companies still hold onto large stocks of land for much of which there is not yet planning permission for building. Successive governments in many countries, at national and local levels, have attempted to stimulate house building activity in order to address the housing shortage. They have provided incentives to encourage new builds, especially low cost accommodation, and have eased planning restrictions. Yet new house building has often lagged well behind need. Also, need is not always translated into demand. Economic Levels of economic growth and poor mortgage availability seriously impact the housing market. In the UK and North America, for example, most people aspire to own their own house (as opposed to renting accommodation) and usually achieve this by placing an often small deposit on a house and borrowing the bulk of its cost at competitive interest rates. These substantial loans or mortgages are usually repaid over the long term. Commonly, rates are adjusted by the Central Bank to control general inflation, not normally to influence the housing market. However, a change of interest rate from say 4% to 6% within a year may lead to a 50% increase in the monthly repayment required of mortgage holders. This simply may not be affordable in all cases, particularly in times of economic hardship or national recession. Social/socio-cultural Nevertheless, brown-field development is central to many regeneration ambitions, given the stimulation new sustainable development can make to depressed areas. Others lobby for the development of sustainable communities which provide a balance of housing and other services such as education, and retail and leisure facilities, and which aim to avoid future social problems. Many house owners occasionally ˜top-up their loan when moving to a more expensive property or borrowing further to buy a car or to fund their spending habits, using their home as security. Mortgage interest rates in the medium and long term are broadly aligned to prevailing national interest rates set by central banks, which vary from time to time due to prevailing economic conditions. Technological The house building industry in most world economies is highly cyclical and currently in rapid decline. In the last two years, due in large part to the credit-crunch initially and economic recession latterly, both the number of house sales and house prices have fallen significantly. A number of large and previously highly profitable house builders have gone out of business and many building sites and newly completed houses are left abandoned. In Spain, for example, there is an estimated three-year supply of new holiday or second-homes vacant and unsold. Yet in many countries there is a housing shortage and long waiting lists for social housing. Businesses such as shops, consumer goods manufacturers, importers and personal service companies thrive in such circumstances. However, if you buy a new house for $300,000 on a 95% loan, and within two years the house is only worth $200,000, your attitude towards spending might have radically changed. The scenarios included here are entirely fictional. Any resemblance of the information in the scenarios to real persons or organizations, actual or perceived, is purely coincidental. Legal Higher interest rates mean that mortgages become more expensive, and this deters many would-be purchasers from buying more expensive property. Economic growth is closely related to consumer spending levels. Buoyant house values in many countries are believed to encourage consumer spending as people are less concerned about increasing their borrowing or using their credit cards when sitting on a major asset. Government, which largely controls the planning processes in most societies, is usually concerned to ensure that house builders provide ample low cost housing in addition to larger, more lavish properties (on which the profit margins for builders are usually higher). Environmental Environmental groups are concerned about the detrimental impact of housing development on the countryside. There are government-backed grant incentives, particularly in many European countries, to use brown-field sites rather than destroy open countryside, although such sites are often in run-down, less desirable city areas.

PESTLE ANALYSIS on the UK Housing Sector

Political Many building companies still hold onto large stocks of land for much of which there is not yet planning permission for building....