Construction infrastructure - Sample Essay
According to Jamie Oberteli (27 October 2007, online) of www. mortgagesplutions-online. com, the sales of flats increased between 2003 and 2007 to 71% of the housing market in comparison to 14% between 1995 and 2000. In 2001 only 175,000 houses were built and since 1995 the number of new houses built has been 12. 5% lower than in the previous decade due to the shortage of available land for construction of houses.
According to Oberteli another problem that the UK is facing at the moment is that most people outside central London are trying to live in houses rather than in flats. This has caused problems with relationships between landlords and customers as well as put a lot of pressure on the rent prices causing them to fall from 600 per month in places such as Leeds and house prices to rise at a remarkable rate of 300% of their real (or rebuild) value
As a result of the above, many are afraid about the UK government’s response to the Barker Review of Housing Supply (2005,online). Generally the review has suggestions about the appropriate handling of these situations by improving housing supply and taxation. Mrs Barker suggests that in order for this improvement to take place the government should make the housing market its first priority by including it within the Public Service Agreement, aiming to increase availability and affordability in the housing market over the next market cycle.
The Public Service Agreement is the key factor to stimulating public services. It was introduced to the UK in 1998 within the Comprehensive Spending Review which is a process carried out by Her Majesty’s Treasury (HMT) setting three year firm and fixed cost limits through public service agreements in order for the general public to be aware of the improvements that they should expect from certain public services over the next three years.
Mrs Barker argues that the improvements mentioned above could be achieved through setting housing targets and allocating land by taking into account price changes, the level of housing affordability in the current targeted areas, and by gathering all the regional and housing boards from all the areas in the UK in order to produce stronger regional housing strategies through the creation of new Regional Planning Executives that would effectively have stronger evidence for new strategies market changes and decisions.
In order to improve local land for housing supply and demand Barker recommends that the relevant local authorities of each area should try to allocate regional holding areas of additional land that could be used as potential construction areas in the event that high land demand is repeated.
She also claims that the local authorities could be kept up to date and in order, through motivation by letting them express their own opinions about additional housing prices and allowing them to keep part of the council tax revenues from this process for up to three years. She also recommends that more partnerships and synergies should be created by English housing corporations and a Community Infrastructure Fund of i?? 100 – 200 million in order to overcome infrastructure obstacles and push up development.
Fortunately the government’s response to these suggestions was positive. According to an article published on the 5th of December in 2005 by HMT through www. hm-treasury. gov. uk, the UK government responded with full cooperation to the review and stated that it would build more houses in order to protect future generations and that the future of its housing market would be amongst its first priorities for the years to come.
The Government also stated that some of the measures that it would take would be to increase the housing supply and availability rate from 175,000 to 200,000 per annum, reform the planning and allocation of needed land system, finance the infrastructure, make sure that all the relevant local authorities benefit from the council tax revenues, set ambitious and motivating plans within the Comprehensive Spending Review in 2007 as well as finance research in order to increase efficiency and innovation in housing construction processes.
The MPC could also help the situation in combination with the government by lowering interest rates in order slow down domestic house demand if the UK inflation rate were to stay below its current rate (2. 1%). The UK economy could also overcome the sub prime crisis through other housing related investments such as Self Investment Personal Pensions (SIPPs) and Real Estate Investment Trusts (REITs).
According to Stephen Wommak of the Mail on Sunday (26 September 2007, online) SIPPs were introduced to the UK in 1989 and are considered a very good investment by pensioners who believe them to be very flexible by allowing them to use their money any way the want. Most people use their SIPPs in investments such as stocks, shares, investment trusts, managed funds and most of all in property investments like for instance residential property. On the other hand REITs investments are used by corporations and are a tax designation.
Sandra Haurant of the Guardian Unlimited (17 March 2004, online) argues that by using REITs corporations can reduce corporate income taxes in real estate investments but in return they must distribute 90% of their income which might then be taxable in the hands of the investors. Also because by buying shares in a REIT you are able to invest in various types of property without actually buying any materials or supplies usually these investments are on buy to let properties.
The buy to let market is also used by people who are waiting for house prises to fall and are currently renting flats but by thousands of university students living in flats or privet properties surrounding the universities which provide the same services that student campuses usually do. The US has also been trying to fight the sub prime crisis in order to alleviate similar problems to those experienced in the UK by creating the Master Liquidity Enhancement Conduit (MLEC) on the 15th of October in 2007, together with the help of the Federal Reserve and Central Asian banks by liquidizing money.
According to Paul Petillo (23 October 2007, online) managing editor of www. marketoracle. com, the MLEC is the union of Citigroup, JP Morgan and the Bank of America managed by the Treasury Secretary Henry Paulson in order to keep the financial market afloat. In order to achieve their goal the MLEC will raise up to $200 million from their own CDOs as well as $300 million provided by the Bank of America and use that money to buy any unsold Structured Investment Vehicles (SIVs), which are actually funds holding numerous CDOs, thus preventing more global market bubbles.
Conclusion: As we can see the US interest rates have been complicit in creating the sub prime crisis in association with the county’s numerous CDOs which were priced on unrealistic credit rating that during their rating process the government did not take into account the rising sub prime market. So far the sub prime crisis has created some dramatic results in the global housing market, especially in the UK since the CDOs were sold here through the global market.
The results in the UK economy have been the increase of the HTIR from 54% to 63% and a large credit crunch due to the distrust that has risen in the global housing market. We have also seen that demand and supply of houses in the UK has been unbalanced during the last 10 years and that the supply of flats has increased since 2003 to 71% of the housing market whereas the supply of houses has been decreased to 12. 5% of the housing market resulting in high prices for houses and low prices for flats.
The first attempt to confront the sub prime crisis was made by Kate Barker in 2005 by recommending that the UK government improved the housing market by focusing on the satisfaction of the general public by upgrading the skills of government personnel and then keeping them motivated. She also recommended that the government improve its house construction infrastructure. The government’s response was most positive, following almost all of the steps that she had indicated.
In the essay other solutions have been suggested through investments such as SIPPs and REITs that can be used by firms and people as well. In 2007 the US founded the MLEC in order to buy any remaining CDOs and SIVs. On the other hand, although many attempts have been made to overcome the problems created by the sub prime crisis, it is clear that there are still a lot of CDOs that have yet to be sold and that the only way that the global economy can overcome the sub prime crisis is if no more bubbles occur in the near future.